How do I Know When to Quit My Binary Options Strategy?
It is easy for traders to get stuck in a rut. Sometimes it is simple burn out but sometimes there is a deeper, more sinister cause…a bad strategy. How do you know if your strategy is bad and if it is, how do you fix it?
Stuck in a rut? Having a hard time breaking yourself out of a losing streak? These are unfortunate but not uncommon problems experienced by traders of all varieties. Sometimes it is nothing more than an unavoidable string of losses, something that every great trader experiences. Sometimes all you need is to take a break and get some fresh air but sometimes it is much more than that. Sometimes a string of losses or a trading rut can be a symptom of an underlying problem. How do you know the difference and what do you do about it if you do? Discovering the source of a trading problem can be very hard. Traders are, by nature, risk takers and there are a lot of factors involved with any trade. Here are some tips on how to recognize when you are in a rut and what to do about it.
Identify the Problem
This is usually a string of losses, or a prolonged string of losses to be exact. Every system is subject to losses, they come and go like the wind. There are bad binary options strategies, but there’s also bad traders. Managing losses is the key to long term profitability. If you have an uncontrolled, unusually long run, or too many losses to maintain account growth then you have a problem. As I said, this could be simple. Maybe getting a breath of fresh air, grabbing a beer with your pals or having dinner with the wife will help. It could be something more sinister so don’t be afraid to take a closer look at what you are doing.
Admit you have a Problem
Isn’t that what “they” always say. The first step to solving a problem is admitting that you have one. It makes sense. You can’t fix what you don’t think is broken. This is different than tip number 1. Identifying that there is a problem is not the same as taking ownership of it. Once you take ownership then you can truly move on to discovering what it is and what to do about it. You can’t blame it on the news, or charts or the indicators. These are only tools. If you are losing on a regular basis, or if you are losing on a net basis over time, you have a problem and need to address it.
Take Stock of the Situation
Once you have admitted there is a problem you have to figure out just what it is. Is it your money management? Is it your strategy, your system or just you? It is possible to have a good, sound system and still produce a net loss. The reason could be that you are not following the rules properly or that market conditions have changed or that your favorite indicator does not work in certain time frames. If you are like me you use more than one indicator, more than one strategy and trade more than one asset. How to know where the problem lies can be tricky but is solved by keeping records and logs of your trades. What you traded, when you traded it, how you traded and if it was profitable or not are important things to know when reviewing your system. Trade logs like the one at CommuniTraders will tell you which asset is your best and most profitable and which types of options you are most profitable with.
Once you figure out where you are going wrong it is time to make adjustments to your strategy or system. This may mean starting from scratch but usually it just means that you need to sharpen your focus in some way. My logs from 2013 showed that I was not doing well trading puts. They also showed that my worst asset for the year was the EUR/USD. I know from memory that most of my trades on the pair were puts. What does this mean?My problem area for the year was trading the EUR/USD with puts so my adjustment naturally would be to stop trading puts on this pair until I have gotten a better understanding of the market.
Use a Demo!
Use a demo account to hone your system. Once you have pinpointed a problem area and made your adjustment you can use a demo account to practice and fine tune your strategy/system. This is another area where CommuniTraders has been a big help to me. CommuniTraders is far better to practice new trading techniques, or ones you have lost confidence in, in a demo account than with real money. Once you are getting good results again it will be time to move back into real trading.
Sometimes… You’re Just Tired. Take Some Rest!
Of course it is possible you are just burned out and need to take a break. Trading is not a physical task but the mental power it takes is very draining. I myself am plugged into the news just about 24/7 and that is not counting trading hours when my trade station is up and running. Needless to say my eyes get tired, my mind gets tired and I get cranky. Burn out is common to all professions and should not be ignored by binary traders. Sometimes you just need to take a step away, stretch real good and go outside for some fresh air. Or in my case, a ripping mountain bike ride with my buddies that pushes all thoughts of trading from my mind, or a nice night out to a new hipster bar with my girl. Regardless of the reason for your rut, it is very important to be able to recognize it and to have a way to get yourself out of it.