Article for those, who lost money on trading binary options. Learning money management!

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4 Secret Money Management Techniques used by Profitable Binary Option Traders.

It’s secret because traders rarely talk about it.

I’ve realized from my interaction with numerous traders that it is “extremely” difficult to succeed at trading (Binary option) because the odds of success are stacked against the trader despite being advertised as a make money fast instrument by the brokers.

Binary Options; the type of trading instrument that requires a trader to speculate on the direction of an asset with the possibility of earning between 70-90% ROI per trade.

First, Why Binary Option (and other market) traders consistently lose

I will easily answer this because a lot of traders keep asking this. Traders play the game the wrong way. You walk into a casino, you have $1,000 tucked in your pocket making it look fat, all the beautiful girls are around your table inflating your ego, you are then subliminally imposed with one mentality — “YOU ONLY WIN IF YOU MAKE A BIG WIN”.

This is not how a professional traders think. I am not willing to risk all my capital on “this table”, I am not plotting to make the biggest hit of my life right now, I am more concerned about playing the game to get small wins on a consistent basis, which means my trading plan is not dependent on the roll of a dice but on clearly written plan. Trading isn’t lottery, it’s a business.

But, how do these Brazillian traders do it ?

Flipping $10,000 into $21 Millions in about 3 weeks — That is Sound money management.

I have also been participating and sometimes I win in competitions asides from my usual real market profit.

Just like every athlete, online trading competitions are my training grounds and there’s a money management technique used specially for competitions which is more preferable than “martingale” — which is a gambler’s tactic to spend all his money at the table or leave with a large profit on the strategy of “hope and faith”.

In the picture below, this is one of the competitions I won using the money management system.

Most traders try to avoid any type of trading that involve “options”. Not everyone has been able to achieve a consistent and profitable Binary Option career, those who have achieved that, understand that there are secrets and most don’t like to share these discoveries.

Sharing this ABSOLUTELY FREE courtesy of Reborn Markets, Please visit here to get hooked up with different free Binary Option signals and algorithm scripts on Tradingview.

The four types of Money Management Systems

Your Money management would be based on your trading methodology, so you have to understand the type of trader you are, and more importantly which one of these would best leverage your strategy for maximum profit.

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  1. CBOC — Constant Based Off Capital; Trader chooses an appropriate single risk percentage — 3% for every trade. We recommend between 1% and 5% per trade, as the trading balance — $100 increases or decreases because of activities in the market, the new amount to be used for every new trade will be calculated as a percentage, which is then calculated based off the current balance.

Illustration; Jim chooses to use only 2% of his account with CBOC, he currently has $100 in his Options account, if after the first trade he incurred a loss of $2 ($100×0.02 = $2), the $2 is the amount he will risk per trade.

His next trade would be ($98×0.02 = $1.96), with an assumed ROI of +80% per trade, if this second trade wins, his new total balance would be $99.56 and that is what generates the next trade amount, which would be $1.99($499.56*0.02).

This system ensures that your current balance is directly proportional to your trading performance, your risk follows suite. It is advisable for you to also keep a loss limit (‘risk control’) to a daily of between 15-30%.

This is very important because your system can and will experience bad days but will always reward you for your losses if it’s a working system.

I use the reliable signal services of BusyBee Signal system and the Binary Hybrid from Reborn Markets as my system for Binary Option.

2. CBOP — Constant Based Off Profit; This is the similar in method with CBOC, the difference is that this system trades on a percentage of the realized profits only ((current balance – opening balance) *0.02). When your profit has hit a threshold of about +10% to +50%, you can begin using this system to secure a long term hold of the profits, only the profit is taken into context for calculating the risk amount. And as the profit amount grows, the risk amount put into each trade is adjusted.

Warning: Do not adjust the CBOP percentage at random, your trading plan must remain consistent, 2–5% is still recommended per trade.

3. FAB — Fixed Amount Based; This system uses a fixed amount per trade consistently throughout an entire trading session . This is a fail safe system for traders who are beginners or who are still undisciplined. If you often find yourself trigger happy, switching from following a standard system to rolling the dice in your style of trading, this system is for you.

A particular fixed amount is chosen off the trading capital and used consistently throughout the entire trading day.

Daisy has $1000 in her trading account, and she decides to use FAB, she decides to trade $50 FAB from her balance. Either subsequent trades Win or Lose, she uses only $50. This is good for traders with a balance above $1,000.

4. TSC— Three Step Chain; This is a ‘chain-like’ model for trading the markets. However, this is the most risky method, TSC prioritizes limiting your losses and enables growth minimally.

