Binary Options Study Tips Part 2: Come Up With a Plan of Attack

In part 1 of my series on binary options study tips, I described some ideas for keeping your trading resources organized: all your videos, eBooks, screenshots, and other downloaded materials.  Having organized resources can help you to stay on track when you are learning.  All the resources in the world are not going to help you though if you have no idea how to tackle them.  It is not a good idea for example to start out by diving into in-depth trading methods when you still do not even know the definition of a moving average or an oscillator.  In this section, I will share an idea for a basic step-by-step plan of attack for learning how to trade binary options.

1. The very basics of binary options trading.
2. Market hours and limitations.
3. Brokers, bonuses, and leverage.
4. The main types of trading analysis.
5. Charts and how to use them.
6. Support and resistance.
7. Moving averages.
8. Common technical indicators.
9. Fundamental analysis.
10. Price action.
11. Risk management.
12. Position sizing.
13. Start learning trading methods and testing them.

1. The very basics of binary options trading.

This is what you will learn from any basic “how to” page on any binary options broker website.  Before you can start learning about trading techniques, you need to understand what a binary options trade is and how to make one.  Thankfully this is something you can easily pick up within a matter of minutes.  It literally takes about five to ten minutes to fully understand the concept of a binary options trade.

2. Market hours and limitations.

Next, you will want to get an idea for the hours for different types of markets for various assets (currencies, stocks, indices, commodities).  When can you trade the assets you are interested in?  What dates and times does the market close?  What about holidays?  This is also a good time to learn about times when major price fluctuations can cost you  money.  Many traders avoid trading around holidays and weekends for this reason.  Some also avoid trading when financial reports are released.

3. Brokers, bonuses, and leverage.

It is time to begin familiarizing yourself with binary options brokers.  We maintain a great list of reputable brokers here.  These brokers have impressed us with their transparency and reliability, and have strong reputations with other traders online.  Binary options scams are very common sadly, and you need to know how to recognize and avoid them.  You also will want to start learning all about binary options bonuses, seemingly “free” money that brokers will offer you to sing up.  Really these bonuses are a form of leverage, which allows you to control more money than you actually have.  With leverage, you can win fast or lose fast.  Leverage is another topic you will want to learn about.  Any smart discussion on leverage will also introduce you to the basics of position sizing and risk management.

At this point, if you are trading for fun and not for profit, you can basically skip down to #11 and start learning about risk management and position sizing, and then you can trade if you want.  If you are very serious about learning how to trade though, or even if you just want to gain an edge, you should keep working your way down this list.

4. The main types of trading analysis.

At this point, you are ready to begin studying different techniques for trading binary options.  There are three main types of analysis: technical analysis, fundamental analysis, and price action.  You will want to have a basic understanding of all three so you can decide what to learn about in-depth.

5. Charts and how to use them.

Now it is time to learn about how to read charts and use them to plan your trades.  And no, I am not talking about those really vague, uninformative charts provided by the average binary options broker.  I am talking about downloading some high quality charting software for starters, and then sitting down and learning about candlesticks, bars, and other features on professional charts.  Once you learn your way around a chart, you are ready to start learning about technical analysis.

6. Support and resistance.

How much do you know about the basics of price movement?  At this point, probably not a whole lot.  Once you learn how to read your charts, it is time to start understanding the movements of price.  Price encounters support and resistance on its way from one area on your chart to another.  You can read all about them here.  This is also a good starting point for learning about channels and trend lines.  These tools all help to lend context to any trade setup you see.  One of the most common newbie mistakes in binary options trading is ignoring context.  Even traders who have been learning and trading for years make this error.  So never lose sight of what is going on with price around your setup!

7. Moving averages.

Moving averages are among the simplest chart indicators out there, and serve as a good introduction to chart indicators.  Like trend lines and support and resistance, they too help to bring context to a trade and show you a portrait of what is going on around a setup.  You can even construct a basic trading system using nothing but moving averages.

8. Common technical indicators.

Once you have learned about moving averages, you should start learning about other types of technical indicators like Bollinger bands, stochastic indicators, MACD, parabolic SAR, RSI, and so on.  There are literally hundreds of indicators, but it is only important for you to learn about the most common basic ones right now.  Later on, if you decide to learn more about technical analysis, you can start learning about some of the more exotic indicators.

9. Fundamental analysis.

This is the second major type of analysis which is commonly used to determine what price is going to do.  Is the price of oil going to skyrocket today?  Maybe something you know about Canadian politics can shed some light.  What about Google’s shares?  Perhaps the upcoming investor’s call will determine whether investors are feeling bullish or bearish about the internet giant.  Fundamental analysis is the art of using your knowledge of economics and financial events to determine whether price for a given asset is going up or down—or nowhere—and then using that knowledge to profit from binary options.  After you learn the basics of technical analysis, learn the basics of fundamental analysis.

10. Price action.

This is the third major type of binary options analysis, and it is probably the most often overlooked by beginning traders.  In fact, many newbies never even find out about price action.  With price action, you are looking directly at the price bars for patterns and formations which indicate that price is going to break out.  This type of analysis can be combined with technical analysis or fundamental analysis, or used by itself in context of the market.  Learn a bit about price action before you press on.

11. Risk management.

Hopefully after you learn the basics of the three types of analysis, one of them will jump out at you as something you are interested in using in real life.  That will help you to decide what route to take with your intermediate education.  First though, you need to learn about risk management.  Even if you have an amazing trading technique, you will never become profitable if you do not know how to manage your risk exposure.  You manage risk by coming up with a plan for how much of your account you are willing to risk on each of your trades.  Smart investors don’t just throw 10-20% of their accounts out on each of their trades (wait—you weren’t thinking about investing more, were you?).  Pros keep their risk exposure down around 3%.  Yes, that means that if you are hoping to stay in the game for the long run, it may be time for a reality check! Click here to manage your bankroll.

12. Position sizing.

How do you manage your risk and keep your investment percentage around 3%?  By calculating what 3% of your account is equal to in dollars (or whatever currency you are using), and then entering in with that position size.  You should always calculate your position based on risk, and not merely what you hope to win.

13. Start learning trading methods and testing them.

Once you have completed the steps above, you should be done with your beginning education as a binary options trader!  That means it is time to move on to intermediate learning.  When you were reading about analysis, what stood out to you?  Start learning more in-depth about the type of analysis you are drawn to, and begin picking trading methods to test.  Once you have tested a method with great results, you are ready to deposit money into your first binary options account and start trading for real!

Trading binary options is easy, but winning is a little more challenging.  If you want to become a winning binary options trader with the chance to stay in the game for years and make the big bucks, you need to be willing to invest a lot of time into your education.  You can cut back on that time by following a logical plan of attack when you start learning.  You will get a lot less confused if you follow these steps in order, and by the time you are finished, you should be well on your way to figuring out how you want to approach your trading!

“Use this as a guide for your first month of trading!”