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Thread: Psychological edge in trading binary options

  1. #1
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    Psychological edge in trading binary options

    Traders often come to binary options due to the following reason: they are confused about uncertainty that comes with traditional trading. Where to place your stop, should we move our stop-loss, should we “let profit run” or “take what the market gives” to us?

    There are no certain answers to these questions as we are operating in the environment with high level of uncertainty, ambiguity and conflicting information. It will be right for one type of market conditions to hold position whereas it would be wiser to take profit in the other one. Traders with experience of active trading over 1 year will be agree that there's no certain answers on such questions. All we are able to do is to build hypothesis and stick to it, or to change it due to changing market conditions.
    It's hard sometimes to make reasonable decisions when you have a position. That's why traders often recall worst case scenarios or have extremely optimistic view. They have two outcomes in their minds – “yes” or “no”, but market is often much more complex.

    According to my trading experience, everything of described above happens, when traders fail to distinguish between “analytical mind” and “trading mind”. “analytical mind” is a point of view where we are objective, we see the big picture as well as numerous nuances, we are flexible and can make reasonable conclusion about the market “here and now”. “Trading mind” is something associated with logics of your account, not the market. We tend to stick our attention to something that threats our position or gives a hope for quick profits. “Trading mind” switches on when we are in position. That's why most analytics in hedge funds or other serious institutions are not permitted to trade – they have to be neutral.

    So, you might see that traders face a very difficult task – they have to judges and players at the same time. Imagine that judge in the soccer game was permitted to make bets on outcome of the game. How do you think – would they be good judges in this situation? For most people, be an observer and a participant at the same is a very tough task, when they try to get inside of mind of their competitors, all they have is stress and emotional discomfort. Now you understand why many traders fail after they transition from demo to real money account.

    Trading options is a way to distinguish two positions of perception (“analytical” and “trading” mind). Thus, we can analyze one market (chart of the currency pair) and trade on the other. When our attention is not absorbed by getting stopped out of your position, you can pay 100% of your attention to process of trade selection. Of course, in this case you will more than likely spot a good opportunity, repeating this positive cycle in the long run.

    That's why, if you feel that you experience difficulties in making good analysis when having paper profit or loss, try trading your strategy with binary options and see what happens.

    P.S. Of course, if you are trading big trends, it can not be replicated in trading with binary options (they have limited upside for profit).

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    Last edited by Value trader; 01-15-2015 at 10:48 AM.

  2. #61
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    Aug 2013
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    in binary option the psychological effect may be less as the trader put the order and wait the result but in traditional trading the trader will think before trading and think during trading and so this will increase the pressure on the trader psychology and so this may let him to take bad decisions during trading that lead to loses but with binary only one decision will be taken and this will make the trader more relax.

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  3. #62
    Trader snnaky's Avatar
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    Apr 2014
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    [lang=ar]I didnt try this type of Commerce, only on the experimental account but may be i did not love it because it does not depend on the usual rules of buying and selling. And i think that this is kind of gambling and I don't like this type of trade ,[/lang]

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