5 Techniques to Make Smart Trading Decisions Faster
Trading binary options is not for the decision-averse person. You are constantly making decisions when you trade. You make choices about how to trade and what to trade and when to trade each and every day. Find out when NOT to trade. That means taking constant and ongoing responsibility for your actions and their outcomes. It also means that your financial future hinges on the choices you are making day by day. That is one of the reasons that trading is so exciting to so many people—it is a test of your ability to make smart judgments in situations where you are dealing with uncertainty. If you can get good at that, not only will you be a better trader, but you will also be better at making life choices in general.
Another challenge posed by trading is to make good choices within a limited timeframe. When you are in the middle of a trade, and your broker allows you to use tools like double up, rollover, and early close, you literally have a clock running on your decision to use one of these tools or not. If you cannot decide by the time the clock runs out, your choice is made for you.
Another situation where you have to make fast decisions is with short term binary options like 30 and 60 Second options. These types of trades flash by in a minute or less. You have to be able to make the decision to enter your trade quickly when you spot an opportunity. Alternately, if something is not a prime opportunity, you have to decide to bypass it and let it go. The majority of traders are not cut out to trade short-term options, because they do not know how to think that rapidly. But this is a skill that in part, you can train up.
Have you ever heard the term “analysis paralysis?” Traders routinely work themselves into this state of mind where overthinking and underconfidence lead to no action being taken. If you have ever read or seen Shakespeare’s Hamlet, you have seen the most famous literary example of analysis paralysis. Pulled a dozen different ways, Hamlet refuses to make a decision until the last minute—and everybody dies.
When you freeze while trading, you become like Hamlet, only instead of everybody dying, it is your account that you kill and your potential to profit. Do you struggle like Hamlet to make decisions, or wish you could make them faster? Here are 5 techniques to become a faster decision-maker and making choices which are smart and profitable.
- Less is more.
- Learn from experience.
- Recover from your mistakes.
- Use your intuition properly.
- Play learning games.
Let’s go through these ideas one by one. You cannot remove uncertainty from trading, but you can remove unnecessary uncertainty from your mind through smart trading practices.
- Less is more.
Did you ever take a multiple-choice exam in school, probably for the SAT or for some reasoning-based test, which asked you a complicated question full of specious information? You might have re-read the paragraph in the word problem three or four times before you realized that only one aspect of the question had any bearing on the answer, after which choosing the correct answer was simple. All that excess information was there simply to confuse you and test whether you could filter it out or not.
That is an example of the principle “less is more” which you can apply to making trading decisions quickly. Look at your charts with your indicators plotted on them. How many indicators do you have? Half a dozen? More? It is common especially for newbie traders to make the assumption that the more signals they have, the more certain their setups will be. What usually results however is a set of conflicting signals which pull the trader a dozen different ways—like Hamlet. And then, like Hamlet, the trader refuses to make a decision and loses faith in his or her trading system.
Consider decluttering your charts and your trading in any way you can. You have doubtless heard the acronym KISS, which stands for “Keep It Simple, Stupid.” There is a reason that acronym finds its way into thousands of classrooms and workplaces; inside it is a grain of truth which is applicable to many different aspects of life, including binary options trading.
If you need some ideas for how to simplify your trading life, jump online and look at trading systems on trading communities. You will discover many traders who have very few indicators on their charts. Many of the best trading methods out there use only one or two indicators, and often they are there to provide context. Filter out the noise and chaos, and you will be able to make easy, focused choices.
- Learn from experience.
Your experiences are extremely valuable when it comes to trading. This is why it is wise to keep a trading journal. You will be able to make fast, smart choices when you are informed by the good and bad choices you made in the past. If you keep careful notes, you will be fast to recognize familiar trading scenarios and make the smartest choice given your knowledge. You will learn to recognize situations faster and faster, and to call upon patterns you have seen many times to make the profitable decision.
After you do this enough times, it may even get to the point where it feels as though it is second nature. You may find yourself instinctively leaning toward the right choices without even fully understanding them. This is called “expert intuition.” It is not a common thing to actually develop this kind of instinct, so if you have it, use it!
- Recover from your mistakes.
One of the most typical causes of analysis paralysis is the loss of confidence that stems from having lost a lot of trades in the past. Particularly after spates of losing trades, traders may waiver in self-doubt and indecision, even when they see good trade setups. You may not pull the trading trigger, even though you should, which leads to further drawdown in your account, because now, not only are you losing money on bad trades, but you are also forfeiting money on good trades.
To recover from your mistakes, it is essential that you learn to understand why you failed. It is equally critical that you stop accumulating losses in your account, both for financial reasons and for reasons relating to growing underconfidence. So take a break from your trading and figure out what went wrong, and then jump back up on that horse. Read more about recovering from trading losses here.
If you actually take the proper steps to learn from your mistakes, you will be able to recover your lost confidence. After doing so, you will feel encouraged by what you have learned, which will renew your belief in your trading abilities. You have to learn how to put some distance between your present and your past, and dissociate yourself from your failures. You are no longer the person who made the mistakes. You are the person who learned from them.
- Use your intuition properly.
Your intuition is a powerful tool when utilized correctly. When used improperly, it can actually cause you to fail. Gut instinct may be a signal from your brain telling you something essential to making a smart decision—or it might just be a weird feeling in your gut with no basis in reality. Ironically enough, learning to tell the difference is in part the work of intuition as well, but also of experience.
Over time, you can actually develop a sense for the different kinds of intuition you may have. Earlier I discussed the concept of expert intuition. Expert intuition is the product of experience. It is what happens when your brain goes on hyperdrive and tells you the right choice without explaining all the steps. It usually feels distinct from other types of intuition.
You may also develop long-term strategic intuition. This type of intuition, unlike expert intuition, is not grounded in experience of the mundane so much as it is in experience of what you do not understand. Your brain works in the background to solve problems, and you may occasionally experience a burst of insight known as an epiphany. This is strategic intuition at work, and it can also aid you with your trading decisions. Sometimes you may never understand where an epiphany came from. But there is still typically a distinct feeling that comes with them when they have a strong basis in reality.
Ordinary intuition that does not derive from experience is often just wishful thinking. Your trading needs to have some kind of basis to it beyond just gut feeling. Smart intuition can lead to fast, smart decisions, but the wrong type of gut feeling will just drain your account.
- Play learning games.
You can train your brain to think faster and make better decisions by practicing in a situation where you are not going to lose money and where the pressure is not so high. Consider playing learning games designed for the purpose of speeding up your brain. A lot of games which are not designed specifically for that purpose can also help you to make smarter, faster decisions. Any game that improves your response time and forces you outside of your patterns of over-thinking can help you to improve your trading!
Analysis paralysis is tough to beat. It has caused many traders to fail, either by prompting them to make bad decisions about trade setups, or simply by causing them to freeze and never invest in the market at all. Once you learn to overcome analysis paralysis, you will have a much easier time trading, and you may even eventually become fast enough to trade short term binary options successfully.
Check your trader’s psychology as well – find out if you have what it takes.