The correct choice of strategies , large capital and other factors do not always determine the success of trading in the binary options market. The effectiveness of trading is often determined by a person’s ability to cope with his own emotions: fears, greed, and so on. This is all known as the psychology of binary options. That is, the profitability of trading is directly determined by how the trader manages his own emotions. Therefore, when starting this type of activity, you must immediately start working with trading psychology.
Next, we will look at the most popular problems in trading from a psychological point of view and give some recommendations on how to deal with them.
Content:
- Psychology of binary options and fear of opening transactions;
- Psychology of binary options and greed;
- Psychology of binary options and overconfidence;
- Useful psychological tips for profitable binary options trading;
- Conclusion.
Psychology of binary options and fear of opening trades
Fear of opening a new trade and fear of losing money are the two main obstacles on the path of novice traders. Such feelings are considered natural, as they represent a natural protective reaction of the body. The brain “reports” that when opening an order, a person may make a mistake. This does not mean the operation itself, but the trader’s desire to spend his own money as an investment in the transaction.
People's previous experiences also contribute to the development of fear. If a person has previously been involved in trading (not necessarily digital contracts) and has not succeeded in this area (there were significantly fewer profits than losses), then this feeling becomes aggravated. The trader is afraid that he will make mistakes again and lose money again.
What does fear of losing money look like in practice? Broker Pocket Option and broker Quotex provide the opportunity to close an option early . A trader who has a fear of losses buys an option and if the price goes even slightly against him, he closes the contract early without waiting for the expiration date . In such circumstances, he receives a smaller amount, even if the forecast turned out to be correct. Moreover, due to such actions it often happens that the trader does not make a profit. That is, when the price starts to move in the wrong direction, he closes the trade out of fear, and the price turns around and starts moving in the right direction.
The psychology of binary options trading defines a number of steps, following which a person can get rid of the fear of losses. First of all, it is necessary to establish the reason due to which this fear arises. To do this, it is recommended to trade for some time on a demo account , and if the sensations return every time after purchasing a contract, then you need to start working on psychological problems, namely the fear of doing something new or making a mistake.
If trades on a demo account do not cause discomfort, then the trader probably has a fear of losing money (in general, and not specifically due to financial transactions). Three recommendations can help overcome this problem:
- You can't invest your last money . Because of this, a “stopper” will arise, preventing you from consciously placing bets. You need to earn money using free money. That is, after investing, the trader must have funds left to meet his living needs.
- Do not trade borrowed, credit or other people's money . Trading should always be done only with your own free money. If you use other people's money, then the psychological load increases many times, and this entails making serious mistakes and rash transactions.
- Trade only the amount that you are not sorry to lose . Trading binary options is associated with risks, and there is always a chance that you will lose part of your trading account or even lose your deposit . Therefore, you can only invest in trading money that will not affect your life if you lose it.
If a trader experiences discomfort while following these recommendations, then financial transactions should be carried out for smaller amounts. In other circumstances, it is recommended to work on yourself. You need to learn to stop being afraid of losing money. It is important to understand that any type of trading involves losses, and even professional traders receive them.
It is also worth considering that with the right strategy, most transactions will generate income. That is, in the end, the level of earnings should still exceed the total losses, which means there is nothing to be afraid of.
Psychology of binary options and greed
The success of binary options trading directly depends on a person’s ability to wait and, if necessary, refuse transactions that seem to look profitable. But many find it difficult to give up trading because of simple greed, which leads to mistakes. For the same reason, many people want to earn money in a short time and open a large number of transactions, and when they receive a loss, they increase the risks and strive to quickly “recapture” the lost money.
A trading plan, which describes in detail the options for developing situations in the market and the actions of the trader in these situations, helps to overcome greed. It is also worth considering the rules and conditions under which trading is stopped. This could be a certain number of transactions, news releases, increased volatility, and the like.
The second effective way to combat greed is to use the rules of money management and risk management . Here are some of them:
- If losses reach 10% of the deposit, trading must be stopped.
- If you have made three to five losing trades in a row, you should stop trading.
These recommendations help you control your actions and avoid mistakes.
Binary options psychology and overconfidence
Overconfidence is the third reason for frequent losses in financial markets. This behavior does not allow you to look at the situation flexibly. That is, a speculator who is extremely confident in his abilities loses the ability to adapt to market changes. This is also why traders do not admit their own mistakes and lose confidence when they fail. Successful traders must be flexible in responding to different market situations.
