Risk management is the most important aspect of trading. Especially when trading binary options that are highly speculative financial instruments. Most traders and members of the website team believe risk management is a more important aspect of trading then the actual strategy you implement. It is a common mistake for traders to overlook the risk they take in their pursuit of high and quick profit. Most of the successful traders lose on 80% of their trades, but they manage their risk to lose little on these trades and make sure they more than offset their losses with high profits on their 20% winning trades. Here, we look at 3 important rules to help you become a better trader and manage your risk.
Asset diversification is the key to risk management
You should never see trading as the sole pursuit of high profits. You should always see this activity as a trade-off between risk and reward. As such, a simple way to manage the risk of your portfolio is to diversify it. Binary option is a good instrument to diversify your risk as most brokers offer you the possibility to invest in different asset classes and different underlying assets within each class.
Strategy diversification can help you improve your risk management
It is always a good thing to concentrate on one strategy type and improve it until you master every factors of it. Nevertheless, binary options types cover large range of strategy and scenarios (uptrend trading, range trading, one touch trading…). You should always try to use as much different binary option types as you can in order to hedge your portfolio against multiple market scenarios.
Build a trading plan and stick to it
Most traders who lose money never follow their trading plan and try to make up their losses by adapting their strategy to the market. For every transaction you open, you should have a strong conviction about your market scenario and stick to it whatever the evolution of the market. Discipline is the most important skill a trader can possess. You should never open a position when you are not confident about your view and when risk is too high. The ability to stay out of the market and wait for the optimal opportunity is another extremely important skill for successful traders.