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What’s a better place for your money: a mutual funds or a binary options trading account?
This is, as you’ve probably guessed, a loaded and problematic question. Binary options and mutual funds are two very different types of financial tools, and they have very different short term goals. So, instead of tackling this question right off, it’s more important to ask yourself a slightly different one: is short term trading or long term investing superior?
If you are thinking about becoming a short term trader, either a binary options trader, a Forex trader, or something else, it’s important that you have an understanding of how long term trading works. Is it a must? No, not really. But if you get the basic concepts of how to be a successful long term investor, short term trading makes a lot more sense.
The concept of “Buy low, Sell high” is essential to success, but it’s only half of the story. Short term traders are in the unique position of being able to make money regardless of what is happening in the markets. If prices are dropping, you can make money by taking out short positions, even. But if you don’t have the basics down, then this is almost impossible to do. Short term trading is a lot harder to be successful with, and unless you have obtained long term trading skills first, then you should not attempt to day trade.
Trading Short Term Options
So to answer the question, do you go with short term or long term trades, the answer is entirely dependent on what your purposes are. Are you getting ready for retirement? Or, are you trying to create a cushion of wealth that you can use in a few months or years? Are you looking for something that you can largely not pay attention to, or do you enjoy the hands on approach to managing your money? Do you want to spend a few hours per day researching markets or would you rather leave this to the professionals?
The answers to these questions will be a good guide for you as you figure out which is best. By themselves, short and long term trades are neutral in value. You want to choose the one that will help you personally help you to succeed. Some people benefit from both, just one, or none at all. You will need to figure out where you fit in here on your own.
What is your overall goal? If you don’t know, spend some time thinking it over. This is an essential question, and it will guide every decision that you make.
Long term and short term goals are not incompatible. In fact, a lot of traders use this as a way to increase their diversification and safety. It’s no secret that professional portfolio managers urge clients to diversify; do you know why? Because a diverse assortment of holdings means that when one part of the market fails, you are boosted by the other parts. If you have all of your money in a single stock and that company goes bankrupt, your money is lost. If you have your money in 12 different stocks, then less than 10 percent of your money is lost—a much better outcome.
If you have an IRA or a 401(k) set up and you want to be a short term trader, it’s perfectly fine to do both. In fact, when done right it can help you reach your retirement goal even more quickly. Let’s say your goal is to have $750,000 in your IRA by age 50. If you already have $100,000, and you max out your contributions yearly, you can take your extra money, put it into a trading account and grow it outside of an IRA. When it’s time for your next contribution, that money is already easily accessible, and might even be able to grow somewhere else if you wish. It’s all a matter of what your goals are.
Whatever you do, remember that short term trading is high risk. There’s always a strong chance that you can lose money. If you’re going to trade, be sure that you incorporate that risk into your strategy so that if you lose money trading (or investing!), you have more than enough to live off of without creating issues for yourself and your family. Even the most successful traders lose money sometimes, but they take measures to ensure that lost money is not a lifechanging event by minimizing risk wherever they can. When your money is spread out (such as with a trading account and a retirement account), your overall risk is decreased by a lot.
If you’re new to trading, you might be wondering how much money you need to start out. That’s a good question, and it really depends on what you’re looking for. If you just want to learn what you’re doing so you can get ahead later on, then we recommend starting out with a minimum deposit. Many binary options and CFD brokers will let you open an account with $10 to $250. That’s not a ton of money, and it does leave you susceptible to variance and therefore put you at an extra degree of risk, but it’s also enough to learn a platform and some basic trading strategies.
Trading Short Term Retractions
When trend trading binary options, the general idea is to trade along with the prominent direction of asset price movement. Where problems may occur is in the areas of reversals and retractions. Short-term retractions can be tough to detect, and most definitely can cause losses. Even worse, it can be tough to determine initially whether the movement is a retraction or a full-blown reversal. The following strategy will most definitely help to solve this problem.
Retractions can be either short-term price increases or decreases which go against the prevailing trend. This type of movement will not last long, and the prevailing trend will continue after it is over (unlike a reversal). Retractions are caused by a spike in buying or selling in the marketplace. These actions can cause the direction of price movement to change for a few minutes or so, but are not robust enough to cause a complete reversal. You can trade a reversal, of course, but we are not going to cover that type of trading in this article.
When looking at a technical price chart, a retraction is viewed as a minor formation, such as a few minor candlestick patterns. These typically appear following a larger movement that has just taken place. Always remember that these short-term movements may end as quickly as they began. Spotting a pull back is one thing, knowing how to apply them in an actual trading situation is another, so let’s cover that…
The selections to make within your binary options platform are very clear. When a retraction takes place within a bullish channel, select a Call position when the price moves to the lower trend line and then begins to climb. For a Put position, the price would be within a bearish channel. When that price moves up to the high trend line and then starts to move down away from that line, that would be the time to enter the market.
To clarify, the first step would be to identify the trend channel and determine the type (bearish or bullish). Trend lines will need to be drawn (upper to most recent highs, lower to most recent lows). Watch to make sure that when the price reaches either a high or low line, that it does not exceed that line. When using candlesticks, you would check to see that the most current candle does’t close under the top line or above the low line. A one-minute expiry time tends to be the best selection when using this strategy.
Clearly, this method should only be used when a trend is taking place. If the asset you wish to trade with is not trending, move on to analyzing other assets. Any ongoing trend will provide you with at least a few chances to enter into trades. For new traders, do be sure to learn how to correctly identify price trends. This can first be done using basic price charts, and then using more advanced technical charts such as MT4. This is a skill that you will need not only for this binary options strategy, but throughout your trading career.
Are you a long term investor or a short term trader? Why can’t you be both? You are using both to grow your money, and you are using both to get closer to your final goals. If this strategy makes sense and you have the expendable capital, then it is perfectly reasonable to incorporate both into your financial life.
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