One of the important aspects, after selecting a signal service and a trust worthy broker is figuring out money management aspect and disciplining yourself. It is lot harder than you think but not impossible. It requires practice and catching yourself on any psychological games that your mind will play on you. In life, money management strategy is a combination of Earn more, Spend less, Invest wisely, and last, enjoy the money in the things that matter to you.
Similarly, in Binary options trading the money management strategy combination is Maximize profit, Minimize loss, Discipline yourself, at last, know your trading personality. What I go over here are overall ideas and different aspects. Pick combination of strategies that work for you. Give it some thought before starting to trade binary options. It is easy to get carried away in the heat of trading when seeing the wins or losses.
Investment Amount on Each Trade
Ideally the best practice is to invest 5% of your total available portfolio. For a $1000 account portfolio, use $50 on your next trade. This is for low risk traders. If you can handle a little bit more risk, you can up the trade upto 10% investment amount. That would be $100 for the same $1000 portfolio. Gauge your comfort level on how much money you can afford to lose. Technically I don’t want to see ANY loses but reality is a bit different. Remember that in the binary options trading, you will lose all your investment on a trade if your prognosis is incorrect. The question to ask is what is your comfort level on the losing amount? $50 or $100 in this particular example.
Be Consistent in Applying Money Management Strategy
Here’s a big mistake novice binary options traders make. In spur of the winning or losing moments, they start experimenting with the investment amount. Most of the times they start going higher. This is a very risky proposition. Do not, I repeat, DO NOT start playing around but stick to your investment % consistently. If you had a losing trade, in the next trade, invest the same % and do not increase the investment amount for the sake of “catching up”.
Number/Percent of Losing Trades
Know when to walk away or call it quits for the day. A highly disciplined binary options trader will have those number of trades or % loss fine tuned. If you are going to lose your sleep over $100 loss, be on guard and watch like a hawk. This threshold primarily depends on the portfolio size. For a $1000 account size, I would lose sleep if I lost $300. That’s my threshold. Some traders go by %, some go by number of losing trades for that day. If I lost 2 trades in a row, I am on high alert; if 3 I am done for that day. With 3 losing trades in a row, my mind is already playing games so I need to step back and not invest anymore with that mindset.
$1000 account size
10% investment on each trade = $100
3 losing trades = $300 or 30% of my total portfolio
As a beginner trader, get to know your trading personality. If you are not sure, I recommend you open a demo account and trade with funny money as this is very crucial to your money management strategy. Some traders are comfortable trading longer term than others. Longer term as in for several days or overnight while short term could be as short as less than a minute. When you identify your style, you will be less stressed with your money management. Short term traders do not like to have their money held in long term positions among other reasons. They consider it risky while others look for a good return on their investment. Invest time in getting to know your style. It is very worth it and you can thank me some day 🙂
Last but not least, equip yourself with the scams in the binary options industry. Check out our Black list reviews and Signals services. My primary goal is to save your capital first and then think about making profit trading binary options. The best money management strategy and investment rule is to preserve your capital. Visit Advanced Management strategy to learn the next steps.