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Financial Management

Money management is used in trades and deals with the question of how much risk a decision maker should take in situations where uncertainty is present. The key to successful money management is maximizing every winning trade and minimizing losses. As a trader, you should divide your capital into certain assets and diversify your portfolio after analyzing the underlying asset. Responsible working methods yield positive results and high confidence for future trades. 

The biggest mistake most traders make is setting a limit on their profits and not on their losses. Traders won't readily admit to wrongdoing on their part, which only perpetuates repeated losses all the while hoping that the market will turn around and prove them right. Eventually, traders become accustomed to small losses and give up on the possibility of making a profit. Human nature pushes individuals to seek instant gratification in the hopes of making profits on starting trades. Having small losses does not necessarily mean that a trader's way of thinking or method was incorrect, it simply means that their timing wasn't opportune. It is better to hold out for auspicious circumstances that will allow a successful market re-entrance.

It is vitally important that a trader be aware of a strong force in the market, either bullish or bearish. When this force is at its high, it would be folly to attempt to buck it. However, one must learn to recognize when a trend is about to run its course or when it is near a period of exhaustion. Being able to recognize the early signs of exhaustion protects traders from staying in the market too long and enables them to change direction in line with trend changes.

With the emotional stress that is inherent in any speculative situation, a trader must have a predetermined method of operation. This can include a set of rules by which a trader operates. Quite often, emotions will cause a trader to do something completely foreign or negative to what their market trading plan should be. It is only by adhering to a preconceived formula that a trader can resist the emotional temptations and stresses that are constantly present in speculative situations.

In order to be successful, one must approach trading as a full or part-time business - not as a hobby or a job. As a hobby, where no real commitment to learning is made, trading can be very expensive. As a job, it can be frustrating since there is no regular paycheck. Trading is a business, and it incurs expenses, losses, taxes, uncertainty, stress and risk. As a trader, you are essentially a small business owner and must do your research and think strategically to maximize your business potential.

Trading is a competitive business, and one can assume the person sitting on the other side of a trade is taking full advantage of technology. Charting platforms allow traders an infinite variety of methods for viewing and analyzing the markets. Back testing an idea on historical data prior to risking any cash can save a trading account, not to mention stress and frustration. Getting market updates with smartphones allows us to monitor trades virtually anywhere. Even technology that today we take for granted, like high-speed internet connections, can greatly increase trading performance. Using technology to your advantage, and keeping current with available technological advances can be fun and rewarding in trading.

Think of it as continuing education - traders need to remain focused on learning more each day. Since many concepts carry prerequisite knowledge, it is important to remember that understanding the markets, and all of their intricacies, is an ongoing, lifelong process.

 Hard research allows traders to learn the facts, especially through the interpretation of various economic reports. Focus and observation allow traders to gain instinct and learn myriad trading nuances; this is what helps traders understand how such economic reports affect the market they are trading.  World politics, events, economies, and the weather all have an impact on the markets, which are part of a dynamic environment. The more traders understand the past and current markets, the better prepared they will be to face the future.

It pays to be patient. Profitable traders often wait for the perfect trade setup. Many traders who do not consistently make money, trade for the sake of trading, and these specific traders are missing the opportunity of gaining some substantial profits. A lot of them look at the markets and ask themselves, “where is the GBP heading?” as opposed to looking at the markets and saying, “is there a trade that must be made now?”

Once you learn how to control the timing, your trading account will grow.

It is easy to tell yourself, "I have a good risk management system and it will be profitable in the long run." However, it is much harder to make it happen. It takes serious will power and self-control to utilize a good risk management system. Every trade needs to be made according to your own rules. If it is not the right time or setting for a specific trade, you have to be able to walk away. At the same time, when you ride on high profits, you need to be able to stick to the same rules as well. In between, when you get bored, you have to abide by the same rules.

Risk management is important for a variety of reasons, but there is one very important reason: you have to be able to manage risk or you will get cornered financially. If you get cornered, you can't trade; and when you can't trade, your account will not grow. It is very difficult to stick to good risk management techniques, but remember that it is better to be able to make a small trade than no trade at all. 

It is easy to apply risk management to Binary Options. The predetermined risk makes it simple to position size. All you have to do is to multiply your account by the percentage you want to risk. For example, let's say you have a $1000 account and you want to risk 10% (most common), then you would do the following:  

$1000 * 10% = ($1000*10)/100 = $100
 
In other words, you will open your trade with $100 and that’s the amount you will risk, if the worst case scenario occurs. You may change the risk percentage according to the different strategies you are using.
 
After, it comes down to your analysis and strategy, just like any other form of trading. Binary Options requires proper risk management and full attention just like any other financial instrument.

Most traders find it very hard to stop trading, even if they have other important things to do or if they're just feeling tired. As hard as it may be to stop trading, it is absolutely necessary to do so from time to time; failure to do so is a recipe for self-destruction. Nevertheless, there is one way of trading without actually trading, which involves thinking about tomorrow's trade.

After your trading hours end, take a deep breath and clear your mind for 5 minutes. Release the underlying thoughts of today's trading and begin thinking about tomorrow. Check out financial news, try to expect future breakthroughs and special events, look for anything that might be your next day's opportunities. Write down the hours and expected effect of these possible trades, then and draft a list of opportunities. Take that list with you and keep it in mind for the rest of the day. Whenever you sit in front of your computer, you should be equipped with the right tools to make the right choice. Some traders take almost an hour to review financial news, others take 15 minutes - it's all up to you. Time spent on reviewing your different options and tools should also be included as part of your total trading hours.