The Best-kept Secret for Binary Options Trading Success

Guest post by Heather from BinaryOptionTrading.com

Binary options are pretty new in the financial world and that means that there has been some obvious delay while technology catches up to the rest of the marketplace.  When it comes to automated trading, this has been pretty obvious. But analysts have finally caught on to the potential here, and this means good things for you the trader. And that means that automated trading has finally become a reality within the world of binary options. Not only that, it is catching on in popularity and becoming very efficient.

Signing up and paying for a trading service isn’t the end of the work for you, though. One of the most important things that you still need to do as a trader is figure out and constantly monitor your risk levels. This can be tough, though, especially because of the all-or-nothing nature of binary trading. If you’re new to these, you need to quickly realize that the complete amount you risk is usually lost when you are incorrect in your prediction. And when someone else is making trading decisions for you, you become a bit removed from this process. It’s easy to see that you’re losing $100 each trade when you are manually inputting trades yourself, but when it’s automated, the distance between the trader and the trade becomes pronounced and this can lead to problematic risks.

So how do you fix this? It starts with basic money management skills. A lot of experts say that you should never risk more than 1 to 2 percent of your bankroll on a single trade, but this isn’t really that accurate. Sometimes you should risk more and sometimes you should risk less. There are actually some easy things that you can do to calculate an exact number that you should be risking, such as with the Kelly Criterion. The problem with this approach is that the vast majority of calculations rely upon the perceived percentage of success you will have. This is a viable method if you are manually entering every trade and doing a separate calculation for each trade, but when you are using an automated trading system, this becomes impossible.

This poses a rather large problem, actually. When you are automating your trading, you need to make sure that you are not risking too much or too little. Otherwise, you stand a good chance of either not making significant profits, or of going totally broke. But if you think about these things, one is much better than the other. If you go broke, you’re done until you reload your account. The obvious solution here is to risk on the smaller side of things. This way, even if you are risking too little on some trades, you will very rarely be risking too much. If the service you are using is worth the money you are spending on them, then this little inconvenience should easily be overcome.

Ideally, you would want to dictate how much you are risking with every trade. This way, you can move the amount around so that you are maximizing earnings when you have a big advantage and reduce your risk when the odds are slightly less in your favor. However, automated trading can be an even bigger advantage, and while these two are currently irreconcilable with today’s trading technology, you still need to approximate in order to have the best results.

Right now, there is only one way to attempt to do this. You need to trade for a while on your own and get a feel for the market before you subscribe to a service. You need to use a reliable money management system to give you a good idea of what an average trade looks like. You will actually start to find that there are certain amounts that you will risk more than others. This is largely determined by the amount you have deposited in your account. It is also determined by the broker you use. Some brokers do not allow you to tailor your dollar amount as precisely as others. But with more experience and more trades being crosschecked against appropriate money management systems, you will figure out a good figure that you can use for every trade. If you have any doubts, or your broker forces you to pick a rounded number, always round down. It’s better to gain less than to lose beyond your means. More helpful tips about binary options can be found at binaryoptiontrading.com. This site is a leading brand in the marketplace, which helps traders succeed.

Jake Bernstein Will Help You Evaluate Your Trading System [Webinar]

You might be familiar with Jake Bernstein’s name if you’ve been trading any length of time.  Jake has written dozens of excellent books about trading, offers courses and an excellent newsletter.  He’s also my guest for this week’s podcast, so stay tuned for that on Wednesday.

On Wednesday, November 6 at 6:30 PM Eastern, Jake is co-hosting a webinar titled “Trading Systems: Truth and Fantasy. The Good, the Bad and the UGLYThe webinar is in conjunction with the Genesis Trade Navigator trading platform company.

It looks really interesting, as the co-hosts will be evaluating different trading systems, and helping to determine what makes a good trading system, and what might be an indication of a bad one.

Current clients of Genesis (that is, users of the Trade Navigator program) get a discount, as do Jake Bernstein’s clients.

 

Bitcoin: Trading a virtual currency

Have you heard of Bitcoin?  If you haven’t, here’s a quick overview.

Bitcoin is a kind of currency, but it isn’t backed by any government.  Instead, it’s generated, tracked and traded electronically, peer-to-peer, without any intermediate financial currency.  It’s based on an extremely complex encryption algorithm. The servers that keep track of Bitcoins are called bitcoin miners, and these servers also create new bitcoins electronically (but quite slowly).  Wikipedia has a really good article on Bitcoin, as they are known to do for techie types of things.

Here’s a few interesting things about Bitcoin: you can trade it like any other currency.  So, several small brokers allow you to trade Bitcoin against other major currencies like the Dollar and the Yen.  One brokerage, AvaTrade has been making the news recently as they allow you to trade Bitcoin with Metatrader 4, but it appears they are not licensed to operate in the US.  There may be other brokerages that operate in the US that offer Bitcoin.

Another interesting fact is that a court case in Texas just ruled that Bitcoin can be treated legally like a currency.  The case involves an individual who committed fraud in the form of a Ponzi  using Bitcoin.  The judge noted that Bitcoin is more like a precious metal than a currency, but the fact that it has value legally is interesting.

Another interesting point is the volatility of the currency.  Just read the Wikipedia article to bitcoin-chartssee how far the value goes up and down:  $13 at the beginning of 2013, then $230 in April of this year.  If you’re looking to trade a really wild currency, maybe this is the one for you.One of the confusing things about looking at the Bitcoin charts is that there are dozens of “markets” or actually brokerages that trade Bitcoin with other currencies.  They appear to have different slightly different values for Bitcoin.  (Maybe an opportunity for arbitrage?)  But if you want to trade Bitcoin on Metatrader, you pick a broker that supports both, set up your charts, do your technical analysis, and even run automated strategies on it.  This sounds like fun.

Have you traded Bitcoin?  Have you used a trading platform? If so, what’s your experience been like?

 

What Are Shallow Risk and Deep Risk?

A few days ago, I read an article in the Wall Street Journal by Jason Zweig titled “’Shallow Risk’ and ‘Deep Risk’ Are No Walk in the Woods.”  I like Zweig’s writing; his Intelligent Investor column always has something interesting to say.

In the article, Zweig describes an upcoming e-book by William Bernstein in which he describes two kinds of risk—obviously, shallow and deep.  Shallow risk is a temporary drop in an assets price.  It’s the normal ups and downs of stock prices, particularly when the price of the asset drops.  Zweig says (and I agree) that shallow risk is as inevitable as the weather.   Although shallow risk can definitely be painful and can last a while, it’s just not permanent.

Deep risk, on the other hand, refers to risks that are systemic and permanent; Bernstein cites 4 possible causes of deep risk: inflation, deflation, confiscation and devastation.  In other words, big bad things that can happen. Devastation and Confiscation refer to wars, government collapse, seizure of assets and so on—bad things that are out of our control.  Deflation is rare in modern history, so the only remaining concern that you can protect yourself from is inflation.  Zweig, quoting Bernstein, says that the best insurance against inflation is a globally diversified portfolio.

The thing that I thought most interesting about the article is where Zweig indicates that traders and investors can turn shallow risk into deep risk. How’s that? If you watch a trade go against you, and see your equity drop, you are experiencing shallow risk.  If you panic, and sell at the bottom, you inflict a permanent loss of capital on yourself.  The shallow risk is now permanent.  That’s deep risk.