Are you an Intermediate?
You already have some experience with live trading and knowledge of technical analysis. Probably you traded with a few different brokers and you made some profit with trading.
You tried out a few different strategies and you already may have ideas about how to make your own strategy or system.
You are trading on your own and you make your trading decisions based on technical analysis or news - and you at least break even in the long run.
You think you might have a good strategy or a few of them, but you are kind of stuck here because you are still getting mixed results. Often you get very good results, but sometimes you still get drops on your account, which can ruin your day.
If this is the case, you can consider yourself to be an Intermediate trader. And don't worry - the problems you are facing are very common and can be overcome with right approach.
Common Problems of Intermediate Traders
Main 'problems' which you can face at this stage are the following:
- You have problems with trading discipline and can't maintain a 'healthy' risk level.
- You don't follow one strict strategy but you tend to trade different strategies within the same trading session.
- You have not analyzed the risk and profitability margins of your trading strategy.
- You don't have a proper money management system or it is not well optimized.
- You have no global investment plan or short-term and long-term profitability goals.
- Your trading efficiency is poor - you don't use tools which can make your trading less time consuming and more efficient.
These are most common obstacles which prevent traders from progressing. Many traders are not even aware that these issues should be improved, or they simply do not know how to do so.
Let's see how to tackle these problems and improve the trading results.
Intermediate Trading Guide
PROBLEM: NOT HAVING TRADING DISCIPLINE
You hear a lot about trading discipline - and this can definitely present the biggest obstacle to any trader who trades manually.
Having trading discipline simply means you rigidly have to stick to your trading strategy and money management plan - even when some trades go bad. When loss occurs, many traders want to recover it immediately, and they tend to take higher risk and enter trades with low win probability with higher stakes - which can result in more loss. This means they don't maintain the trading discipline which is required to trade only within the frame of their strategy.
The problem which many traders are not aware of is that we can not speak of trading discipline if we do not have a well defined trading strategy and money management system. Actually, not having the trading discipline is not the problem - usually the problem hides in not having your strategy well analysed and defined.
SOLUTION: FULLY DEFINED TRADING STRATEGY
If you have a strategy, which you know that works, because historical analysis confirms its profitability - and you have optimized it well to stay within your acceptable risk levels and you have proper money management applied on top of it - then you know you have nothing to worry about, even when a sequence of losing trades occurs. You know that statistically there is a big chance you will recover if only you continue with the same approach. You accept momentary partial loss as part of your strategy and you know that all you need is some more time and more trades to recover and continue progressing with making profit.
The only way to fight the lack of discipline is to have trust in your strategy. And the only way you can have trust in your strategy is to have it properly analysed and optimized and preferably confirmed results on demo or real trading account.
So the real question here is 'How to Make Proper Binary Options Strategy Analysis?'
PROBLEM: Trading Multiple Strategies in One Trading Session
When trading manually we are always tempted to enter a trade if we see a good setup, even if the trade is outside of our strategy rules. It takes lots of experience to effectively handle such approach, as this means that our money management, which functions well for certain strategy, is not valid any more. A trader can quickly lose his grip when mixing multiple strategies or when trading 'freely'. Trading out of predefined strategy rules is not advised for beginner traders.
SOLUTION: Custom Indicator or EA Based on your Strategy Rules
Personally I could not avoid placing some trades outside of my strategy rules, however I learned to limit such trades to one trade per situation (setup) and my rule is not to start doubling up (martingale) if the trade is lost. In such case I return to my original strategy and I do not enter the trade even if I spot a potentially great setup forming outside of my strategy rules.
The best way is using a robot (which follows the rules 100%) or an indicator with signals for your strategy and limit yourself to trade only on the signals.
I have constructed many robots and nowadays I use only automated trading or trading on signals based on my strategy rules. I found out that this way of trading works best for me in the long run. However, as mentioned before - when I trade manually, I still tend to mix a few strategies, but still in a controlled way.
If you tend to mix strategies and this causes problems, again the answer to fixing this problem lies in rigidly following only one strategy which is well analysed and defined. Having a custom built indicator based on your strategy rules is the most helpful tool you can get. There are many programmers available online, who can build you such indicator for you. One of the places you can look for help is mql5 website under 'Freelance' section.
PROBLEM: Not Having a Solid Money Management System
You can have a great trading strategy, however if your money management system is not optimized for this specific strategy it can make a difference from just breaking even to making substantial profit.
Money management is a crucial part of any trading strategy. One strategy can work great with specific money management approach while another will work with another. A successful trading system is always a combination of trading strategy and optimized money management system which works best with this strategy.
Money management plan should always be applied on top of your trading strategy data (which you get by making a strategy analysis). You can't make a money management plan if you don't have strategy analyzed first.
SOLUTION: Money Management Optimization
The most important analysis output for application of proper money management is consisted of following data:
- Win rate
Usually measured in percentage, showing the percentage of winning trades in relation to all trades in specific sequence.