This is how it works;

  • step1: cut out a fixed fraction of your whole trading capital — e.g 15%
  • step2: divide that value into 3, in the ratio “1:2:2” or “2:2:1”, You have to understand that, your strategy should be in the direction of the trend and not a counter-trend strategy, now depending on your experience and your trading pattern, you can understand which of the 3 trades in the cycle has the highest probability of a win, you then go ahead to allocate properly, given our balance to be $1,000–15% TTC would mean a maximum of $150 per session is our risk.

The first trade and second trade is usually the strongest in our system;
first trade: (2/5×150 = $60)
second trade: (2/5*150 = $60)
third trade: (1/5*150 = $30)
Total risk is $150.

When a session/cycle is over, a new session means trading $60, Please also keep maximum limit of loss should be -15% and not more. and this can only happen by losing 6 trades in a streak, definitely, that would imply a really bad day in the market.

Money management system for Competitions

In competitions, you are given a starting balance and you compete everyone else to grow that balance within a stated period of time.
The balance is not a real balance but there is a reward for being at the top of the board.

I also use the reliable signal services of BusyBee Signal system and the Binary Hybrid from Reborn Markets for trading competitions.

Money Management On Trading Of Binary Options

Any trader with some experience knows that productive work in financial markets is being done only by three components: the trading system of adequate reliability, strict personal discipline and efficient money management.

While the first two factors seem to be all clear, then the third causes some difficulties.

So, today we will review it. In this situation, we would notice that the optimal organization of money management and complete awareness of work will be useful not only for beginners, but also by many traders who consider themselves as quite experienced.

What is the money management?

At first, we need to realize that a little strange term as “money management” implies just an optimal and balanced strategy in financial organization, giving the most possible profit.

It is interesting, that despite the necessity of the access to the funds, and that it is a fundamental factor in successful trading, focusing on money management is often ommitted, most of traders perceive it as something already understood.

It often happens when even experienced traders make a few successful,yet low-profit deals, and then go for larger, risky ones, loosing all the previously gained profits.

Only then, they begin rather chaotic search of information about proper management of assets.

Upon this situation, the understanding comes and they realize that success is not determined by quick gamble earnings, it requires a long-term discipline for any steady income.

If to put all the information together, it becomes very clear that the money management is a science, teaching the effective management of investments for future profitable trading in the long term.

The rules of money management

The successful trades are ensured by the implementation of only one recommendation, that it is not necessary to trade transactions in excess of five percent of your deposit.

This means, that if, for example, on your deposit of five hundred dollars, the transactions should be not exceeding twenty-five dollars, the interest rate is fixed between ten and twenty-five dollars even, regardless of profitability or unprofitability of a single operation.

You shouldn’t ignore this recommendation in any way, especially the beginners.

Of course, with your life experience as you go, the interest rate can be gradually increased, first to 6, and later, to 10 percents, however, even with such restrictions expanding the range is strongly not recommended, it is the way to protect yourself from losses caused by your emotions.

In some cases, it will be very difficult to follow, because there are deals that are so attractive in their apparent obviousness, but it is necessary to overcome yourself, even under extremely tempting conditions. As one old saying tells, when you move slower, you will get farer.

The basic principles of money management

You must not only know, but also observe a few specific features, it can help you to create your personal effective money management policy. We can show the key principles and you should try to focus on those:

1) Sober trader.

Probably the main thing that distinguishes an experienced trader from the beginners, is the ability to assess the risk and prospect soberly, without undue fervor. Of course, sometimes emotional decisions can bring good dividends, but most of the transactions carried out spontaneously are tend to fail.

Trading is not a lottery, it is a serious matter, that requires, for success, exploring many nuances of the market, a very deep analysis of its specificity and continuous strategy improvement. You should work in clear mind and you will be able to ensure profitability.

2) Calculate the volume of the deposit.

Only the correct calculation of funds to be used in the transactions, thus allowing the trader to correctly implement each particular deal.

It is extremely important not to go beyond your personal set up range.

In addition, it is not a good idea to make a deposit with your last savings. Every experienced player in the options market must have a certain amount of preserved money, giving a chance even after the absolute loss of the initial deposit to to return back to the market.

3) Trade with the trend.

Every successful trader knows that trend is the direction of the price change for a certain period of time.

All trends are divided into three groups, it is descending (decreasing prices), the ascending (respectively the increase) and flat (side shift).

If you want to open the transaction in accordance with the trend, the probability of profit high enough and far exceeds the potential risk.

4) The correct balance of risk and profit.

Your understanding of the importance of the ratio between the benefit and risk in the transaction comes with life experience. An experienced trader often intuitively regulates this ratio with the risk limit and the amount that the trader can lose without pain.

5) Planning for profitability.

When you start the business of binary options, you need to choose a right broker, to give you more reliability and better profit margins.

That is, the percent is charged to the trader upon positive completion of the transaction, it is better to consider the largest.

6) Minimization of losses.

