Binary Options Principles

May 09, 2012 1:46 PM ET
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Medium-Term Horizon, Long-Term Horizon

Contributor Since 2011

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The principles of binary options or for that matter any traditional strategies are the criterion that differentiates gamblers from traders and improves the chances to make money from analytical investments. These principles are universal to all markets and separates successful traders from the mob of others. These principles are the fruit of the experience of veteran traders and must be followed by the word. Listed below are the guidelines a trader must follow in order to have a chance to make steady profits:

Follow facts not feelings

You cannot get emotional as a trader. A trader's strategy must not include his gut feeling of the fate of an asset; rather it must be based on rigorous collection of data & stringent analysis. The devotion of time to the study aids in concluding essential details about the nature of the asset and helps in making the right predictions. Without paying attention to these facts the investment done is analogous to gambling where there is a higher chance of losing than making a profit. For short term binary options, trader decisions are inspired by timely economic data & technical analysis (especially support & resistance levels).

For binary options of longer maturity times, a fundamental analysis must be done to assess the asset strength whether it may be - a firm, an index, or a currency.

Smart money management

Though with binary options, money management tends to get easier as there are no brokerage fees but one must still be wise in managing money. There are fees incurred in withdrawals and other miscellaneous activities that gnaw away your gains even though you make profits consistently. Traders with same amount of capital gains may have distinctive differences in the net incomes, depending on factors like the number of withdrawals they make.

Specialize in your asset class

In almost all circumstances it is advisable not to be "a jack of all trades and a master of none" i.e. a trader must look to specialize in a particular type of asset class, learning about its nature. A deep understanding of the price movements of a class of assets is more likely to give you profits than a shallow knowledge of a variety of classes of assets. Half baked knowledge about an asset would not instill enough confidence for a high stake bet like binary options trade. A firm grasp about the behavior of one class of assets makes the trader more alert and enables him to react quickly to changing situations.

A trader can always learn from the experiences he has in the market and it is essential to utilize this experience in order to increase the percentages in your favor. An experienced trader has a better understanding of the market trend than a newbie & thus is capable of making more accurate decisions. Another principle of binary options includes awareness about different strategies, like how a change in the value of one asset can affect the other assets and use it to your advantage.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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