While it is certainly important to know how to spot great trade setups, it can be equally important to know how to identify low-quality trades as well. When you are able to spot these opportunities in advance, you’ll have the chance to move on to better ones. Consider this skill a digital options strategy of sorts, as it can serve the same purpose of helping you earn more and lose less.
Why would anyone want to skip past an opportunity to trade? Isn’t one of the benefits of trading digital options the ability to generate profit in any type of market condition? There will be times when it is quite difficult to be able to forecast upcoming price movement with any real degree of accuracy. This is not to say that it cannot be done, but why take on a higher level of risk when there are likely to be many low-risk opportunities available at the time?
The elements that make for a bad digital options trade generally encompass any factor that will make it extraordinarily difficult to forecast price movement. For example, volatile price movement is often seen as a plus when trading, as the asset price will need to move at least a small amount to be able to finish in the money. But on the flip side, movement which is too volatile could make it extremely hard to know where the price may go next.
Another example would be a trade with an expiry time which will close the trade just after some important data related to the asset will be released. When financial status reports are released, investor sentiment almost always changes, and when sentiment changes, so does the price of the related asset. Your analysis may have showed a clear uptrend, but if new data is released between the time of your trade purchase and the end of the expiry, you could easily find yourself on the losing end of the trade.
Although not a market factor, your own sentiment could cause you to make mistakes. Learn when to take a break from trading when emotions are running high. Rely only on the facts and always be watching for great trade setups. When indicators are clear, the odds of earning money skyrocket. When they are not, the odds of losing money skyrocket. Learning how to differentiate between the two is a must if you’re going to profit from digital options on a regular basis.