Market volatility is something that has constantly been on the rise for the past couple of years. This is the reason why more and more investors have shifted from investing in the stock market where risk and returns are variable to investing in the binary options market where both the risk and the return associated with a trade are fixed in advance. But, just like any other investment instrument, investing in binary options requires knowledge, capital and above all the ability to plan out your trades.
Planning might not seem to be a relevant topic while talking about investment decisions, but it is in fact one of the most important aspects when it comes to investing especially in the binary options market. Planning is crucial because of the fact that without a set plan of action, you might be able to make some profit in the short run but you would surely lose out in the long run. Planning is one of those aspects which if neglected can lead to situation wherein you have no scope of making any kind of profit in the market.
A binary trading plan can chalk out what position to take, when to take a position, the risk management strategy that needs to be utilized in order to reduce liability and money management methods that need to be used. Let us take a look at these components one by one and see how they affect the actual trade.
What position to take
The first thing that needs to be decided is what position needs to be taken, i.e. whether one should take a call or a put position. If the investor believes that the underlying asset’s value is going to decrease in the future, then it would be advisable to take a put binary option. And in case, the value is predicted to go up then a call option needs to be taken.
When to take up a position
This is something that is rather difficult to determine. This is due to the fact that you need to see at what time the market conditions are optimum for your entry. For example, if you have decided on buying a put option, then you need to wait for a time when the market is going into a downtrend. Also you need to see that the resistance levels are quite low so that even if the value of underlying goes up it can come back down easily.
This is another crucial aspect of the planning process. You need to formulate a risk management strategy and implement it is while investing in the market. For example, you can go in for a hedging strategy to manage the amount of risk that you are taking.
Money management is important because if you do not manage your money you are going to lose all of it in the long run. Money management is necessary to keep track of what you have earned and what you have lost. It also keeps into account how much you have invested in a certain trade and whether that amount has an impact on you overall risk scenario or not.
While planning might seem to be a waste of resources and time, it is in fact not. The time and effort spent in planning is reflected in the amount of profit which is generated as a result of the planning process.