The Importance of Having a Trading Plan
Probably the most popular saying in the binary options and Forex markets is Plan your trade and trade your plan. Once you have a plan how to proceed on the market, you will have a real shot to make significant profits.
The best thing for the beginning is to start at a weekend by examining the economic calendar whereby you can see what economic events are going to be in the news in the following weekend how they are going to affect particular currencies and their movements. This will also be to help you throughout your trading career so it is best to start comparing market events which are announced in the news.
One of the most important trading decisions is to determine the amount of money which you are going to deposit or invest over the next week. Prepare in forward for market events to tale surprising turns, since the market is characterized by many ups and downs and do not get discouraged by a bad week since it is completely normal in the trading environment. The goal is to keep your winning trades superior to the losing ones, and not to land success in each trade (which is also impossible). For a dominance of winning trades, a lot of patience, discipline and money management is essential which represent the key factors for a successful trading career.
Decide on What to Trade
Once you leave the intended sum of money for trading aside, choose the currency pairs you would like to invest in and divide the complete sum into smaller amounts so you can place multiple trades. It makes little sense to put all your money on one trade or bet, so divide the intended sum proportionally for the entire week. With a weekly plan, you will gain more confidence in your trading decisions and you will have better winning odds since you do not have to put all your hopes into a single trade.
When it comes to binary options trading, one of the most important elements is the selection of expiry dates. Especially beginners should avoid trades with short expiry dates and focus on long-term trades like trades which expire in a week or month. These trades are more secure and are an excellent way to practice patience and discipline. Return rates on investments can reach 80% in the options world, so traders should know that a disciplined approach pays off. This approach should be a part of your trading plan including a thorough analysis of your investments.
Selection of the Right Asset for You
Look at the list of assets of different binary options brokers before you decide which one you are going to register with. Asset classes are numerous in the options industry and as a trader, you should familiarize yourself with each. A lot of different factors have an impact on asset classes.
Trading currencies represent a liquid and fertile ground for money making, and short-term trades are especially frequent with binary options. The binary options expiry dates start already at 30 seconds. However, as we mentioned, in the long run, longer expiry dates can work in your favour since they carry less risk, especially if you are a newbie.
The currency market is not easy to grasp and comprehend since the market is defined by many factors which individually influence the price movements and quotes, and thereby, the outcomes of your trades. Some of these factors include political and geopolitical events, acquisition of markets, company mergers, as well as simple factors of supply-demand status and complex interest rates set-up.
Let us say that a US company showed an interest in buying an EU company and at the end does so. This would be a classic example of merger and acquisition of market and if the alleged US company was required to make the purchase in the euro, it would automatically launch the euro to “high demand” and influence its value and worth.
This further involves a consortium of banks which would aim to buy every single dip of the euro trying to average the previously agreed price. These trades would not be carried out in the cash or spot market.
The stock market is very attractive for binary options traders since it is abundant in top companies, but yet, options traders should understand the causes that account for movements in the stock market. the US economy events reflect the stock market status and the US NFP and jobs data are great indicators of where the US economy is heading. The US economy is also the benchmark for the global economy and influences the stock market automatically on the global level.
The US Central Bank Mandate
The Central Bank of the United States of America, or commonly known as the Federal Reserve Bank is entrusted with two major tasks. One of them is to keep inflation as low as 2%, and the other is to create jobs as the main force that keeps the employment rate high. Inflation and the unemployment rate are key factors which directly influence the decision-making process on interest rates. The stock market is especially linked to the interest rate policy. The whole process can be explained as follows: when interest rates are increasing, stocks are also falling in price, but when interest rates are decreasing, they create new conditions in the market whereby stocks rise in value.
The above example can also be applied to trading indices, which are also a well-established in the options industry since they rank high as one of the top choices of binary options traders.
Trading indices is closely followed by trading gold and oil which are also often seen in binary options trading. And accordingly, traders should have a trading plan for these markets as well, if they are considering entering the exotic oil and gold industries. In the oil market, OPEC meetings are to be followed and analysed, as well as the US level of inventories.
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References and Further Reading:
- Portfolio Choice and Trading in a Large 401(k) Plan (Agnew, Julie; Balduzzi, Pierluigi; Sundén, Annika)
- Anticipating a Sea Change for Insider Trading Law: From Trading Plan Crisis to Rational Reform (John P. Anderson)
- Anonymous markets and monetary trading (C. D. Aliprantis, G. Camera, D. Puzzello)
- Unequal Exchange Without a Labor Theory of Prices: On the Need for a Global Marshall Plan and a Solidarity Trading Regime (Ron Baiman)
- The Inattentive Participant: Portfolio Trading Behavior in 401(K) Plans (Olivia S. Mitchell, Gary R. Mottola, Stephen P. Utkus, Takeshi Yamaguchi)