At the surface, Binary options trading seems very straightforward. However, the fact is most binary options traders lose money. On some platforms, it can be as much as 80%.
However, you can still be profitable with binary options trading. Avoiding the 10 common mistakes below will put you ahead of the competition.
1) Lack of research
You can train a chimpanzee to press two buttons. Therefore, options attract a lot of casual investors. They delve in without any sort of plan or research and wonder why they keep losing money. It is important that you conduct research into the financial markets. Use a test platform to develop your strategy without spending money. Plus, compare the most popular platforms in order to find one that’s right for you.
2) Investing more than you can afford
Like with any investment product, there are winners and losers. The losers far outnumber the winners. It isn’t down to intelligence or a strategy. Sometimes you will get into a bad run. Therefore, trade money you can afford to lose.
3) Chasing losses
There are some similarities between gambling and binary options trading. In both cases, some people lack the mental fortitude to walk away. As a result, they keep topping up their account in order to “make back” what they lost. Binary options is a quick way to make and lose money. Know how much you can afford to invest, and when it depletes, walk away.
4) Believing in patterns
There are a lot of gurus on the internet who will encourage you to invest in their training program or bot. They will tell you that there is a surefire way of making money trading options. With potential returns of 80% and above, anyone who has a surefire strategy won’t teach it. They will use the power of compound interest to become a millionaire very quickly.
There is no pattern. Each successful trader crafts their own strategy which they adapt over time.
You will need much resilience to trade binary options. Trades won’t always go your way. When that happens, you will need to remain calm. Most beginner options traders panic; therefore, their strategy goes out the window. They make riskier choices and multiple concurrent trades.
Like any elite athlete, you need to have mastery of your mind and remain cold as ice.
6) Spending a fortune on courses and tools
Gurus know that there is much money to be made ‘teaching’ people how to trade. Therefore, they will offer you course after course. The best way to learn how to trade is to do it. Sure, you can pick up some tips from articles, but don’t stay in a perpetual state of buying courses. There’s a plethora of freely available articles and guides online about binary options.
7) Unrealistic expectations
Binary options has one of the highest potential returns on investment. However, most beginners expect to sign up for a platform today and buy a Lamborghini next week. That rarely happens. However, it is a better option than the low returns offered by a savings account – if you know what you are doing.
The best traders have honed their skills through hundreds of hours of disappointment, education and perseverance. If you want something few people have, you will need to do something few people are willing to do.
8) Illegal platforms
Binary options is a mostly unregulated industry. As a result, there are a lot of shady platforms. It would be best if you did your research and due diligence before investing. Check if they are regulated in your country and how long the site has been open for. Some owners plan on collecting as much money as possible than disappearing.
9) Gambling instead of thinking like a businessman
Gambling and bad options trading share some similarities. Once you start making random trades and hoping for the best, you are gambling. In order to make long term returns, each trade has to be calculated. You must stay disciplined and follow your strategy. Therefore, if you run out of money, step away until you can come back with money you can afford to lose. Conduct research into your chosen derivatives. It is better to know a lot about a few than very little about a lot.
10) Borrowing money to invest
The high potential returns of binary options lead some people to use their credit card or even take out loans. They don’t see the possibility of loss. This is a dumb move. If a trade is unsuccessful, you lose all the money invested. I repeat, use money you can afford to lose.
There is much money to be made, but you have to be smart and strategic. I hope you found this article useful and it helps you to become a more intelligent binary options trader.