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Phil Moore is a full time trader of the financial markets. He specializes in the use of binary options,a fast paced and controlled risk method of trading on short term movements in financial prices.
My company:
Binary Options Investor
My blog:
Binary Options Investor
  • Why It Is Important To Consider Risk Versus Reward When Trading Binary Options 0 comments
    Nov 26, 2012 10:40 AM

    The first thing that you need to think about when trading is how you intend to identify opportunities to take in your account. There are a great many strategies out there which you can use. Most traders find that backing the market is the best way to trade and will follow some form of basic trend following strategy to trade. Of course you will also need to find the best asset to back and also identify the best time of the day to trade and time your entries.

    However more fundamentally you should have some idea of how your strategy will perform if you want to make a profit. This is where it pays to monitor both your trades and your results to have a clear picture of how the strategy will need to perform if you are to make money over the long term. To calculate how successful your strategy is you will need to firstly know what both your profit and loss levels are on each contract that you place. This will then allow you to work out the how many positions you will need to win to be able to move your account balance forward.

    Once you know what you stand to win and what you will lose for each trade you place, you can then work out what strike rate you will need to make a profit on your account. For example if you earn a 75% profit for each in-the-money contract and you lose 95% on each contract that ends for a loss then you can calculate what is known as the 'breakeven percentage calculation with the following formula - Loss/ (Loss + gain) x100. In this example you strike rate (the point that you reach breakeven) would be 55.8%. So in other words you would need to win over 56% of all the trades that are taken on your account in order to see a profit build in your account.

    When using this formula you will be better able to critically assess your performance and work out how to refine your strategy for top performance. You can try out this approach on a demo account and work out whether your strategy will deliver sufficient performance to warrant trading with it. It will also allow you to balance your trading risks as you will be in a better position to limit any losses on your account and gain the edge which is required for successful trading.

    You can read more tips for developing good binary options strategies by visiting the Binary Options Investor.

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