Most likely one of the first questions any binary trader has asked is probably – how to go about avoiding rookie mistakes?
And, by asking this question, traders actually secure a better start in trading since this means they are more likely than not to invest some time and effort in gathering information and tips on this subject.
It is our goal to provide such tips and info in our article on avoiding rookie mistakes. One of the first things traders need to be aware of is the fact they need a strategy in order to figure out the best possible expiration dates they will later use in binary options trading.
There is hardly any point at looking a 1-minute chart and then trading longer expiration dates just as it isn’t logical to study a 4-hour chart and then proceed to trade in shorter expiration dates. Therefore, what traders have to do is to align the expiration date together with the time period utilized for market analysis.
If traders want to trade on four hour charts they also need longer expiration dates such as end of the week and sometimes, even end of the month.
Traders should also take a look at the trading patters since those can also be quite useful too. Trading pattern like zigzag or a flat trading pattern can provide info so traders can choose the best possible expiration date.
Choosing the Expiration Date
At times trading binary options can seem more difficult than other kinds of financial trading because in the case of binary options traders have to set the expiration date on their own. There are instances when traders feel dissatisfied since the price had stayed “in the money” almost during the entire time only to suddenly change direction which then results in money loss.
This points to the fact that expiration date simply wasn’t set properly, which is a common rookie mistake, since the market did go in the predicted direction but it simply did not stay there during the entire trade time. This is a situation which cannot be entirely avoided in binary options trading as is the case with FX market.
Rookie Money Management
Avoiding rookie mistakes of this kind and preventing them from happening is to employ techniques for money management on trades.
Let us look at a hypothetical situation where a trader comes up with a weekend plan on several financial instruments.
One approach can be to simply divide the planned investment funds into two or three identical parts and then, after which each resulting part is subsequently divided further into smaller amounts. With binary options trading a percentage is offered which means that the end result needn’t be affected. Traders can alternate between longer and shorter expiration dates so traders can basically trade hourly as well as end-of-day or end-of-week to end-of-month expiration dates.
Using Timeframe to Choose Expiry Time for an Option
At any case, if a trader invested time in a plan then that plan should be followed since it defeats the purpose otherwise. If a switch is to happen concerning expiration dates then that decision ought to be made on the basis of the time frame upon which the analysis is being executed.
In order to demonstrate, we can imagine that a technique of trading trader is using is based on Relative Strength Index or RSI oversold and overbought levels joined with deviation from the price.
Using this same setup on hourly chart time frame then it is basically pointless be trading expiration dates shorter than end-of-day.
Additionally, traders should know that simply because they have selected to trade end-of-day it does not imply they have to wait for the whole day for their trading option to close in the money if the trader took the option during the second part of the day since then the expiration date is only a few hours.
The same conclusion can be applied to options traded during second part of the week (end-of-week option) and those traded during the second part of the month for end-of-month expiration dates. Nothing aside from expectations is subjected to change.
Going about binary options trading by applying money management and technical analysis, can be a useful way to eliminate one of the most common rookie mistakes – trading short term expiry times and overtrading.
Short-term Expiry Rates
Market swings happen, it is a fact of financial trading, but trading in this way might have less of an impact since the expiration date can “leap” over.
On the other hand, there are traders who are not in favor of either short nor long term expiration date. In order to find the right balance between the two, huge amount of discipline and meticulous study of market analysis is necessary.
Traders needn’t only use technical analysis but also fundamental analysis too.
But even in this case, a prudent approach would be to have a wide scope rather than a narrow one since medium and long-term expiration date are a standard.
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