This psychological mistake is caused by a person’s incorrect attitude towards trading. Due to overconfidence, the trader:
- cannot look at the current situation differently;
- unable to understand that his analysis was wrong;
- commits the same erroneous actions without changing anything.
Moreover, this behavior becomes habitual, which leads to loss of the deposit. It is difficult to cope with self-confidence, since partly this feeling is formed as a consequence of previously received profits. On the one hand, this helps the trader to work, getting rid of fear, but on the other hand, such behavior prevents him from adequately assessing both himself and the market as a whole. People with such attitudes are unable to admit their own 
wrong. Therefore, it is important to find options that will help you change your thinking. Help to achieve this:
- a trading plan, thanks to which a conscious approach is formed;
- trading discipline, which forces you to take the right actions, including those that go against your beliefs;
- understanding that the market is changing all the time and you need to be flexible to make money on it.
In the fight against self-confidence, at first you will have to force yourself to perform psychologically unpleasant actions, going through your own beliefs. But this is a necessary path that every trader must go through.
Useful psychological tips for profitable binary options trading
Binary options brokers and experienced traders recommend that before opening your first trade on the real market, you should at least undergo free training in binary options trading , and then practice on a demo account. This tool helps you gain trading skills and better understand the features of working with digital contracts and indicators . However, demo trading is carried out using virtual money. That is, when working with this tool, it is easier for a person to suppress emotions and other feelings that interfere with making a profit.
On a real account, a trader is faced with the fact that every transaction can lead to the loss of real money. As a result, the newcomer becomes subject to emotions, which increases the likelihood of making a mistake. Experiencing such feelings, a person stops thinking rationally, which increases the chances of making the wrong decision. In this case, psychological preparation will help. According to numerous reviews, it helps to cope with the first emotions and increase the success of transactions by at least 50%. You can achieve this result by following the recommendations below:
- do not average losing trades;
- only risk money that you are willing to lose;
- do not treat binary options trading as a game;
- losses in binary options are normal;
- don't succumb to tilt;
- do not enter into trades without a reason;
- Don't try to be right all the time;
- control risks.
Don't average losing trades
Averaging, when used correctly, allows you to make more profits, but beginners most often use this trading approach, neglecting the risks. Its essence is that if the price goes against you, then you buy another option. If the price moves in your favor, you will receive double profit, but if it continues to move against you, then you will receive double loss.
Averaging hides two errors described at the beginning of the article - acting on emotions and greed. That is, when using averaging, risks increase. However, it is not necessary to completely abandon this method. Averaging can be used in combination with strict risk management. Let's say you use $100 in one trade and want to average out in subsequent trades. Then split the $100 into four parts and enter into one trade of $25. When averaging, you will use a reduced trading volume, so the risks will not be exaggerated.
Only risk money you are willing to lose
Frequent problems traders have are due to impatience. Having experienced the first success, speculators strive to quickly move on to trading for large sums and real money. This often happens after a single successful trade on a demo account. In situations like this, people get the wrong feeling, assuming that after one successful transaction, they can continue to buy only profitable contracts.
The problem in this case lies deeper. In addition to the desire to immediately switch to trading with real money, people, succumbing to greed, replenish their trading balance again and again. Moreover, some are ready to take out money on credit in order to increase the amount in their brokerage account. The result of this pursuit is usually the loss of money due to the fact that people are nervous and have high hopes for this money.
Trading any financial assets involves risks. Even government bonds may not be redeemed. Therefore, when starting to trade assets or digital contracts, a trader should invest only amounts in transactions that are safe to lose. If this is not done, then a person will begin to become emotionally attached to each bet, which is why speculators stop responding to signals from technical tools or see what is actually not on the market.
Don't Treat Binary Options Trading as a Game
To win money in a casino, you need to place a certain bet and wait, for example, until the roulette stops spinning. Binary options trading is similar to this process. In this case, you also need to place a bet and wait until the expiration date ends. Because of this, some people perceive trading as a game, but this should not be done. Financial transactions are not related to the game, since during trading the result is determined by a correctly made forecast, and when playing in a casino - by chance. Trading digital contracts is a business that requires a certain approach and constant accounting of profits and losses.
