Avoiding Rookie Mistakes – The Expiration Date
The only way to be successful when trading binary options is to devise a strategy which will give you the right time to exit your trade. Simply looking at the short term chart to trade long term options or the long term chart to trade short term options will not be enough for you to generate a good rate of return on your investments. Of course, these charts can be used to help project an expiry date and it is important to be able to adapt any chart to fit the tile frame you intend to invest with.
The longer your trade the bigger the chart you will need to look at, but you should also consider the trading pattern of a given market or specific option. These can help you to establish a time frame for the movement of the asset and when the best expiration date will be. Assets which constantly zigzag can be exceptionally easy to predict both the entry and exit points for your trade.
Choosing the Right date
Of course, it is possible that even the best looking trade will change. It is the fact that an expiration date must be chosen and stuck to which generally makes trading in binary options much more difficult than the majority of the other financial markets.
There is little more frustrating to a trader than watching your option move in the right direction right up to your expiration date and then changing at the last moment. This can easily happen and your funds will be lost, even the best analysis cannot get it right every time. Fortunately this shows that you are picking the right trades, you have just failed to get the expiration date correct. It is difficult to avoid this scenario happening sometimes but the following will help:
It is essential to adopt a money management plan when trading as this will help to spread the risk and avoid last minute losses. It can also help you to get a feel for the market movement and improve your predictions in the future.
The best approach to adopt is to choose an amount to invest on a specific trade. Then divide this amount into three or more separate amounts; you can divide it as small as you like as the return percentage you will receive should be the same for the entire trade. You can then place all these amounts onto your trade but choose a slightly different expiry date for each miniature trade. The risk is spread and the likelihood of making some return on your investment is increased. You will also be able to assess if your expected expiration date was right or not.
Another way of approaching this issue is to decide upon a timeframe during which you must decide how to invest and what expiration dates to set. Your timeframe is rigid, since it has expired you will need to invest according to the plan you have created. Your future trade will then be based upon a set timeframe of an existing trade. You will be able to identify any patterns within this timeframe and apply them to your trade. You should place your own trade to match the ones you have been studying. For example, if you monitor the trading pattern of an asset on a Thursday and a Friday and you expect the pattern to repeat then place your trade on the Thursday and set your expiration date for the right point on the Friday. Obviously if the trade goes below the end of day rate then you are better off trading at the end of day rate. You do not need to start this trade early; you can start it in the afternoon to avoid having to wait for it to start.
The key is to change your expectation s of the trade and adjust your timeframe to fit the data you already know. You can then trade the long term options but in a short term fashion. One of the biggest rookie mistakes is overtrading or sticking to short term trades as you do not want to wait for the long term trade to play. In fact, money management and timeframe analysis can ensure you avoid this mistake and get the most out of every trade.
Short term Expiries
The best way to trade is to find a balance between short term and long term trades; the only way to achieve this balance is to constantly complete market analysis and to be very disciplined in your approach to trades. You should look to analyze the technical data which shows the movements of an asset as well as the fundamental data which monitors the market and the economy in general. Taking a larger view of the markets will enable you to place successful medium and long term trades. You will also be able to visualize the links between the different timeframes and choose an expiry date accordingly. Longer term trades can also avoid the risks associated with temporary dips, particularly unexpected ones.