Investing your capital in binary options trading requires strategies that have been developed in advance. Professional traders seek to develop strategies to maximize the likelihood of success and the level of profitability, while minimizing potential losses and the likelihood of those losses.
For effective trading, traders can use two rules:
1) "Rule 5/15".
2) "Rule 10/30"
Both rules correspond to different categories of traders. Below is an explanation of the two main trading rules in a more detailed fashion.
A trader must set a maximum loss amount (as a percentage of invested capital) that he can afford to lose in one trade without compromising further potential profit. In order to reduce risk and create more convenient trading conditions, a trader may wish to use "rule 5/15" as a risk management tool. Rule 5/15 refers to the amount of funds available for one transaction (5% of the total capital), and for several transactions simultaneously (15% of the invested capital).
Example. If a trader's capital is $15,000, he can afford to allocate up to 5% ($750) for one trade idea and up to $2,250 for several trades simultaneously.
This strategy is suitable for more aggressive traders in order to obtain a higher return on investment, and are willing to take more risk.
The strategy assumes that a trader invests 10% of his total capital in one single trade and up to 30% during trading sessions.
Example. If the total capital of an investor is $ 1,000, he can afford to allocate up to $100 to implement one trading idea. Moreover, he can also invest $300 at one time for several trades.
Write down all trades and results
In order to become a competent trader and manage your capital effectively, you need to record the history of your transactions, as well as carefully study the dynamics of traded assets and their reaction to economic events. This will allow you to better understand the price fluctuations of assets, which ultimately will help you set up trading strategies.
In addition, this method will also help to reduce losses. In this way, a trader will be able to see why forecasts have not been realized and prices have moved against the position.
The exit plan in case of consecutive losses
If trader is experiencing a period of consecutive losses, it is necessary to stop trading for a while to analyze the situation. Most novice traders tend to ignore the fact that they are losing accumulated funds and hope that the market will turn in their favor with constant trading. This, however, is the wrong technique for successful trading. It is recommended to freeze the trading session for a while and analyze where you made wrong decisions, why, whether there were any mistakes, you followed your signals correctly? Greed is the right way to fail and lose, so be careful, you can lose all your capital during consecutive losses.