Beginning binary options traders have plenty to learn in order to take advantage of multiple opportunities available. In this article, we discuss what new traders, especially those seeking to use binary options, need to know.
1. Get to know the markets
Unlike traditional online brokers that specialize in an asset class (stocks, forex, or commodities), with a binary options broker like UltraTrade, it is possible to trade multiple markets from a single account. This offers access to many trading opportunities not available elsewhere. If there’s nothing going on in one market, a binary options trader can find another market where a new opportunity presents itself.
For example, if there’s a bear market in stocks, and you don’t like to sell short, there’s always a bull market in currencies- since one currency in a pair must go up for the other to decline. Or, perhaps there are interesting trades in commodities such as gold or oil. With binary options you can switch between these markets with ease.
But, this requires that you understand the factors which influence these markets. So, at first you can consider concentrating on just one or two markets. Later, when you understand more markets, and relationships among them, you can take advantage of more opportunities than a typical trader.
There are, in fact, many relationships among markets. For instance, a rising dollar will likely depress many currencies as well as commodities. Due to a stronger dollar, many industries (and stocks) will be affected. By seeing what’s going on in one market, you’ll understand the other markets as well.
2. Get to know binary options types
With binary options, you place a directional bet- either on price going up (by buying a Call) or down (with a Put). But, there are various ways to bet. There are 60-second, 5-minute, 1-hour and options with other time periods that actually need to expire favorably for you to win a bet. So, if you bought a Call, the price needs to finish above a certain level; and with a Put, below a certain level.
However, there are options that only need to touch that price level during their lifetime for a trader to win. These are One Touch options, such as those offered by UltraTrade. What’s more, binary options brokers offer other types such as Ladders where the payout differs depending on the price level chosen.
3. Get to know the trading platform
In order to take advantage of what your binary options broker offers, you need to know the system. Moreover, by knowing the system well, you will avoid blunders (such as placing a wrong trade) and will be able to quickly enter proper trades to catch ongoing opportunities in the markets.
4. Get to know technical analysis
Traders rely greatly on technical analysis, much more than long-term investors do. By understanding chart formations, moving averages, and price strength or weakness, you’ll be able to make better trades, and mitigate risk, by knowing good entry and exit points.
There are many tools when it comes to technical analysis. It is important to select just a few to see trends. If you get too many signals, some will be confusing and will only obscure developing trends from being seen. See which tools help you the most and stick to them. Many traders use charts with Japanese Candlesticks and moving averages, and then add a couple of oscillators (such as MACD or RSI) to determine trends.
5. Manage risk
Risk management is crucial. If you lose your trading capital, you can’t trade. Managing risk involves careful analysis prior to entering trades, rather than relying on gut feelings. It also involves making bets proportional to your capital. You should not risk more than 5% of your capital, or even less, on a single trade.
6. Look at rewards
Make sure the payouts are worth the risks taken. Do you want to take a chance of losing $100 for a potential profit of $5? Probably not as that is a bad risk-to-reward ratio. Successful traders know when to avoid trades. It’s not only what you do, but also what you don’t do.
7. Analyze your past trades
After a period of trading, go back and review the trades you made. Seek to understand what caused successes and failures. There’s much to learn from the hands-on trading experience. See where your mistakes are and try to fix them. Perhaps, there are markets where you do better and markets where you lose. So, this way you can tell where your trading strengths and weaknesses are.
8. Continue to learn
Even though placing binary options trades is simple, you should never stop learning. There’s much to learn about the markets. And, market conditions change. So, what worked before may not work any longer.
Many traders, after initial successes, start losing their capital because they don’t see changing circumstances, or they grow too confident and start placing very risky trades.