Role of Emotion in Binary Option Trading
Role of Emotion in Binary Options Trading
Your emotions are your worst enemy in the financial market including Forex and binary options.
Emotions are quite natural to human beings and play an important role in many aspects of our life. The decisions we take depend on our emotions either directly or indirectly. It is no different in binary options trading. Although it is impossible to keep our emotions out while trading binary options, it is important to keep them under control. In fact, the success rate of our trading decision (PUT or CALL) depends directly on this factor.
Is emotion a part of technical analysis?
No, emotions are not part of technical analysis. Follow your analysis and don’t let your emotions affect your analysis. It requires a lot of discipline and practice. It is always better to walk away from your trading computer for the day after having a few losses. Come back later with a fresh mindset to trade again.
If you continue trading after multiple losses, you are likely to go for revenge trading to recover your losses. By doing so, you will lose more money. This effect will affect your emotions in such a way that you may end up blowing off your account. I have done it personally several times at the early stages of my trading days.
How to control emotions while trading Binary options?
- Prepare a set of market analysis rules for trading and stick to them.
- Make a money management rule and risk your capital intelligently.
- Don’t risk more than 3 to 5 percent in any single trade.
- Analyze the success rate of your analysis and revise your money management rules frequently.
Remember, recovering slowly is better than blowing off your account.
Emotion affects us the following way in Binary options.
- When the trades go against our expectations, we can not accept the fact and stick to our belief that it will behave as per our expectations. By doing so we keep on losing money.
- During trading, we get too excited to calculate the risk involved in buying a position or we get too depressed to identify a potential trading opportunity.
Striking the balance between our emotions and trading is an art. It can be practiced over time. There are several channels, magazines, and hundreds of trading recommendations that occupy our minds and drive us through Forex, Stock, and Index forecasts. It is this drive that takes us to the extremities of emotions.
- Do we ever think about who gives these trading ideas?
- How much money do they make for their own recommendations?
- What are their intentions behind the recommendations?
Following the recommendations from spurious sources is very much equivalent to gambling. Hence you must find out how to take a balanced and informed decision. Well, there are many simple tools & techniques to identify the movement of a stock or Forex pair. There are many money management strategies to protect your investments in case of continuous losses. You must understand the risk capability and stick to the money management rules even in the worst scenarios. Don’t trade any recommendation blindly, try to understand the idea behind it and trade responsibly. Try to learn and understand some simple technical analysis and trade with the trend. One can learn technical analysis but mastering it requires years of hard work and experience. Binary Options, Digital Options, or Online Trading is not for everybody. Read our article on Is Binary Options trading for me?
Emotions play an important role in the life of Forex traders, Binary Options traders, and Online traders. Most intelligent traders fail due to a lack of emotional control while trading.
The key to master your emotions while trading is by risking a small amount and trading with the capital which you can afford to lose. When you risk 1 to 5 percent of your capital in any trade, your emotions stay in control compared to risking 50 to 100 percent in any trade.