How to Create Your Own Binary Options Trading Plan

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Trading Concepts: Creating a Trading Plan

Start a business, you need a plan. With no direction or planning for how you’ll make a profit, your business likely doomed. Trading is no different, if you want to succeed, you’ll need to think of trading like you would a business. After all, through your research, skills and ultimately your money you’re making an investment in yourself, which hopefully will produce consistent profits and the lifestyle you desire. This doesn’t happen by accident (at least not often). It happens by creating a plan for your trading, and outlining exactly how you will trade. Creating a solid plan is a key step that all beginning traders should take, as failing to do this will likely result in simply failing.

Creating a plan leaves your emotions out of trading. When you watching your trade turn into a big loss or a big gain your mind can spin, causing you to deviate from the original strategy you had in mind, if you had one. The trading plan takes care of this. It gives you methodical instruction on exactly how to handle each trading situation should arise. It also tells you how to handle multiple trades. As a trader you may want to make more than one trade, but because you are anxious about your other trade you decide to skip out on a good opportunity. Alternatively, you may take on too many trades, exposing yourself to too much risk. A solid trading plan not only tells you how and why you are making trades, but also how you will handle a number of trades (if you so choose).

Probably the main benefit is that when you follow a plan you see what works and what doesn’t, and can monitor your results. Random trades, where you just buy and sell for any reason that strikes you, provide no useable feedback, because yours wins and losses will be as random as the impulses that generated the trade. Only by following a plan can you see if the strategies you are using actually work, or not, so you can make calibrated adjustments to improve.

Before You Begin

In order to create an effective trading plan, you need to consider several things thing before you begin:

  • What style of trading best suits my personality? If you are someone who is low-key and prefers little drama, then you will likely want a trading style that is more in line with swing trading or investing. If you like action, then align your trading style with a more active style of trading such as short-term/day trading.
  • Are you going to trade binary options, stocks, forex, futures, or a combination? Each has advantages and disadvantages; pick your markets(s) so you can create a plan for that market(s).
  • What are your objectives? Why are you trading? Simple saying you want to make more money isn’t clear enough. Define what you want to make, and why–buy a car, buy a house, pay for kids school, etc. Your trading plan is the plan to get there, based on your resources, trading style and how often you trade. How often you trade will likely be determined by the entry and exit rules for your trades.

There are many excellent trading strategies out there, or you can create your own. Some basic entry methods are covered in my recent article Capitalizing on Lower Highs and Higher Lows in Price. Once you find a strategy you like, use this section of your plan to outline exactly how you will enter trades based on the strategy.

Your entry rules outline what market criteria must be in place for you take a trade. Here are some questions to ask yourself to get started. Does an indicator need to reach a certain level to take a trade? Does the price need to break an important level? Do entry signals need to occur on a specific chart, such as a 5 minute, 15 minute, or hourly chart. Do all trade signals get traded, or will you use a filter to screen some trades out? Do you enter exactly when a criteria is hit, or do you wait for a price bar to close before entering?

Think about your strategy, and then formulate exactly how you will enter those trades. If you use multiple strategies, this process must be done for each individual strategy.

How to get out of a trade is arguably more important than how you get in, since your exit is where you make or lose money. Therefore, your exit rules must stipulate exactly how you get out of both winning and losing trades based on your strategy.

If you are trading binary options, your profits and losses are fixed and therefore this section may be quite brief, since your broker essentially exits your trades for you. If you trade other assets, this section can get quite extensive.

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You’ll need to determine where you will place a stop-loss order–an order which will close your trade and limit the amount you can lose. Where the stop-loss is placed must be determined before any trades are made, because without it, you don’t know how much you are risking on the trade. Once the trade is in motion, you may choose to implement a trailing stop. A trailing stop moves with your trade, reducing your risk or potentially locking in a certain profit once the trade moves in a profitable direction.

You’ll also need to outline if any profit targets will be used. Profit targets are pre-established price level or percentage-return levels at which you close your position (or part of it) to realize a profit.

You may choose another exit method, such as exiting simply when the criteria that got you into the trade disappears. If you entered because a trend was in place; when the trend breaks that could be your exit.

Outline your method for exiting profitable and losing trades, in fine detail, for any scenarios that may arise.

