While many traders believe that the ability to spot excellent opportunities is the best skill of all, the truth of the matter is that the ability to spot bad trades is equally important. If you are not working on this skill then you’re making a mistake. There are many elements that work to make up a bad trade and you must know what these are so as to avoid any unnecessary losses.
When you trade digital options, both stable and active market conditions can allow you to profit. This fact might lead you to believe that there is no such thing as a bad trade. The truth of the matter is that there are going to be situations in which it becomes either more or less difficult to forecast the upcoming price movement. When the task is overly difficult, it’s usually best to abandon the trade and move on to a different trade.
Everyone who trades digital options should know that for most trade types, price movement is necessary in order for a trade to finish in the money. This means that some level of volatility is acceptable, or even desirable to some extent. However, too much volatility can make price movement forecasting a difficult task to say the least. When the price of your selected asset is bouncing up and down, with no type of trend in place, a better trade selection is called for.
Certain expiry times can make for bad trades as well. For example, if you plan to enter into a trade that is going to finish just after key market data is released, you could be asking for trouble. Market news changes investor sentiment, and investor sentiment is what changes asset prices. This is not to say that you should not trade around market news, but instead that you need to do so in the correct manner. You must account for how positive or negative reports might impact the price of your asset and for how long.
Bad trades can also be the result of strong emotion. When it comes to making money, it’s quite easy to become emotional. There is absolutely no excuse for having trades finish out of the money because you acted strictly upon emotion. Yes, this does include making trades based upon “hunches” or “gut instinct”. Only when investment decisions are based upon fact do they consistently offer higher odds of being profitable. This is something that all digital options traders must never forget.