Binary Option Alliance

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Category: Strategy (page 2 of 2)

Risk Management for Binary Options

Managing Risk is Important With Binary Optionsstrong-risk-management binary chain

Learning proper risk management plays a very important part in becoming a successful Binary Option Trader. Risk Management, which is similar to the insurance policy protecting the value your car, house, or any valuable asset to you, is an important element to any financial investment. When it comes to binary options, the risk potential that you face is limited in that you don’t lose more than your initial investment. In addition, if your trade expires out of the money, you can still receive a small percentage of your beginning investment back to your trading account with some platforms. Managing risk correctly while trading options can make the difference between profiting in your trading career and clearing all of your capital completely.

For every trader, it is very important to have a good understanding of how much risk you’re exposing yourself to if you desire to be successful in binary options. The purpose of this article is to look at the importance of effective risk management, how to control your losses and what strategies to use when managing your risk while trading binary options.

Why Managing Risk is so Important

risk_management binary options
Risk management is one of the main elements to profiting in the world of investing. Binary options traders have the knowledge of how much risk and profit potential they have before they place a trade. However, this doesn’t eliminate the risks involved with trading. Learning and applying effective risk management strategies is the how you eliminate risks while trading on the financial markets.

As a trader, you have to have know that you have the ability to lose all of your money without being cautious. risk management options
This is an easy concept to grasp, where most people struggle is when it comes to the actual application of it. Most Brokers place a lot of emphasis on the benefits of binary options while ignoring all the downfalls, which causes a lot of traders to believe that placing large risky trades with big money aims are the way to go.

What to do about Risk Management

It’s very easy for those that have a demo account to practice risk management, I do have to mention that trading on a demo account is often quite different to REAL trading, You see, after emotions and real money come into play, the game changes completely. Emotions can cause weird and wonderful thoughts to occur which affect the decision making process.

no fear trading optionsImagine placing trades with full confidence, without the fear of loss because you have a system that works. This is why managing risk with binary options is so important, so when the market moves against you, you are calm cool and collected because you have a system in place that works. My “System” is called The Successful Edge and it’s not really a system it’s a methodology taught to me over the years by a 30 year trading veteran.

Risk Management: Loss Control

One of my recommended ways to manage risk is by taking control of your losses from each trading position. First you need to understand that losing in binary options is completely normal. Don’t Panic!  All professional traders lose every now and then. Winning each trade every time is just not realistic.

Binary option platforms do not utilize the stop loss feature you have with forex and stock trading platforms. Instead, you can cover your lost trades by hedging your trade or by covering your loosing trade with a trade whose profit will cover the lost investment plus an addition to your total capital. To learn more about how to implement one of these strategies please see the Double Profit Tutorial

Bottom Line- Risk Management in a Nutshell

 

If you don’t manage risk correctly you are living on the edge of disaster.  Managing your risk profit loss binaryrisk in binary options is all about maintaining control of your trades, so until you are confident with your risk management procedure I suggest managing only a few trades at a time. The more trades you have open, the more risk you will be exposed to. Makes sense doesn’t it? Less trades lowers risk. The more control you have on risk exposure, the more flexible you can be when the occasion arises. As a trader, you should have the ability to act when an opportunity in the market arises. Directing your attention to managing risks correctly will enable you to continue trading even when things don’t go as planned. Managing your risk while trading Binary Options is very important as it can be the difference between being a professional binary options trader or another chart statistic.

 

Double Profit Tutorial

Double Profit Method.

In order to maximize your profitability with binary options, it is important to capitalize on the right market conditions. Here I would like to demonstrate a simple strategy that minimizes risk and maximizes profitability.

(If you are not familiar with option trading I suggest you first check out Option trading Explained)

The concept is quite simple, Markets move up and down- in other words-they fluctuate. To double your profits you will need to take advantage of the swings of the markets.

As you can see in the image below the price history (green and red audnzd2bars in the top section) has travelled upwards for a period of time, so when my indicators begin to signal a reversal,  (see the green arrows) I place a PUT trade with an expiry up to 1 hour (shown by the vertical white line) The horizontal white line indicates the level at which I placed the trade, which was @ 1.11031  . So what I’m predicting is that at the time of expiry (vertical while line) the price will be below the level 1.11031

The image below is  sightly more zoomed in to give you a clearer idea of what is occurring.

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In this image (above) you can see the price level has increased past my trade level of 1.11031 and is at now @ 1.11041 and I am now out of the money and the fear of loss is upon me.  As I keep my emotions stable I refer to my indicators which indicate a downward move soon so I am  relaxed and ready to place a CALL trade when the market reaches a lower level than 1.11031 in order to protect my initial investment.

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As you can see in the image above that the price did in fact move downward below my trade level of 1.11031 and I have now placed a CALL trade @ 1.11000 ( shown by the second lower horizontal white line) using the same expiry time (vertical white line) , The first prediction is saying the price level  will go down (below 1.11031) , and the second prediction is saying the price level will go up (above 1.11000)

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As you can see, in either case I will win one of the trades.  If the price level goes down I win on my first trade. If the price level goes up- I win on my second trade- minimizing risk.  If the price level expires between 1.11031 and 1.11000 I will win both of the trades, doubling my profit.  Lets see how it plays out in the following images.

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UH OH! my first trade is out of the money. dontpanic-marvin-ltr1

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In this image it looks as if I am going to loose my first trade predicting it will expire below 1.11031, my emotions are stable and I notice the indicators signalling a downward move is about to occur .

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looking good…

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hold…………. hold……………………..HOLD!!!

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BA-BOOOOOOOOOM!! both trades expire IN THE MONEY  @1.11013 which is below my PUT of 1.11031 and above my CALL of 1.11000  so I bank myself double profit, rinse and repeat.

Interested in seeing more trades of mine, check out my Recent Trades

This was traded using the Interactive Option platform which provides  diverse expiry times on a wide range of assets, you can read my review on interactive option here.

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