To make consistent returns from any kind of financial markets, prudent money management is essential. Successful traders and investors have exceptional money management skills. A trader with good money management skills may trade well, even with a reasonably successful strategy. On the other hand, a trader having poor money management skills would certainly perform badly even with a highly successful strategy. Thus, it is better to have a good knowledge of the below discussed money and risk management techniques.
Van Tharp
- Investment amount:
A beginner with a good trading strategy would naturally become morally uplifted after experiencing a series of successful trades. However, the problem would erupt when he gets distracted by the success. The beginner may start increasing his stake with the assumption that nothing can stop him from succeeding. Under such circumstances, a single loss making trade can wipe a huge portion of his account and sometimes even the entire capital. Thus, a lot of planning is needed while trading in binary options. At no point in time, a trader should risk more than 5% of his investment. That will keep the morale high even if there is a streak of losses.
- Early exit or double up:
A binary trader should enter a trade only after ensuring that the buying or selling opportunity strictly conforms to the well tested trading rules. A trader should carefully monitor the price movement after entering into a binary options contract. In a case where the trader finds a deviation from the forecasted price movement, the early exit facility should be used after checking the charts thoroughly once again.
Before using the facility, it would be better for the trader to check for negative economic news related to the traded asset in the major financial market related websites.Similarly, if the price movement in the forecasted direction is stronger than anticipated, then the trader should check the chart thoroughly and use the double up facility. It would be better for the trader to check for the latest positive economic news related to the traded asset in the major financial market related websites.
- Avoiding trades:
There may be situations where the trader would be able to find a perfect trade setup minutes before a major economic news announcement. In such a case, it is better to avoid the trade than taking the risk as a reversal may cause huge losses in such instances. Trading decisions should be purely based on rationale. Luck has little part in trading success. Thus, it is better to reassess the situation after the event data is announced and then take a position through a suitable binary broker.
- Withdrawal:
The primary objective of any binary options trader is to earn money and lead a comfortable life. In order to do this, a trader should also withdraw a portion of the profits generated from the trading account. Merely accumulating the profits in the trading account should be avoided at any cost. Professionals recommend splitting the profits into three equal parts. One part should be used for leading a comfortable life, while another part should be set aside to manage risk. The final part can be invested back in the account. Such a system would ensure that the trader leads a financially stress free life and simultaneously increase the trading capital.