Money or risk management is the most important aspect of the plan. A basic rule for money management is that you shouldn’t risk more than 1% of your trading capital on a single trade. This is why you must determine your stop-level in the Exit Rules section. Once you set a stop-level, you know what your risk is.

Once you know your risk, you can determine how many contracts or lots you can buy. Managing your position size is crucial, as buying too much can create additional risk, while buying too little may make it difficult to reach your objectives.

In this section also consider whether you can take on multiple trades, or only one at a time. If you take on multiple trades, can they be correlated? If two assets are highly correlated, and you buy both of them, you are essentially taking the same trade, and doubling your position size. Consider these factors, and outline exactly how you will manage your money, risk and positions in order to reach your objectives.

Creating a trading plan will take time, but is well worth the effort. It should be very detailed, and at absolute minimum contain the sections discussed above. As you trade, things you didn’t consider will occur, and you’ll need to go back and tweak your plan. Once your plan is profitable though, avoid tinkering with it. The point of the plan is make your trading systematic, so you see what works and what doesn’t. If you constantly change the plan it won’t have time to show you if it is really working or not. Take the time to make a plan, because lack of planning leads to trading failure.

How to Create Your Own Binary Options Trading Plan

If you have ever spoken to a successful binary options trader about their operations, there is one thing that they will insist. This will be to always create and utilize a trading plan. Many novice traders feel as though they can simply begin trading options, straight off the bat. These individuals, however, treat binary options trading more like a gambling venture than an actual investment. More often than not, these traders will experience more losses than wins and will likely have to forfeit a considerable amount of money.

If you are more concerned with celebrating in the winner’s circle, you need to be the man or the woman with the plan.

  • This means carefully considering just what type of trader that you want to be.
  • Once you have figured this out, you will need to outline a trading strategy that is in line with your goals. The final step is to test your plan out to determine whether or not it works.
  • Once you have worked out all of the kinks, it is time to put your plan into action. If you are interested in knowing how to be successful, keep reading to discover a few trade secrets. Here is what you should include when creating your own binary options trading plan:

Why You Should First Define Your Assets

One of the first things you will need to include in your binary options trading design is the asset class you wish to dabble in. However, here, you are going to need to find an equilibrium. This is because in order to diversify your trades and limit losses, you are going to need to be involved in several asset classes and markets. At the same time, nonetheless, you need to find that magic number of markets that you can focus on. Trying to keep track of too many markets will only confuse you and prevent you from accumulating relevant information. Particularly when you are starting off, you should stick with a handful of assets.

How to Decide Your Trade Timings

Another thing that you will need to add to your binary options trading plan is the timings of your trades. Nevertheless, this is not an independent factor. To a large extent, you can determine your timings until you have decided on the strategy that you will be utilizing. Once you have narrowed down your trading techniques, this will dictate what the most opportune times for your trades will be. You are going to have to discern which interval is best for the particular strategy that you have chosen.

How to Grade Your Strategy

It is not enough to just have a strategy, it is also important to know if that strategy works or not. This is why the other thing you need to include in your trading plan is the profit probability. Depending on your strategy, you may discover high profitability but a low win rate. Conversely, your technique may have a high win rate but low profitability. Determining the profitability will impact many other decisions that you make. For instance, it will change the way that you trade with particular markets. Furthermore, it will also influence the type of broker that you will choose. Once you know in which manner your strategy is profitable, you will be able to ensure that the other elements work together to assure maximum profit.

Why You Should Always Record Your Results

One of the things that traders can forget to do is to record all of the trades that they make. This is not just to keep score of how many wins and losses you have accomplished. Instead, it is about understanding the techniques that you used and how they performed under particular market instances. Thus, the last part of your trading plan should include keeping strict records of everything that you do. This means monitoring the nature of the trade, the duration, the forces influencing it, as well as the outcome. Over time, all of this information will prove to be quite useful in determining your future trades.

These are all of the things that you should have in your binary options trading plan. It is important to never start trading before you have worked out a system for yourself. Only once you have a clear and concise idea of what you will be doing should you go ahead and begin trading options.

