How To Analyze and Avoid Losing Trades

How To Analyze and Avoid Losing Trades

There is much to be learned from binary options trades that go into the loss category. The ability to know why a trade was a loss can help a trader to avoid mistakes in the future. Not all losses are avoidable, of course, but some are. The minimization of loss is something that should be the goal of all who utilize this form of trading.

First things first, investment amounts can and should be used as a means of risk reduction, particularly when too many losses are occurring. Each broker will have minimum investment amounts in place, but these tend to be very reasonable, sometimes as low as $1 per trade. Do not be afraid to opt for low investment amounts when losses are outnumber wins. Financial control is extremely important when making adjustments.

Many losing trades are the direct result of no, or too little analysis. No trade should ever be based upon a guess, or hunch. Sure, wins can occur when these methods are used, but long-term success is not likely when analysis is overlooked. No amount of analysis can guarantee that every binary options trade will be a profitable one, but the odds of profiting greatly increase when market conditions are properly analyzed.

Trade selection is yet another area to consider when taking on too many losses. There are instruments for each type of market condition, and these need to be chosen in accordance with how the asset price is moving. For example, you would never want to select an instrument that is reliant upon price stability when the asset price is trending. This mistake is most commonly made by novice traders and it is completely avoidable.

Along with trade selection, the selection of an expiry time is very important. There are never any guarantees in regard to how long a specific type of price movement may last. Even so, analysis can provide clues. For example, should the price of the asset be near either a level of support or resistance, an upcoming price reversal becomes likely, even if the price has been steadily trending in a single direction.

During the analysis process, there will be certain indicators which serve as warning signs. These warning signals can point out changes which need to be made, or even tell you that the trade is not a good one. Be watching for the following red flags when performing analysis:

Boundary/Range Trades: Too much volatility is the enemy with these trades. This does include any price trend that would send the price out of the target range. Additionally, watch for how close the asset price is to historic high or low levels. This will generally indicate how much room there is for movement.

Touch Trades: The price needs to be in motion in order to win this type of trade. Beware of flat price movement and do not select any asset exhibiting this type of movement for a Touch trade. Price trends are of course ideal, but note that if the target price is far from the entry price, the odds of a touch occurring are decreased.

No Touch Trades: Similar to the Boundary or Range trade, volatility is undesirable. So too are price trends. Flat movement is best, as this type of movement will make it difficult for the target level to be touched or exceeded. If the entry price is close to the target, the risk level is high.

Put or Call Trades: Erratic price movement is really the only warning sign with this type of binary options trade. Both upward and downward price action can provide a profit, so long as the trader has selected correctly. Price trends are ideal. Should there be no clear direction of movement, trading will be a risky venture.

60 Second Trades: These work the same as Put or Call, but have brief expiry times. Again, extreme volatility can be the enemy. However, since the expiry time will be so short, any trader who can correctly identify the prevailing short-term direction of movement more often that not will be able to generate profits from this instrument.

While everyone appreciates the simplicity of binary options trading, the sole focus cannot be only on winning. Loss avoidance can be accomplished by taking the time to learn exactly what causes trades to finish out of the money. It is not possible to win 100% of your trades. Brokers would go out of business if this were possible. However, it is possible to maintain a win rate that provides plenty of profits to your trading account by simply planning out your trades well.

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General Risk Warning: Trading Binary Options carries a high level of risk and can result in the loss of your investment. As such, Binary Options may not be appropriate for you. You should not invest money that you cannot afford to lose. Before deciding to trade, you should carefully consider your investment objectives, level of experience and risk tolerance. Under no circumstances shall we have any liability to any person or entity for (a) any loss or damage in whole or part caused by, resulting from, or relating to any transactions related to Binary Options or (b) any direct, indirect, special, consequential or incidental damages whatsoever.