Calming The Mind Using Binaries
That which unfolds within a trader's brain will either make or break the success of becoming a consistently good trader.
Although a trader may hear the numerous adages regarding the psychological impact on trading or even seek counseling, seldom does the trader effectively conquer these issues. Since trading attracts highly intellectual individuals, failure is obviously not due to a lack of intellect.
Instead, with successful traders, it is the accumulation of experiences trading live markets; the developing abilities to multi-task under extreme conditions while their subconscious constantly guards to protect exposure from unforeseen market conditions.
This is a double-edged sword setting up many for failure; yet without the experiences of real live trading then the psychological issues cannot be overcome.
While reading books or white papers on the psychological and emotional elements of trading are useful, to fully benefit, you need to combine it with real trading experience to put it into practice. Instead many traders opt to use a demo or simulator environment and these hypothetical environments do not guarantee and are not indicative of future performance in a live account.
Don't be fooled, while taking this path, you may think you're ready for real trading but the psychological element has been totally removed. Think of it like the game of golf; you can read about it, you can go to the practice range but to really benefit, to fine tune your game, you need the accumulated competitive experiences to be your best at golf.
Transitioning from SIMULATION to LIVE!
What happens when your trading decisions don’t work out, you are experiencing multiple losing trades, stopped out of positions only to see the market trade at the level you were anticipating.
How could this be when you were so successful in simulation yet fail so miserably when trading real money?
Feelings of desperation, failure, and misunderstanding are rampant. More than likely, the failure was due the hidden processes that were going on within the trader's brain for which he is totally unprepared. Lacking the experience to recognize and process these hidden thoughts and feelings, the trader becomes too focused on executing another trade. Anxious to make up for losses, the trader is unable to analyze the next trade objectively.
Why does this happen? Why does what is going on within the trader’s brain matter? The subconscious mind stores everything that is seen, heard, felt or thought. Then it retrieves this information to defend itself for survival and to solve problems. Trading is a new experience and, unknown to the trader, the subconscious mind is on high alert. It is observing and recording the event for future reference.
Fear and anxiety are two of the most common feelings the new trader is facing, and both can result in the subconscious mind storing negative information whenever facing a similar situation again. And, with each new loss, the subconscious mind is responding with the stored information that it has available, which at this point is "danger ahead."
So how does a trader change this process? The easiest way to change this process is to create a safer environment. This way the subconscious mind is not recording in a state of survival mode.
Ideally, a safer environment is created by:
• Limiting risk so the trader does not feel "threatened"
• Eliminating the unknowns as much as possible
• Providing an environment that is conducive to learning and building skills in a live account
• Providing an environment to trade multiple instruments with multiple trade opportunities on a daily basis
Binary Options provide this unique and safe environment for the trader!
Trading Binary Options, your risk is capped on the trade entry. The order ticket below shows the maximum loss and maximum profit on entry. In this example for 1 binary contract, the maximum loss (cost) is $56 and the maximum net profit is $44 is highlighted within the red box (fees not included).
As a binary buyer, your opinion is that the spot EUR/USD will be trading above 1.3634 in 32 minutes and 20 seconds.
Binaries really help with dealing with some of the "unknowns":
• Maximum risk is identified before entry
• Maximum profit is identified before entry
• There are no margins required when trading binaries
• There are no margin calls after the trade is placed
• Each binary has the time remaining left until the expiration. This is valuable information for your trade analysis to determine if the binary trade makes sense relative to your underlying market bias.
• The trade edge: the immediate advantage or disadvantage of the underlying price relative to the strike... again useful information to assist in your initial trade decision
• You have the option to close out of your binary position early to take an early profit or cut your loss
• Most important the Binary will always have an expiration value of $100 per contract.
You are either right or wrong at expiration.
All of this is valuable information that you know before the trade, your risk is always capped at the initial cost of the trade and many of the unknowns have been removed, as much as possible, so you can now focus on learning and improving your trading skills within a safer environment.
By creating a safer environment, you can calm your mind, learn to trade, and build your trading skills on the live edge of the market, in a live trading account, without the psychological issues that cause other traders to fail.
The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.
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