Using low risk is critical to success because they are easy to recoup if you are wrong and you are trading binary options. The fatal mistake that most traders make is they get “married” to a direction but the market is constantly moving and changing. My trades from this morning show what I do when the market goes in the opposite direction.
Why Using Low Risk is Critical to Success
Prior to the 8:30am market reports, I entered three positions on forex — long on the USDCHF, long on the USDJPY, short on the AUDUSD.
Then the market reports came out and all the trades went against me. I had a couple of choices:
- I could get upset because the market went against but that would not recoup my losses
- I could reverse positions. However, the AUDUSD is typically not a fast mover and the USDCHF is even slower. I opted to reverse using two binary options on the USDJPY and one on the EURUSD.
Because I use the low risk entries, reversing allows me to recoup and possibly even come out with profits. In this case, my risk on the EURUSD was $28 and I made $62. On the USDJPY, I had $18.75 and $27 in risk but made $66 and $63.
This also highlights the reason I love binary options. Because I can lock in my risk on entry, reversing and recovering from a loss is not hard and allows me to be profitable, even when the market goes against me. This is something I showed in the live trading room this week as well.
Of course, if you are using a high risk or even at the money, then reversing your position may not be feasible. But here are the list of trades I entered, lost money on and ones I made profit on (all are calculated using one contract per trade):
- AUDUSD ($29.75)
- USDJPY ($31.75)
- USDCHF ($19.50)
- EURUSD $62
- USDJPY $66
- USDJPY $63
I lost three and won three. The profit for the morning based on trading just one contract was $110.
The Out of the Money binary options provide an ideal environment for using low risk high reward opportunities. Since each binary has a maximum payout of $100, the trader has more reward (typically around $70 after the risk) than risk on the table.
Days like today do not come in as often as they did in the past but when they do traders should hit the trades hard especially if they can limit their risk.