To explain this factor is quite simple. There are several rules, known as the Stop Trade. We can list just three of them, the most basic ones :

  • On every trading day, it is recommended to start with the definition of the maximum number of deals that are planned to be opened on each trading session.
  • You should clearly define within the limit number of loss-making operations before entering the market and after this, you can leave the auction.
  • You should set a specific amount of profit, which is needed to close the session.

7) Diversification of risks.

This rule can be seen as a step involving the spread of a large volume into several transactions.

For example, if you have three hundred dollars, allocated to work for one session, much more effective and safer is to make six deals for the fifty dollars than for the entire amount.

Additionally, it will be much safer if every contract would be placed at different times or will be used with different tools.

8) Trade their system.

The organized, systematic work is more efficient in any type of business.

So, the trader gradually develops its own strategy, based on personal experience and preferences, observing actions of other traders, trend indicators and many other data.

Of course, there are commonly accepted strategies developed by recognized experts of the market.

However, many strategies mostly used by the beginners, more experienced traders gradually supplement these strategies, and sometimes they can completely transform it.

9) Is there a difference between money management and capital management?

Both of these concepts are recognized on the Russian-speaking Internet, so many people perceive them as two different terms for the same process.

Despite the fact that these concepts are very similar, it should be noted that money management is a concept that is better attributed to the management of risk in open deals. To definition of the concept of money management can be quite short. The main rule of this concept is the recommendation to diversify and hedge risks, and also you “shouldn’t put all your eggs in one basket.”

The money management is the art, which serves as an excellent tool to the effective trading strategies and helps to raise the level of personal discipline and financial culture.

It is better to learn to manage risks than to allow risks to manage yourself !

“Why Do I Keep Losing Money?”

Let’s be honest. Getting stable returns as a trader is not easy. A lot of people who have entered the financial markets will leave empty-handed or even worse — lose their money. There is a number of reasons for that: some people don’t take trading seriously, others view it more as an entertainment rather than hard work, the rest simply lack the desire to learn and acquire new skills.

Why do you keep losing money and, most importantly, how to manage your losses? Hopefully, after reading this article you will have an answer to each of these questions.

Being ‘too smart’

Being too smart is hardly the reason why you keep losing money. After all, it is the intelligent investors who are more successful on the financial markets. Believing you are too smart, on the contrary, could get ugly.

What do most “smart traders” do? They believe they can beat the market, which in fact happens quite rarely and usually should be attributed to luck, not skill. In reality most of them enter the deal at the least appropriate time and end up with a position that is destined to lose.

Very few people out there can boast the ability to outsmart the entire market. Stay humble, trade with the trend and do not go against it. Instead of beating the market try to embrace it and understand it.

Being emotional

Trading is not like life. In the financial markets, positive emotions don’t bring you happiness. Both positive and negative emotions should be avoided, as they are quite likely to hinder your trading progress. Try to remain calm and cool-headed. It helps a lot.

Greed, the vice that has deprived many traders of their well-deserved earnings, is no different from excessive joy or tilt. Being able to stop when your trading systems tell you to is another skill you will have to learn in order to improve your trading results.

No risk management

You can bet all your money on a single trade and you may even win. But after a deal or two, you will eventually lose, and lose big. Unlike those who practice proper risk management and, therefore, lose a share of their trading capital, you can lose the entirety of it. No funds = no trading.

Conservative investors believe you are not supposed to allocate more than 2% of your trading capital to a single trade. Go for 5% if you feel lucky. But under no circumstances allocate 100% of your funds to “the deals that will sure win”.

Trading with a robot

There is no single winning strategy and there is no robot that can yield tangible results in the long-run. All the people offering you a one-time discount ‘SuperTrader 3000’ are scammers. After all, who in his right mind would sell a robot that can always win? Isn’t it a good idea just to keep the goose that lays the golden eggs in secret and speculate on it? Better dedicate the time that you could have spent to look for a working robot online to education and trading on a practice account.

Adding to a losing position

You can’t even imagine how many traders keep adding to a losing position. It is indeed unsettling to see your position melting down as you nervously stare at the screen. Yet, there is a better decision than throwing in more money. Consider cutting your expenses instead. When you see the trend turning against you, an immediate exit is oftentimes the best decision. If you still find it emotionally difficult to do, reread the “Being emotional” part once again.

NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.
In accordance with European Securities and Markets Authority’s (ESMA) requirements, binary and digital options trading is only available to clients categorized as professional clients.

GENERAL RISK WARNING

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
87% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Best Binary Options Brokers 2020:
  • BINARIUM
    BINARIUM

    Top Broker!
    Best Choice For Beginners!
    Free Trading Education!
    Free Demo Account!
    Big Sign-up Bonus!

  • BINOMO
    BINOMO

    Perfect For Experienced Traders!

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