Creating a Trading Plan for Trading Binary Options

Wednesday, June 21, 2020 – 9:30am ET

Presented By Gail Mercer – Traders Help Desk
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Listen to Gail Mercer with TradersHelpDesk.com discuss how to create your own trading plan when using binary options

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Create a 12-Step Business Plan

Are you planning on trading binary options for a living? If so, it is important to make the jump from thinking of binary options as a hobby to thinking of it as a business. That can be hard to do when the industry largely encourages the former. More than ninety percent of binary options traders who trade as hobbyists will never learn how to trade well enough to do it professionally. If you do, you need to take the same steps that any other professional would when getting started with a new business, and that includes coming up with a business plan.

A business plan is not necessarily interchangeable with a trading plan (which I have talked about in-depth previously), though the two can go hand-in-hand. Your trading plan can be a part of your general business plan. Your business plan takes a broader look at how you will organize your business, while your trading plan has more to do with the day-to-day of trading itself.

There are three main types of business plans:

The 30-40 page formal business plan with which many people are familiar is the “external” business plan. A lot of new business owners are discouraged making a business plan, because they are under the misapprehension that all business plans are external business plans. You do not need anything this extensive though unless you are looking for outside investors. And odds are, if other people are going to pay you to trade for them, they are going to find you organically based on your public trading results anyway. So you probably do not need one of these at all.

Internal business plans are less formal than external ones, and have a focus on strategy and budgeting. You probably do not need this either, unless you are going to be trading with partners on a team. If you are going to be trading on your own (almost a certainty in the beginning), the One-Page plan is probably right for you. This is literally just a really brief rundown of your plan that fits on a single sheet of paper.

There is no single “right” model for a business plan; there are endless variations on every kind. A lot of the questions which are applicable to other businesses probably are not applicable to you right now. For example, you do not need to spend time thinking about the right kind of customer, unless you are planning from the start to manage other peoples’ accounts. If you are only trading for yourself, you have no customers. Likewise, you do not need to worry about a “product” or a “service,” because you are not producing anything. Nor do you need to market nor worry about demand (one of the nicest things about binary options trading!).

There are a few topics you should go over, though. Ask yourself the following questions:

12 Step Binary Option Trading Questions To Ask Yourself

1. What resources do I need to get started in binary options trading?
2. How much can I afford to invest?
3. What are my minimum needs to get started in trading?
4. How will I generate revenue?
5. How will I use that revenue?
6. Where can I get support?
7. What are my likely pitfalls?
8. What are my goals?
9. What is my trading plan?
10. What direction do I plan to take this business?
11. How do I measure success?
12. Where do I go from here? What is my next step?

Now I want to talk about each of these different points in a bit more detail so that you know what to think about when you write down each.

1. What resources do I need to get started in binary options trading?

In many ways, thankfully, binary options trading is a fairly simple business to get into. The supplies you need are quite minimal. You need a computer and/or a mobile device (I do not recommend trading exclusively on a mobile device; a desktop or laptop is very helpful, if not completely necessary) with a reliable and fast internet connection. You need time to trade, though not necessarily as much as you might think (you can do this on top of a full-time job if necessary). You need money to invest. You need to choose a broker to invest with. And you need knowledge and a trading system. The last two will probably involve the most work (along with finding the venture capital). And that is really about it.

2. How much can I afford to invest?

Budgeting is always something to consider when starting up a new business, and trading is no exception. Take a good hard look at your monthly finances and savings, and ask yourself how much you can responsibly afford to invest. Can you add to your trading account each month? If so, what is the upper limit on that which will not interfere with the rest of your financial life? How much can you take out of your savings to fund your account while still leaving a safety net?

3. What are my minimum needs to get started in trading?

What do you need at an absolute minimum to start trading? And no, “$100” is not a good answer, even if it is your broker’s answer. Why? A couple reasons. Firstly, with $100 in your account, you cannot trade according to a responsible money management plan if the minimum trade size is even $10! You need to deposit enough that you can trade no more than 5% of your trade at the very outside, preferably less than that. Secondly, you will be making money at such a crawl at that rate that there really would not be much point. I would recommend starting with at least $500, but once you do the math, you might decide $1,000 or $2,000 is a better number!

While you are at it, also ask yourself what minimum testing results are acceptable to you when it comes to going live. How many net winning trades per month at a minimum would you be willing to start with? What win/loss ratio would you be comfortable with? Whatever rule you set for this, you may end up adjusting it in the future, but be very cautious about doing so. So long as you are setting realistic expectations at this juncture, those expectations should be attainable. It is dangerous to compromise in this area. You do not want to tempt yourself into trading with an inferior system later down the line.

