The Importance of Having a Trading Plan
The popularity of binary options has not dimmed since this form of online trading appeared on the financial market in 2008. One of the key attractions, aside from the possibility of healthy profits which is so enticing for the prospective traders is the simplicity of trading binary options.
Undoubtedly, compared to more traditional forms of trading, binary options are far simpler and straightforward. And therein lies a problem. More often than not, interested traders see the words simple and rush in, completely disregarding any kind of a trading plan.
Since this problem keeps happening and it is our wish to help and advise South African traders who are keen to try binary options trading, we shall try and present the importance of having a trading plan and what a trading plan can do for the overall quality of the trading process
Essential Steps for Devising a Plan
There is, of course, another reason why traders often disregard the importance of having a trading plan and that is due to the fact that they do not know where or how to start. It is this issue, more than just lack of information about the binary trading process, that has prompted us to present this strategy article to our South African traders.
To begin with, every trading plan has to combine certain elements which cannot me omitted and which, when combined sagely have the ability to influence and change the entire direction of the trading process for the batter.
One of the most obvious benefits, when it comes to the importance of having a trading plan, is the simple fact that it provides the traders with a necessary discipline and keeps them focus. In a sense, a trading plan can be seen as a to-do list which makes it much easier to track the progress and trading actions.
Furthermore, in knowing what has been done and what is the next planned step, traders are also presented with a sense of control which also means they are able to control the risks too. Because, binary options, as any other sort of financial investment and trading carries a certain level of risk and traders need to be aware of that.
The most basic first step toward devising a solid, sensible trading plan is to clearly define the goal the trader wishes to achieve. Just saying – “I want to make a profit” will not bring about a well-thought and through plan. Especially, if, at the back of their mind interested South African traders have two of the most common misconceptions about binary options trading:
- It is easy so there is no need to have a detailed plan or invest some time in education
- It’s a form of gambling so a plan is actually redundant
Both accounts are inaccurate and, when paired with no plan or poorly constructed plan, lead to failure in binary options trading.
What traders need to realise and accept if they are adamant they want to make trading binary options a long-term financial venture is that investing time in educating themselves about binary options and the inner workings of the trading process is crucial. Because, when an individual is well-informed and knows the basics then it becomes much easier to construct a good trading plan.
There is another benefit to browsing and studying a multitude of educational materials which are easily accessible online in general but also on the broker platforms, and that it that traders soon realise that binary options are not gambling nor are they so simple so as not to need any kind of education.
Once the traders gain more understanding, creating a trading plan will not be a daunting task but rather an enjoyable and challenging one.
There is not need to have a long, intricate trading plan, especially at the very beginning.
However, focusing on following key elements will provide South African traders with a solid start for plan construction:
- Underlying assets
- Risks involved
- Strategies which can be used
- Potential profitability of each trade
- Trading results
Learn All You Can About Underlying Assets
Underlying assets are the very core of binary trading and knowing all one possibly can about their nature, what influences the changes in the price for each underlying asset group such as global events, be they political or natural.
In most cases, what binary options traders have on offer are four distinct underlying asset groups which are currencies, indices, commodities and stocks.
Binary brokers usually provide a detailed Asset Index list where traders can see a various combination of underplaying assets.
Another common faux pas is investing immediately in various markets in the attempt to secure profits.
It would be more prudent to first focus on a limited number of market, even on just a single underlying asset which will serve as a training ground in a sense and will provide traders with much-needed experience as well as knowledge.
Understanding Trading Strategies
Another section which should be incorporated in the binary options trading plan is the right strategy. This, in turn, points back to making time to actually investigate and learn more about available trading strategies for binary options.
In finding the right trading strategy and combining that with the right possible timing, the possibility to achieve successful binary trading is much more likely.
Learning about various strategies in order to find the one that will best suit a traders’ trading style is a process as is the market observation in order to determine the right time to place a trade.
Once South Africans manage to find strategy/strategies which work best for them it is wise to keep a tight rein over emotions and the impulse to spread out the trades which can lead to a damaging pattern of over-trading and is usually met with failure.
Naturally, making a profit is the main goal of all those who go into binary trading, but trading around the clock, even with a solid strategy does not mean that every single trade will be successful. And that brings us back to the importance of having a trading plan.
Because most binary options traders have made a trading plan which contains a reasonable number of trades which should be executed on a daily, weekly or monthly basis and the wisest approach is to keep to it.
Profitability of the Selected Strategy
Another importance of having a trading plan arrives in the form of careful monitoring and keeping records of all trades which have been made and the strategies that were used. Silly seeing results on the paper (or computer) will provide traders with a clear insight how their trading endeavours are progressing.
Furthermore, traders should focus on trying to calculate just how much they stand to win (or lose) with their preferred strategy. That can be done by carefully studying the binary options trading platform with the broker of their choice.
So, carefully calculating possible returns, any rebate but also possible losses should provide traders with plenty of viable info so they can make an informed decision when it comes to their strategies as well as the markets where they wish to trade.
The Risk Control Segment
When it comes to constructing a trading plan it is necessary to calculate the risk, and in doing so traders stand much better chance of controlling the risks present in binary trading.
Simply knowing how much they stand to win or lose on a trade is necessary as traders should not put themselves in the position to endanger their day-to-day lives.
The basic rule of clever investing suggests that one should invest 2-5% for a single trade. That means that traders have to have a pre-set funds which they wish to spread and invest upholding the stated rule.
This way, South Africans investing in binary options trading are unlikely to find themselves in a situation to either lose all their funds or lip into taking ridiculous risks or just start over-trading.
Simply put, avoid rash and impulsive decisions and simply stick to the original plan while wisely investing from 2-5% of your funds per trade.
Binary Trading Results
Last part of this article dealing with the importance of having a trading plan deals with trading results. In a sense, this is very similar to strategy profitability, but in the case of strategies, traders are observing the results of a selected strategy on a specific market.
Trading results are concerned with the overall success and are, in actuality, the sum total of both profits and losses which may have occurred along the way.
In keeping a detailed record of the overall results traders get a realistic feedback which will not just show the current state of their finances with regards to their binary options trading but will, ultimately, allow them to make changes in their trading plan in order to improve the segments which were not so successful.