Decisions which are based solely on emotions can be costly for the binary options trader. Even worse, both positive and negative emotions have the power to cause costly mistakes. While there is no way to push these completely aside, there are ways to reduce the impact that they have on the decision making process. Consider the following scenarios and potential outcomes of each.
First imagine that several of your trades have finished out of the money. This will lead to negative emotions and thoughts of how to return those funds to your trading account. There will be more than one option for how to go about recovery. One would be to enter into a few high risk, high reward trades, hoping for big wins and a fast recovery of funds. Another would be to enter into several lower risk, lower return options. Here, the second option would be the better choice, as risk must be minimized when losses are occurring.
Using a similar scenario, several losses, would the better decision be to start trading like a maniac in the hope of several fast wins, or to take a break and walk away from the computer? Again, the second option would be the better choice. When emotions are high, the worst thing a trader can do it to push themselves into additional trades. There are two instances in which a short break should be taken from trading; when emotions are in control, and when market conditions are unfavorable. The platform will still be there when you return.
A slower loss rate, or profit hemorrhaging, can also be problematic when the overall loss rate exceeds the win rate. The situation may not cause strong emotion, but can lead to a sense that things are okay even when they are not. Win/loss rates should be tracked at all time, with corrections being made when necessary. Lack of emotion could prove problematic at times, as emotions can serve as a means of protecting ourselves. Do your best to remain aware of your actual progress, tracking not only profits and losses, but also your success percentage.
The aforementioned scenarios related to negative emotions, but positive emotions can also cause problems. Several wins can lead to feeling that you’re on a “win streak” and cannot lose. The fact is that losses can come at any time, even when detailed analysis has been carried out. Overly positive emotion can also lead to an increase in investment amounts, when the best plan is to have a solid money management plan in place and adhere to this plan at all time, regardless of emotion.
As a general rule, it is wise to always ask yourself what role, if any, emotion is playing in the decision making process. It will be impossible to push it aside if it is not first recognized. Even then, it may take some practice to control these thoughts and act solely on analysis findings. Emotions can wreak havoc on binary options traders, particularly new traders. The sooner control is gained, the better.