How to Create Your Own Binary Options Trading Plan

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Trading Concepts: Creating a Trading Plan

Start a business, you need a plan. With no direction or planning for how you’ll make a profit, your business likely doomed. Trading is no different, if you want to succeed, you’ll need to think of trading like you would a business. After all, through your research, skills and ultimately your money you’re making an investment in yourself, which hopefully will produce consistent profits and the lifestyle you desire. This doesn’t happen by accident (at least not often). It happens by creating a plan for your trading, and outlining exactly how you will trade. Creating a solid plan is a key step that all beginning traders should take, as failing to do this will likely result in simply failing.

Creating a plan leaves your emotions out of trading. When you watching your trade turn into a big loss or a big gain your mind can spin, causing you to deviate from the original strategy you had in mind, if you had one. The trading plan takes care of this. It gives you methodical instruction on exactly how to handle each trading situation should arise. It also tells you how to handle multiple trades. As a trader you may want to make more than one trade, but because you are anxious about your other trade you decide to skip out on a good opportunity. Alternatively, you may take on too many trades, exposing yourself to too much risk. A solid trading plan not only tells you how and why you are making trades, but also how you will handle a number of trades (if you so choose).

Probably the main benefit is that when you follow a plan you see what works and what doesn’t, and can monitor your results. Random trades, where you just buy and sell for any reason that strikes you, provide no useable feedback, because yours wins and losses will be as random as the impulses that generated the trade. Only by following a plan can you see if the strategies you are using actually work, or not, so you can make calibrated adjustments to improve.

Before You Begin

In order to create an effective trading plan, you need to consider several things thing before you begin:

  • What style of trading best suits my personality? If you are someone who is low-key and prefers little drama, then you will likely want a trading style that is more in line with swing trading or investing. If you like action, then align your trading style with a more active style of trading such as short-term/day trading.
  • Are you going to trade binary options, stocks, forex, futures, or a combination? Each has advantages and disadvantages; pick your markets(s) so you can create a plan for that market(s).
  • What are your objectives? Why are you trading? Simple saying you want to make more money isn’t clear enough. Define what you want to make, and why–buy a car, buy a house, pay for kids school, etc. Your trading plan is the plan to get there, based on your resources, trading style and how often you trade. How often you trade will likely be determined by the entry and exit rules for your trades.

There are many excellent trading strategies out there, or you can create your own. Some basic entry methods are covered in my recent article Capitalizing on Lower Highs and Higher Lows in Price. Once you find a strategy you like, use this section of your plan to outline exactly how you will enter trades based on the strategy.

Your entry rules outline what market criteria must be in place for you take a trade. Here are some questions to ask yourself to get started. Does an indicator need to reach a certain level to take a trade? Does the price need to break an important level? Do entry signals need to occur on a specific chart, such as a 5 minute, 15 minute, or hourly chart. Do all trade signals get traded, or will you use a filter to screen some trades out? Do you enter exactly when a criteria is hit, or do you wait for a price bar to close before entering?

Think about your strategy, and then formulate exactly how you will enter those trades. If you use multiple strategies, this process must be done for each individual strategy.

How to get out of a trade is arguably more important than how you get in, since your exit is where you make or lose money. Therefore, your exit rules must stipulate exactly how you get out of both winning and losing trades based on your strategy.

If you are trading binary options, your profits and losses are fixed and therefore this section may be quite brief, since your broker essentially exits your trades for you. If you trade other assets, this section can get quite extensive.

You’ll need to determine where you will place a stop-loss order–an order which will close your trade and limit the amount you can lose. Where the stop-loss is placed must be determined before any trades are made, because without it, you don’t know how much you are risking on the trade. Once the trade is in motion, you may choose to implement a trailing stop. A trailing stop moves with your trade, reducing your risk or potentially locking in a certain profit once the trade moves in a profitable direction.

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  • Binomo
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You’ll also need to outline if any profit targets will be used. Profit targets are pre-established price level or percentage-return levels at which you close your position (or part of it) to realize a profit.

You may choose another exit method, such as exiting simply when the criteria that got you into the trade disappears. If you entered because a trend was in place; when the trend breaks that could be your exit.

Outline your method for exiting profitable and losing trades, in fine detail, for any scenarios that may arise.

