Monday, January 31, 2011
Learning to Trade - First Steps - Consistency
The future is unknown!
Trading is a pursuit that contains a large amount of un-certainty, this is because there is nobody that can genuinely predict the future movement of any market at any timescale. Nobody can be 100% certain of what the future in any timescale contains, or when and where un-scheduled events might happen.
So if we accept that the future is unknown then the question remains how can it be possible to make money as traders consistently? This is perhaps the most difficult psychological hurdle to overcome as a new trader, the fact that we cannot know what will happen for sure but still make money is a paradox that many new traders struggle with even though most might not realise it.
If we look at gaming theory, we all know that the odds at the casino are ever so slightly against us. We know that over the longer term the house always wins, and the key here is that this is akin to the mindset of a winning trader. Professional traders know that over a number of trades that they will prevail because they asses each trade based on probability of success, and over a number of high probability entries with the correct risk management and exit strategy, they will ultimately make more money than they lose thus producing a net profit.
Finding consistency in principle is very simple, you identify a set of circumstances that trigger you to enter a trade then execute. The act of continuous execution it is much harder because of the psychological aspects i.e. boredom, human error, impatience. Using a "block" trading system to begin with can help a great deal with consistency in new traders.
Keep it simple
New traders should only measure performance over a "block" of trades, say around 20 depending on the entry / frequency of trades. This way they can begin to develop the mindset required to look at performance over a wider time frame than each day / week etc.
This creates a stoic consistency and relaxed manor among in-experienced traders because they worry less about individual trades and daily performance. The common emotional problems new traders have (jumping in, over trading, hesitating) are generally less prevalent thus creating an advantage.
Trading is fundamentally about consistency, if you cannot consistently make money as a trader then a few good trades here and there will not cover the losses elsewhere. Developing a consistent approach and the discipline to carry it through will provide you the platform you need to develop and become successful.
Profiting from Binary Options Trading
Binary options are a very simple idea, and represent an easily understandable way to profit from the markets, but as with all trading you should make sure you understand what you’re doing. A binary option is in or out of the money because of what the underlying asset does, so you need to know about the underlying asset and what moves it is likely to make.
The price you pay for a binary option reflects the market’s idea of your chance of winning. The less you pay for the option relative to the reward, the less chance the market thinks you have. One key for profiting from binary options is that the payout is not linear, that is you do not get more the further the price runs. You make the same profit when the underlying security just edges into a win by one point or one cent as you do when the security romps over the line. This is a distinct difference from regular stock options.
Even though you can use binary options on commodities, Forex, stock indices, selected stocks and even economic events such as the unemployment rate, you should stick with the markets that you’re most knowledgeable about to increase your chance of profit.
Posted by Trader Scout at 10:11 AM