The Importances of Trading Strategies
A set of thorough trading strategies and a comprehensive money management plan are the keys to an “in-the-money” trade whatever kinds of trading options you’ve chosen. More specifically, your strategies should be flexible in order to be adjusted to the uniqueness inherent in each binary option selection including currencies, commodities, stocks and stock indices.
Testing your trading strategies in an appropriate and complete way is never wasteful in such a harshly competitive market. If you intend to make several bets on different assets without any test run on your strategies, you should stop your positions before tasting the failure. Therefore, please organize your trading systematically.
There are many foundations on which traders base their decisions. Some are inclined to analyzing the basic data collected from the assets’ prices to predict their future movements. By contrast, others prefer technical analysis with more advanced data. The perfect combination of the two methods may be the best way with price movement as the basis to which traders apply analytical techniques to find out what is the peak price, what factors have major effects and where the trend will possibly turn.
Why do you need a good trading strategy?
Trading in the long term requires you to set up a system for success because of the following reasons:
- A clearly-outlined trading strategy well guides you to the key information that is crucial for your trading among the huge pool of data that may cause you serious distraction without a strategy. Furthermore, to know what effect the news may have on your trades, you need to have a thorough grasp of how the prices of a specific asset or even an asset class may move (often combined with technical analysis for setting the entry and exit points) – a requirement that many beginners can’t satisfy. However, the price-based strategies are the most efficient way for you to earn profits no matter what events will occur in the forthcoming.
- A measurement system is also necessary for improvements in your performance. Unsystematic trading cause chaos to your trading career as you have no idea of whether you trade better than last time or what is the basis against which you assess your subsequent trades. Just set up your own trading scheme and stick to it for a long time until you pile up a statistical sample that is big enough for your performance appraisal. Complete assessments help you identify what need improving. This also provides you with opportunities to test your new strategies that cause some changes to certain factors by applying them in your trades and comparing the results with your statistical figures of previous trades.
- Eliminate your feelings from your trading decisions. This is the most challenging mental aspect that causes tons of trading losses to traders. Apprentice traders cannot surpass their greed and fear that sway their decisions when they lose or win lots of money. Expanding your positions, placing more money in one single trade exceeding your ceiling and doubling your trading amount when your options are making profits are all signs showing that your greed is getting underway. By contrast, your fear, when taking effect, will downsize your bets and close many positions, potentially causing losses of future profits. Only sticking closely to your predetermined trading strategy will clear emotions from your mind and keep your performance stable.
- Trading too much is not good for your business. Initiating your trading career without clearly defined strategies easily gets your positions beyond control. Massive amounts of news, prompts from expert traders and friends, even the phase of the moon (studies concerning the Moon’s position relative to the Earth with cycles in asset movement, especially stocks) can lead a trader to overtrading.
Auto Binary Signal is a solid strategy to start your trading.
Choosing the right one
No accurate strategy is the best one but it depends on the preferences of every single trader. Moreover, the types of analysis and the ways to use it vary among different traders – they may use one or combine many analytical techniques in their trades. In fact, no perfect strategy does exist for the entire market as the market does not stay still but move constantly. Unwritten rules having previously been considered golden rules now fade away. The lesson is, if you want to survive on the market, you need to catch up with its evolvement.
Make sure that you get all the points and now let’s move to the list of characteristics that a typically stable trading strategy should possess.
- Simplicity perfects your trading strategies. It’s no wonder that “in the money” trades require sophisticated technical analysis but it does not mean applying as many principles as possible to your strategies. This may cause adverse effects in that new traders are not familiar with various rules applicable to certain market contexts so integrating many theories into their trading tactics is putting themselves in difficult situations.
- Test runs on new strategies are never a waste of time. You’re favored to the fullest capacity by demo accounts. They provide all traders with golden opportunities to give their new plans a trial run with no costs. So why can’t you miss it? As mentioned previously, each certain strategy is only appropriate for particular assets with specific trading characteristics. In other words, a tactic that works well with stocks may cause a loss when applied to currencies. Hence, demo accounts have come to rescue you with a simulated environment for you to improve your plans.
- Updating your strategies is good for your trades. As the financial market does not stay still but evolve at such a rapid rate, the strategies that are precise in certain conditions may not be that efficient in others. Therefore, sticking to a tactic for so long makes it out of date. That’s also the moment when you need to make adjustments to your strategies unless you want to lose your money. You may even erase the old plan and look for another new one if necessary.
- No strategy totally leads you to profits. No tactic, no matter how high its success rate may be, will reach the absolute level of profit generation. For example, one certain strategy with 60% of success will let 40 out of 100 binary option trades end up with a loss to you. As “out of the money” trades cannot be completely avoided, you have to accept them in a positive way in which, we mean, you let no emotions intervene your subsequent decisions and follow what you’ve planned and set up before. Finally, enlarge your vision by focusing the overall success not the instant one.
Types of winning strategies
To succeed in your trading career, you may try three types of following strategies:
- The strategy brings you a high rate of success, and winnings, on average, larger than losses.
- The strategy lead you to losing positions frequently than to winning ones but generate an above-zero net profits as winnings, on average, exceed losses.
- The system with a high rate of success leads to a positive net gain although losses are greater than winnings, on average.
On this basis, the first strategy is the most profitable one but it’s almost impossible to have such nearly ideal conditions. The second types can’t help traders of binary options as the potential profits are lower than the potential losses. You can list the cases of binary options with high yields but you have to bear the greater risks in mind. You may suffer total losses in losing positions if you turn to the offerings of 70%-85% payout ratios on average. You may not be in this situation if you approach brokerage companies that offer to compensate for your losses but of course you have to accept lower payout rates which are still favorable to you on the basis of the current overall win-loss ratio.
Because the ideal strategy is nearly impossible, you may turn to the third choice as the last resort. The fact that losses, on average, always outnumber profits prompts you to find out a trading strategy that leads you to winning positions more frequently in order to compensate for your net loss and make your way into profits by the expiration of the trade. For that reason, the first prerequisite is that these tactics need to generate an above-zero yield. Here’s how to find out the breakeven point:
Breakeven (0) = Winning % x Average Return – (1 – Winning %) x Average Loss.
According to the formula, you can find out how much your success rate is to reach the breakeven level supposed that you have exact figures of your average profits and losses. Therefore, all you have to do is to come up with a strategy that gives you a success rate above the breakeven one.
Using a combination of trading strategies
The old adage “don’t put all eggs in one basket” is also right with trading strategies. Traders need to diversify their own set of tactics as each of them is only applicable to certain market conditions. The question is why you need to use more than trading plans:
- Preparing more than one trading strategies help you avoid the unavoidable percentage of time when your current strategy leads you to losing positions. Turning to workaround strategies helps to maintain your positive morale while earning you profits.
- As aforementioned, one strategy cannot stand the test of time and it needs replacements. When this happens, it’s time for you to abandon the old tactic and look for a new one in order to keep your investment safe.
- We’ve also advised you to establish a diversified portfolio of assets to protect yourselves from the decline phase. If a certain asset or asset class, especially long-term one, falls short of your expectations, betting on other assets really pay off by filling the gap and keeping your gains at or above the zero. However, each asset possesses unique features that work well with a specific strategy. Therefore, asset diversification also involves putting various strategies together in one system.