It takes time to master any new skill and binary options trading in not an exception to that rule.
However, the fact that binary options trading is an online trading venture means that information is readily available and the task of mastering the trading skill becomes far less daunting.
While it is important to know what to do to be successful, it is equally as important to know what to avoid. This guide will give advice on 7 mistakes that should be avoided when trading binary options and which can make a difference between earning and losing money.
Mistake 1 – Shady Binary Brokers
It can be great to take a shortcut sometimes, but not when it comes to selecting a binary options broker. In this case, rushing in can have costly consequences which could have been easily avoided with proper research. Unless prospective binary options trader will not take the time to carry out research and gather enough info concerning available brokers the journey will end before it truly began. And most likely in tears and bitter emotions.
There are over 300 brokers available online today and not all of them offer the same level of quality and commitment.
There are those like IQoption or 24option who have been present on the market for a long time and have an established reputation among binary brokers. There are also brokers like Daweda Exchange or BetOnFinance who are unique and offer traders different approach to trading. Also, opting to go into binary options trading with a regulated broker is always a smarter choice.
With unregulated brokers, there is a danger of scam. Spending some extra time and reading available guides, reviews from broker review sites and general feedback from other traders will point in the right direction.
Mistake 2 – Skipping on Demo Accounts
Another one among 7 mistakes to avoid when trading binary options is skipping on demo account usage.
Plenty of inexperienced binary traders fail to realize just how useful a demo account can be. While it is not possible to make profits with a demo account, this is the perfect training ground for novice traders. Demo accounts are approximations of the real trading accounts, sometimes they are the exact copy, but they have virtual funds. That means that binary options traders get to practice in a completely safe environment without fear of losing funds.
Additionally, most demo accounts are completely free. If they fail to use the demo account traders are wasting a unique opportunity to test the waters and experience simulated binary options trading process. The demo account can provide some experience, provide traders with a chance to get more familiar with the platform, available underlying assets and tools.
Plenty of binary brokers today have a demo account so traders should take advantage of it and practice before the real trading begins as that can provide them with a great starting point.
Mistake 3 – No Money Management Plan
Yet another common mistake in binary options trading is the poor money management plan or, even worse – no plan at all. Just as with the selection of binary brokers, to put together a solid money management plan time is needed.
Many traders approach trading impulsively, simply hoping for the best. This is not likely to bring in the profits they hope to gain.
Investing time into market analysis, knowing about underlying assets and what affects the prices, understanding trading strategies as well as tools and features, are all elements necessary to make a trading plan.
Funds they wish to invest are next in line, and it is advisable to invest up to 10% of the available budget on a single trade. In fact, keeping the investment amount between 2 to 5% per trade is ideal. That way, it will be much harder to slip into impulsiveness and invest huge amounts of money.
Mistake 4 – The Issue of Over-Trading
The mistake of over-trading is the one often found among the ones which should be avoided at all costs. This happens as a result of lack of knowledge but greed plays a part too. Beginner binary traders commit this mistake often and easily because they get carried away and wish to make heaps of money in a short time span.
Alternatively, over-trading can come as a result of traders suffering losses and they wish to compensate by placing trades left and right. Sadly, they usually lack knowledge and understanding of market conditions which only leads to further loss.
This issue ties in nicely with the previous mistake – no money management plan. Traders who devise a plan are less likely to slip into this harmful behavior because more placed trades do not always mean more profits. Less sometimes is more.
Mistake 5 – Only Minimum Investment Approach
While it might be great to start out in binary trading with minimum investment which moves between $1 and $25, if traders persist in only investing minimum amounts the dreams of huge profits are not likely to happen.
This does not mean that traders need to be rash and invest huge amounts on a single trade, but investing more than the bare minimum does increase the chance of making more profits. Speculate to accumulate, as the saying goes. One of the attractive aspects of binary options trading is the affordability factor as most binary brokers demand a minimum deposit of $250.
However, traders who want to make considerable profits have to, at some point, move away from the minimum investment approach.
Mistake 6 – Impulsive Binary Options Trading
Making impulsive binary options trades can lead to serious losses. Yes, on occasion, such trades can bring in great profits but in the long run this is not a good approach to trading. Traders, especially beginner traders, slip into this impulsive mode.
Especially after they experience initial success. Binary options trading is not gambling. Traders need to be calm and cool-headed.
They need to monitor the market and learn as much as possible. Nowadays social trading is becoming increasingly popular and this can be a great way to learn from more experienced traders. Loss, just like profiting, happens and if binary options traders start acting impulsively after each they will probably not be very successful.
Mistake 7 – Neglecting the Importance of Educational Materials
Finally, neglecting the importance of educational materials can be an expensive binary options mistake. These materials are there so traders can learn, upgrade their knowledge and try out different approaches to the trading process. Failing to recognize how valuable they can be is a mistake that should be avoided.
The same goes for not reading through the FAQ section, taking advantage of webinars available with brokers or not following their news or blogs.
All that can be used to make better trading decisions and may, ultimately, lead to great profits from binary options trading.