Money or risk management is the most important aspect of the plan. A basic rule for money management is that you shouldn’t risk more than 1% of your trading capital on a single trade. This is why you must determine your stop-level in the Exit Rules section. Once you set a stop-level, you know what your risk is.

Once you know your risk, you can determine how many contracts or lots you can buy. Managing your position size is crucial, as buying too much can create additional risk, while buying too little may make it difficult to reach your objectives.

In this section also consider whether you can take on multiple trades, or only one at a time. If you take on multiple trades, can they be correlated? If two assets are highly correlated, and you buy both of them, you are essentially taking the same trade, and doubling your position size. Consider these factors, and outline exactly how you will manage your money, risk and positions in order to reach your objectives.

Creating a trading plan will take time, but is well worth the effort. It should be very detailed, and at absolute minimum contain the sections discussed above. As you trade, things you didn’t consider will occur, and you’ll need to go back and tweak your plan. Once your plan is profitable though, avoid tinkering with it. The point of the plan is make your trading systematic, so you see what works and what doesn’t. If you constantly change the plan it won’t have time to show you if it is really working or not. Take the time to make a plan, because lack of planning leads to trading failure.

How to Create Your Own Binary Options Trading Plan

If you have ever spoken to a successful binary options trader about their operations, there is one thing that they will insist. This will be to always create and utilize a trading plan. Many novice traders feel as though they can simply begin trading options, straight off the bat. These individuals, however, treat binary options trading more like a gambling venture than an actual investment. More often than not, these traders will experience more losses than wins and will likely have to forfeit a considerable amount of money.

If you are more concerned with celebrating in the winner’s circle, you need to be the man or the woman with the plan.

  • This means carefully considering just what type of trader that you want to be.
  • Once you have figured this out, you will need to outline a trading strategy that is in line with your goals. The final step is to test your plan out to determine whether or not it works.
  • Once you have worked out all of the kinks, it is time to put your plan into action. If you are interested in knowing how to be successful, keep reading to discover a few trade secrets. Here is what you should include when creating your own binary options trading plan:

Why You Should First Define Your Assets

One of the first things you will need to include in your binary options trading design is the asset class you wish to dabble in. However, here, you are going to need to find an equilibrium. This is because in order to diversify your trades and limit losses, you are going to need to be involved in several asset classes and markets. At the same time, nonetheless, you need to find that magic number of markets that you can focus on. Trying to keep track of too many markets will only confuse you and prevent you from accumulating relevant information. Particularly when you are starting off, you should stick with a handful of assets.

How to Decide Your Trade Timings

Another thing that you will need to add to your binary options trading plan is the timings of your trades. Nevertheless, this is not an independent factor. To a large extent, you can determine your timings until you have decided on the strategy that you will be utilizing. Once you have narrowed down your trading techniques, this will dictate what the most opportune times for your trades will be. You are going to have to discern which interval is best for the particular strategy that you have chosen.

How to Grade Your Strategy

It is not enough to just have a strategy, it is also important to know if that strategy works or not. This is why the other thing you need to include in your trading plan is the profit probability. Depending on your strategy, you may discover high profitability but a low win rate. Conversely, your technique may have a high win rate but low profitability. Determining the profitability will impact many other decisions that you make. For instance, it will change the way that you trade with particular markets. Furthermore, it will also influence the type of broker that you will choose. Once you know in which manner your strategy is profitable, you will be able to ensure that the other elements work together to assure maximum profit.

Why You Should Always Record Your Results

One of the things that traders can forget to do is to record all of the trades that they make. This is not just to keep score of how many wins and losses you have accomplished. Instead, it is about understanding the techniques that you used and how they performed under particular market instances. Thus, the last part of your trading plan should include keeping strict records of everything that you do. This means monitoring the nature of the trade, the duration, the forces influencing it, as well as the outcome. Over time, all of this information will prove to be quite useful in determining your future trades.

These are all of the things that you should have in your binary options trading plan. It is important to never start trading before you have worked out a system for yourself. Only once you have a clear and concise idea of what you will be doing should you go ahead and begin trading options.

Creating a Trading Plan for Trading Binary Options

Wednesday, June 21, 2020 – 9:30am ET

Presented By Gail Mercer – Traders Help Desk
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Best Binary Options Brokers 2020:
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