New traders often make mistakes such as taking way to big a position for one trade, taking a bad loss, and then staying way to small the next 5 times. They may even experience winning easily on small trades, but they never make back the big loss. New traders take way too many trades, let emotions control their trading, and dont have the self control to stay out of low percentage trades that they know have small chance of making them money.After knowing all the pitfalls, why would a new trader ever decide to open a binary options account and become a trader Well, they do it because they have the power to win systematically if they have some intelligence and a plan on their side. A new trader needs to understand the most common pitfalls, otherwise they may not even know that they are making a mistake while they do it With that in mind, here are the most common mistakes new traders make, with what they should do instead.Never enter into a trade without a defined thesis as to why you are doing it. Think the trade over rationally before entering. Is your thesis really valid Is it strong What do you estimate the probability of winning given your experience Are you hoping for the best outcome or considering the most likely outcome Make every trade count.Understand that you are going to have losses along the way. Even the best professionals do. Never let one trade significantly affect your account balance in a way that would affect your future trading. A good rule of thumb is never to take on a trade bigger than 1/15 of your total account value. With binary options I would recommend 1/20.The difference between making a lot of money systematically and losing money can be very narrow. Dont let frustration keep you from realizing your ultimate goal. Understand that there will be lumps along the way, but there will also be victories, and the lumps make the victories feel so much sweeter.Of course Every successful trader was new at some point. Just because a lot of traders go into trading without educating themselves or having realistic expectations doesnt mean you will as a new trader. In fact since you are reading this article you almost decidedly will not. At How We Trade our job is to prepare new traders for success. So move forward knowing you have a strong ally in usBinary options trading sounds too legit to be anything but above board. After all, this involves publicly traded stocks and commodities. Lately, however, it has been criticized as nothing more than gambling, pure and simple, yet the buzz around it is getting louder and the promise of easy money is attracting the attention of people from all walks of life. What is it, really, and is it something the ordinary weekend investor like you and me should even care aboutBinary is an apt adjective for this type of option. In programming parlance binary used to describe either of two states. 1 or 0. In the sports betting industry binary options are also popular win or lose. In other words, there are only two possible outcomes. There is some basis to this all or nothing description of binary options trading. Heres a short explanation of how it goes.Take the price of any asset at any point in time. You make an intelligent guess on whether this price will increase or decrease over a specific period of time and bet 100 that you guessed right. If you are you win back your bet and plus a pre-agreed amount. If youre wrong you lose almost all of your 100.Of course its not as simple as that. In fact, theres serious math behind binary options and people who engage in binary options trading, like all others involved in financial markets, are pretty confident that their numbers are better. Because in a single binary option trade, the outcome for the participants is also binary. One loses, one wins.First, there is an underlying asset, the future value of which becomes the basis for the trade. This asset can be the price of a specific companys stock. It can be a traded commodity such as gold. Recently, there was an industry filing at the Commodities and Futures Trading Commission to allow exchanges to offer binary options for future box office receipts of certain films.Second is the direction of trade. This is your guess of what the price of the asset will be at a specific point of time in the future and you make your trade based on whether this price will be above or below the current price at the time that the binary options contract was made. Third is, of course, the amount you wish to trade.Call option. The right to buy. In binary options trading, the purchase of an offer is an exercise of the option. In American exchanges this is termed as Finish High because the motivation behind a call is the probability that the price of the asset when the contract expires will be higher.Put option. The right to sell. This is also exercised when the offer to sell an option is taken. This is called Finish Low in American exchanges because a put is based on projections that the price of an asset will be lower when the contract expires.Essentially, options is a misnomer for these types of transactions. Lock (another type of derivative) would have been the more appropriate term because once the deal is sealed, both buyer and seller are obliged to comply with whatever conditions were agreed upon to take effect at the contracts expiry.One other thing to remember is that trading in binary options only involves the price of underlying asset, but not the asset itself. You might be trading binary options for the price of Google or Apple stocks or gold, but there is no assumption that the seller owns any of these assets or that that you will when the contract expires.Fixed risk and reward. Most binary options are Fixed Return Options (FROs) in which the gains and losses (the risk-reward ratio) are predetermined. You know exactly what youll earn should you be in-the-money, or what you would otherwise lose if you happened to be out-of-the-money. In a 100 trade, for example, many options offer a return of 81 for a successful trade. Many also offer to return 10 of the purchase amount should your trade be out-of-the-money.High level of sophistication. While easier to understand than most options, binary options still offer enough freedom for the application of sophisticated investment strategies.