4. How will I generate revenue?

Here, most business plans go into a pricing model. Thankfully for you it is probably much simpler than that. If you are trading on your own, your revenue is whatever money you make from your trading. If you are trading with a team, you will need to decide how and when to divvy up the winnings. If you are trading for clients, you will have to decide what percentage to take as a commission, and when you will be paid. Again, if you are trading for clients, you will need a much more comprehensive business plan.

5. How will I use that revenue?

What will you do with your profits from trading? Will you take them out and use them to pay for expenses? Will you put them in savings? Will you keep them in your account? I highly recommend the latter. If you are constantly removing money from your trading account, you will never be able to grow that account. You have to be able to build your account up, or you will always be investing the same small amount of money. 2.5% of $500 is a much lower number than 2.5% of $5,000. If you are always removing money from your account as you win, your balance will never move far above the $500, and you will never be able to trade 2.5% of $5,000, or $50,000. If you are planning on removing money from your account constantly to finance your everyday life, I suggest you look for a reliable day job before you start trading.

6. Where can I get support?

Identify online trading communities where you can talk to other binary options traders. That way you can get the support you need emotionally, and also gain access to educational materials. Ensure that your binary options broker provides you with a reasonable amount of support as well. You may also want to search for a binary options mentor or coach who can teach you about trading and help guide your progress. This is not an easy business to pursue completely on your own in a vacuum.

7. What are my likely pitfalls?

Try and predict what some of your biggest pitfalls are likely to be. Maybe you know that you struggle with money management, or perhaps you know that you tend to be an emotional trader. You might also know that there are potential problems with your trading method, certain types of markets you need to avoid trading in, and so on. Perhaps you know you will react badly to failure. Whatever your likely pitfalls are, make a list of them. Avoid the ones you can. Those you cannot avoid completely, you will need a contingency plan for.

8. What are my goals?

Why are you trading binary options? There are a number of long- and short-term goals you can list in this section, but make sure the goals you list are actually useful. Useful goals are S.M.A.R.T. goals: S mart, M easurable, A ttainable, R elevant, and T imely. These goals will keep you on target, but they will not discourage you. They are realistic enough that you can actually achieve them, and specific enough that you can measure your progress toward them. A great goal to start with is, “I want to trade binary options for a living.”

9. What is my trading plan?

This is a whole detailed section in itself, one which you will probably look at every single day as a binary options trader. Your trading plan is a document which includes a detailed approach to binary options trading, including:

• What assets you will trade
• What your trading method is
• What your entry criteria are
• What your exit criteria are
• What expiry times you will trade
• How much you will risk per trade as a percentage of your account (your money management plan)
• What days and times you will watch the charts
• Your trading schedule
• What devices you will trade on
• Where you will trade
• If and how you plan to use auto-trading, signals, and alerts
• Which signal services you will use, if any
• A checklist for any trade you are thinking of taking
• What you will do if you encounter a losing streak

You may think of other details to consider in your trading plan as well. There is no limit to what goes into your plan; in fact, the more, the better. Just try to keep it succinct on the page, so that you can view it all at a glance and review any time you need to. I keep this file right on my desktop so I can look at it any time. Some traders even print it out and tack it to the wall next to their computers.

10. What direction do I plan to take this business?

Will you always be trading on your own, or do you think someday you might want to try trading with partners? Are you thinking of taking on clients someday? If so, what would you need to achieve with your own personal trading account to feel comfortable doing that?

11. How do I measure success?

Setting goals is perhaps the first step in measuring success, because you cannot figure out if you are making progress unless you know what you are progressing towards. Even once you do, though, you need to come up with mile markers you can use to help you establish where you are. The first instinct for most new binary options traders is to use the dollar amount in their account as their measurement of success. While you definitely want to see that number climbing, I recommend that you steer clear of this definition of success. Why? You will be moving along slowly in the beginning, unless you happen to have a huge account to start with. That method of tracking success encourages impatience, and may make you feel like a failure when you are not one.

I suggest instead that you measure success according to other quantitative and qualitative criteria. Look at your statistics and figure out which ones are most important for determining profitability. Measure success as you push those statistics higher and higher. Your return percentage matters more than the dollar amount. You can also measure success according to your own personal performance. If you follow your system rules, make all the right choices, and stay disciplined, you can count that as a win every day. And remember, no one has perfect success with a business! Do not get too down about your failures. Just learn from them and move on, and you will get better and better at what you do.