Roulette is played primarily to obtain pleasant emotions. Work with options is carried out to generate income. This is the main goal of this type of activity. You cannot gamble to earn income. To do this, you need to work or take specific actions that will help achieve your goal.
Therefore, when entering the financial market, you need to develop a trading plan and select a strategy. When opening an order, it is important to take this action seriously. Each operation requires appropriate preparation, including emotional preparation. It is recommended to work adhering to the previously drawn up plan and money management.
Losses in binary options are normal
Buying and selling options involves the risk of loss. It is impossible to avoid unprofitable transactions in this type of activity. Every trader who makes several transactions during the day can potentially suffer a loss. Moreover, if a loss was obtained by following the rules of risk management, trading plan and strategy, then it is correct, since it was obtained by following all the rules.
Trading binary options can be profitable even with losing trades. To do this, it is necessary that there be more profitable transactions. If this cannot be achieved, then you need to reconsider your trading system. Remember that with the correct MM and RM, even with 50% positive signals you can be in the black.
Don't give in to tilt
The term "tilt" is used by professional poker players. This word is applied to situations where the results of several consecutive games are the same. That is, if a person is in a lucky streak (every game becomes winning and brings profit), then they talk about positive tilt. Negative indicates a series of unsuccessful games, that is, several losses in a row.
With positive tilt, people begin to act, succumbing to emotions - raising bets, taking more risky actions, and so on. This behavior usually leads to a loss. Similar risks arise with positive tilt in the options market. In this case, the trader buys contracts more often, increases the size of the investment per order, and so on. As a result, the trader begins to enter the market without paying attention to signals from technical instruments. The result of this behavior is the loss of the deposit.
Negative tilt also provokes emotions that harm the trading account. In this case, a person seeks to find options for wagering, increasing the number of placed orders, that is, despite another reason, the situation develops according to a similar scenario.
Don't enter into trades without a reason
Trading by intuition is another characteristic feature of novice speculators. Such traders often enter the market without any reason to do so. That is, they buy contracts without a corresponding signal, based only on assumptions about the direction of price movement.
You should always trade using one of the following options:
- technical analysis ;
- graphical analysis ;
- candlestick analysis ;
- price action ;
- fundamental analysis ;
- chosen strategy or indicator.
An example of baseless transactions for beginners is trading on news. Such events increase volatility and activity in the market, and newcomers try to “jump on the outgoing train,” thereby exposing themselves to unnecessary risk.
Don't try to be right all the time
The desire to prove that one is right is another psychological mistake. The market and other participants do not care whether you are right or wrong. And for you this may result in loss of money. By trying to prove something, you introduce an extra emotional factor into trading, which is why mistakes begin.
When you make a mistake, you need to close the trade if possible, and then analyze the reasons for the incorrect decision. If the reasons are clear, then you can make new transactions, taking into account previous mistakes and acting on the appropriate signals. There is no need to perform any other actions.
Control risks
There are many guidelines and rules that tell you how to manage risk in proportion to your trading account. It is recommended that the risk does not exceed 2% per trade or 5% of your total trading account. Check your trading strategy, determine the approximate number of signals it gives and choose the correct trade size. For example, you have a deposit of $100, and you decide that you are willing to lose only 2% per trade per day of the deposit, that is, $2. Your strategy gives you about two signals per day and you want to use them both. Then you can invest a maximum of $2 in one trade. But in this case, if you receive a loss, you will no longer be able to make a second transaction.
90% of success in binary options trading comes from discipline. Many traders are not patient and enter positions prematurely using intuition rather than a trading strategy. There are also people who are very afraid of losses. But losses are part of trading, and that's okay. Anyone, even professional traders, trading on huge accounts, receive losses and there is nothing wrong with that. Therefore, it is important to always strictly follow your trading strategy and avoid risking more than 2% per trade and 5% of your total trading capital. These rules may seem rigid and very difficult to follow at first, but they will lead you to success if you are patient enough.
Conclusion
Trading binary options is considered successful if this activity brings constant profit. In trading, stability is important, not high earnings in a short time. This is an important feature of binary options psychology.
It is important to understand that what makes a trader profitable is not a trading strategy, not an indicator, not knowledge and experience, but discipline and adherence to the rules of money management and risk management. Once you can control yourself, you can make money even with the simplest trading system.
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