In a previous article on this site, we talked about 10 habits of successful traders, including keeping a journal, making good use of trading tools and features, maintaining a balanced and healthy lifestyle, and treating trading like a business. Now let’s talk about the 10 worst habits of binary options traders. These are behavioral patterns that are very common, but which are just about guaranteed to cause you to lose your money. Even veteran traders sometimes find themselves slipping into these patterns. For newbies, they represent an even greater temptation. This article, like the other, is geared at serious traders who are aiming to become professionals and trade for a living.
Overtrading is one of the biggest pitfalls of trading for impatient binary options traders. Do you have a favorite asset or assets which you prefer to trade whenever possible? When you haven’t taken a trade for a while, do you start to feel like you aren’t trading enough, and you will never make enough money if you do not start trading more? Overtrading is the tendency to trade when you should not, because you feel you are failing to meet your profit margins. This typically results more often in lost trades however, and not in lost profit.
What should you do instead? One idea is to start looking at different assets for opportunities. The binary options world gives you access to hundreds of different choices. There is no reason to cling to one or two assets and overtrade them when you can instead focus on finding better trades elsewhere.
- Justifying your trades.
Do you ever find yourself with a possible trade setup in front of you, having a conversation with yourself about why the setup is acceptable, when you know in your gut that it is not the best trade you could ask for? Whenever you find yourself doing this, you are trying to justify a losing trade. The trade may or may not actually go on to lose, but you are not taking the best trade you could. The more you start compromising on your entry criteria, the more bad trades you will end up taking, and the more money you will eventually lose. You may also start losing perspective on your own trading methodology, leading to confusion and a gradual lack of accountability. As your standards start to fall, you may forget what they are supposed to be.
- Skipping testing when you make changes to your method.
You may think that a small change to your method doesn’t require testing, if it makes sense based on what you have learned from past experiences. In reality it is a very good idea to test any change. If your method was already working all right, you can continue trading live with your system the way it was before. Simultaneously, you can test the changes in your method to see if they really did result in improvement in your demo account. When you see the results you want there, you can switch to using the changes when you trade with your live, funded account.
If you start getting lazy about testing, you are basically making the decision to leave the fate of your account up to chance. It is a bad idea, because when you start getting lazy about one thing, you will probably start letting that laziness leak into all things. You will not only damage your trading system, but also your personal discipline. And as any binary options trader knows, self discipline is almost as hard to build as a successful account.
- Ignoring the rest of your obligations.
Learning how to trade is a full-time job, and if you are already working another full-time job, balancing the two can almost impossible. Trying to then balance in the rest of your obligations may seem insurmountable. One of the worst habits of traders is to let other things go—like sleep, healthy meals, and social time. Make time for yourself, your family, and your friends. Take care of your body and mind. Keep a regular schedule. Learning how to trade is important, but remember why you are doing it. You are trading so you can make money and enjoy your life. If you trade away your life in the process, you will have nothing left to enjoy when you do become wealthy.
- Becoming complacent.
If you are doing well with your trading, you may feel like you can rest on your laurels. After doing so much hard work, it is hard not to be tempted to kick back and relax for a while. But if you do, you may find your trading slipping away from you. You can never take anything for granted, and you must accept that the financial world is continuously changing. You will need to make periodic and regular changes and adaptations to your existing trading approach. This is unavoidable over time. If you become complacent, you will wonder one day why your trades have suddenly stopped winning, and you may panic, because you don’t have your head together.
Resist the urge to become complacent. Instead, always be asking yourself, “How can I continue to improve my trading?” That does not mean you should always be changing a system that works, but you should constantly be looking for ways to do what you are doing well even better. If you do find changes that might lead to improvements, you can test and implement them. Otherwise, at least you are still learning, and you will be ready for change when it arrives at your doorstep.
- Risking too much on certain trades.
Another bad habit of binary options traders is the tendency to risk more money on some trades than on others. Have you ever looked at a certain trade opportunity and thought to yourself, “This one is a surefire winner. Why not invest 10% on it? After all, I am almost positive that it’s going to make it.” The problem with this thinking is twofold. First off, 10% is just way too much of your account to risk on any one trade, no matter how confident you are in it. Losing is always a possibility. This is why it is called risk management. You are managing risk, not certainty.
The other problem with this thinking is that you must be taking trades which you are not that confident in regularly if you are wagering less on some and more on others. You should only ever be taking trades like this one, which you are so sure is going to win. Why would you ever take on more risk than you have to? If you take only the best trades, you will win far more often than you would otherwise, and all your statistics will be better. You will get a much higher Return on Investment (ROI). Again, if you are not finding the best possible trades with your favorite assets, consider branching out. Do not overtrade, and do not risk more on some trades and less on others. Always risk a consistent percentage (around 3%).
- Freezing up on perfectly good trades.
Have you ever lost a trade or two, and then discovered you have become squeamish about trading altogether? Maybe you had a brief losing streak, and now you are starting to panic and think that your system is broken. You may see a good setup, and simply not take it, because you are so afraid of losing again. Then you watch the trade go on to win. You start missing trade after trade. Then one day you get fed up with this, and you randomly enter on the next setup, only to find yourself losing again. And because you have skipped so many good trades, your win percentage declines, and you lose even more confidence.
Had you taken all the trades you were supposed to, your little losing streak might have been just a glitch, and things would have righted themselves. But by freezing up and losing confidence, you have turned the situation into something that is spiraling out of control. If you struggle with this problem, read our article, “Why Aren’t You Pulling the Trading Trigger?”
- Chasing losses.
This is a habit which is the exact opposite of the one above. Instead of freezing up and deciding not to trade, you start trading like crazy because you want to get back at the market. This is a form of emotional trading. You are allowing your anger to drive you into making irrational decisions. You may not even realize you are doing it until you have been doing it for a while. Anytime you lose a trade, it can pay off to step back from your trading for a while and take a closer look at what you are doing and why you might have lost your trade. Then you can move forward with confidence (or go back to testing, if that is really necessary). The market is not an entity you can get revenge on, and personifying it is never a good habit for any trader.
- Relying too much on others.
Another common and foolhardy newbie habit is to lean too much on the expertise of more advanced traders. There is nothing wrong per say with purchasing a signal service or even a trading system if you find a good product. But it is important that you learn how the signals are generated, do your own analysis, and make your own trading decisions. Likewise, if you buy a system, learn how and why it works to generate profits before you start using it yourself. The expertise of others can help you to get a foothold in the market, but those expertise can fail. Ultimately you need to learn how to rely on yourself.
- Ignoring the reality of your account.
When you lose a trade, do you turn around and simply deposit more money to compensate for the loss so that you can go on trading as usual? If so, take care to make sure that you are not ignoring the reality of what is happening to your trading account. Quickly depositing new money can easily trick your brain into skimming over your losses, because you do not have to see them reflected there in your balance, and you are not suddenly trading with less money and struggling to climb back up to break even. There is nothing wrong with replacing the money you lose, if you can afford it. But it is essential that you come to terms with your binary options losses so that you can make the appropriate changes necessary to start winning consistently.
Binary options trading can be both fun and lucrative, but only if you engage in good habits and not in bad ones. Bad habits are easy to form, and all the of the behaviors listed above can become unconsciously ingrained if you do not pay close attention to what you are doing when you trade. Keeping a trading journal can help you to track your behaviors and make sure you do not form bad habits that can cost you money.