12. Where do I go from here? What is my next step?

You can plan all day long and never get anywhere if you do not eventually take that plan and put it into action. So the last step in writing your binary options trading business plan should be to figure out exactly what you need to do next. What can you do to start accumulating the venture capital you need to start trading? How can you begin soaking up the knowledge you need to become an expert? What trading methods can you begin trading right now? What communities can you join, and what conversations can you start?

Once you come up with your next steps, do not stay nebulous about them. Instead, translate them into achievable short-term goals. Set a schedule for accomplishing these tasks. Put aside a certain amount of money each month until you have enough to trade. Decide on a weekly schedule for researching and testing binary options trading methods. Come up with a tentative guess at when you could start trading live. Know that you will probably have some setbacks as you move toward that time, but don’t let that hold you back.

It takes time and thought to come up with a binary options business plan, but you can probably get one written out in an afternoon. Doing so can actually save you a lot of time and money, since it will get you on target and on schedule. Since you will be more focused, you will be less distracted, and you will have a much better shot at achieving your goal of trading binary options for a living.

Create Your Own Binary Options Strategy

Here we teach you the advantages of creating and using a strategy for binary options trading. Once you learn how to master your emotions and separate the rational from the irrational, you will be ready to harvest your own psychological tendencies for your benefit. This is quite possibly the hardest part of becoming a good trader, but sadly winning that particular battle doesnt win you the war. Alas, this is where the real learning begins. The next step is delving into the realm of binary options trading strategies.

Simply put, a trading strategy is a plan designed to attain a favorable return if your investments. A good strategy has to be consistent, objective, quantified and verified. Being consistent means that it has to consistently work as intended, or it has to bring more profits than it brings losses. Objective simply means that it has to be based on objective values and relevant data. You cant just spontaneously make a good binary trading strategy appear out of thin air. It has to come from the proper conclusion based on accurate and relevant data. The strategy has to be quantified and verified, meaning that it has to work as intended multiple times.

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Advantages of Using a Strategy

You cant be a serious options trader without a stable strategy. There are numerous strategies you can use (some of which we will cover in further sections of our site) so you dont have an excuse not utilize the endless possibilities at your disposal at any given moment. A strategy can account for the risks, as well as the capitalization levels needed to accomplish the maximal rate of sustainable return. Without those two components of a trading strategy, you are not trading, but gambling (although that might not be completely true since some gambling activities also involve strategies, which means that statistically speaking, you may have a bigger chance of winning from gambling than from trading if you dont have a strategy).

Furthermore, if you lack a strategy to keep you on a certain course, its easy to lose track of what youre doing. Its not unheard of for traders who dont employ a certain strategy to base all their trades on nothing more than hunches and intuition. There are even those who consult psychics! Needless to say they dont stay traders for long. Such unprofessional attitude is the fastest way to go through your entire capital and blast it out of existence through bad trades and even worse investments.

If you dont have a binary options strategy, you also cant properly manage your portfolio because you simply wont have an idea what youre doing. Having a strategy is the first step to taking trading seriously as a job. And make no mistake, even though you may not have a boss and you might work from home, trading is still your job, especially if its your only source of income, which means that you cant afford to take it lightly.

What To Consider When Developing a Binary Trading Strategy

Sadly, its not that simple to develop a trading strategy. There is a wide plethora of factors that need to be considered, such as risk, return, time window, style, reliability and more. Even if you manage to develop a strategy taking all of the factors under consideration, the battle doesnt stop there. After you have a strategy, depending on your trading style and market movements, you will have to adjust it. Just because a strategy is profitable for you now, doesnt mean that it will continue being so in the future. Maybe you will have to adjust, or replace it altogether.

The sad truth is that the market changes all the time, which means that the conditions you based your strategy on may no longer be there after a certain amount of time. This is what makes trading so interesting and thrilling, but also reduces the amount of security you can have. When devising a strategy, you will also need to consider potential losses and diversify your portfolio in such a way that it will be able to compensate for eventual losses. You also need to test your strategy in a simulated scenario before you go in a real trade so you can be more confident that its working as intended. Finally, a strategy doesnt guarantee anything but it definitely improves your chances of making a profit rather than throwing your entire capital in a financial black hole.

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