Example: From 100 trades we have 62 WINS and 38 LOSSES, which gives 62% WIN RATE.
Calculation: 100 / (Number of WINS + Number of LOSSES) * Number of WINS
- Win/Loss sequence
Is an order of winning and losing trades from first trade to last trade in specific sequence.
Example: WIN, WIN, LOSS, WIN, LOSS, LOSS, WIN, WIN, WIN, LOSS, WIN, LOSS, LOSS, WIN, WIN, ...
- Return rate on winning trades
Is a fixed or average return rate on winning trades given by the broker. Some brokers have fixed return rates and other can have variable return rates, affected by market time and conditions. A good average return rate given by broker is considered to be at any level above 78%.
For best money management optimization the best scenario is to have a good win rate (for example above 60%) with evenly distributed wins and losses in the win/loss sequence (no long sequences of losing trades) and a good return rate given by the broker.
This means strategy is robust and solid, and such strategy will allow much more flexibility for money management optimization.
There are several money management systems - just to give two very realistic examples with a bit different variables:
1. 62% win rate / 100 trades / 78% return with LINEAR money management and $100 per-trade investment will give $1036 profit.
2. 62% win rate / 100 trades / 82% return with LINEAR money management and $100 per-trade investment will give $1284 profit.
3. 65% win rate / 100 trades / 78% return with LINEAR money management and $100 per-trade investment will give $1570 profit.
4. 65% win rate / 100 trades / 82% return with LINEAR money management and $100 per-trade investment will give $1830 profit.
5. 62% win rate / 100 trades / 78% return with EXPONENTIAL money management and 6% per-trade will give $1836 profit.
6. 62% win rate / 100 trades / 82% return with EXPONENTIAL money management and 6% per-trade will will give $2121 profit.
7. 65% win rate / 100 trades / 78% return with EXPONENTIAL money management and 6% per-trade will will give $2520 profit.
8. 65% win rate / 100 trades / 82% return with EXPONENTIAL money management and 6% per-trade will will give $2931 profit.
5. 62% win rate / 100 trades / 78% return with EXPONENTIAL money management and 8% per-trade will will give $2245 profit.
6. 62% win rate / 100 trades / 82% return with EXPONENTIAL money management and 8% per-trade will will give $2718 profit.
7. 65% win rate / 100 trades / 78% return with EXPONENTIAL money management and 8% per-trade will will give $3402 profit.
8. 65% win rate / 100 trades / 82% return with EXPONENTIAL money management and 8% per-trade will will give $4158 profit.
Once you have your strategy analysed, you can make your own money management optimization with my online money management calculator provided on this website. To understand more about money management also take a look at my 'binary options money management' article.
PROBLEM: Not Having a Solid Investment Plan
Investment plan is not simply money management. Money management is a system of investing into trades within a framework of a specific strategy and global investment plan is how you manage your profit, losses, deposits and withdrawals over longer period of time.
Not having a global investment plan is not such a big problem if you have a very good strategy which allows making profit in most of the trading sessions and you know when to withdraw you profit. However the reality is such, that not every trading session will be successful. Many traders have the problem because they don't withdraw they profit often enough. In such case you need to define some rules about your acceptable risk, profit and loss levels on global scale and set the level where you withdraw all or part of your profit..
Having a solid investment plan is the final touch that leads to long-term profitable trading.
SOLUTION: How to Make a Global Investment Plan?
It is hard to give exact rules for making investment plan, because it greatly depends on the strategy and money management you are using. To give an example, investment plan answers some of the following questions:
- How much are you going to invest into trading?
- Will you spread your investment across different brokers and trading systems?
- How much do you plan to profit before you withdraw your money?
- Will you withdraw everything at once when you reach your goal or will you bank your profits in steps, leaving certain amount of funds to continue trading with?
- What loss can you accept before you reset your money management approach?
- What will you do in case of reaching bottom loss level - will you withdraw what is left or will you refill your account and continue?
- Etc ...
To be able to make a realistic investment plan, you first have to have a strategy defined and analyzed and you have to have money management optimized and defined. This way you will know what is the strategy potential profitability and risk.
Then you can build your global investment plan based on strategy risk and profitability projections and you can set your profit and loss limits based on the risk you are prepared to take.
MY PERSONAL EXPERIENCE
How I Tackled the Problems with Trading Discipline, Strategy Optimization, Money Management and Global Investment Plan
I definitely had the problem with trading discipline - however I managed to turn it around with trading and money management strategies, which fit my high-risk/high-profit style of trading.
When I analyzed my trading score, I realized that I have very good sequences of winning trades. But these were in places followed by sequences of losses. Often times my account broke simply because I tried to cover the loss by doubling the investment on the next trade, and then the next one, and one more time. But I made all losing trades one after another and doubling on these trades was definitely a bad idea.
I realized that the profitability of my style of trading can be much improved with aggressive money management approach. This did not lower the risk, but it greatly increased the profitability when having good winning sequences.
To help me stick to my trading strategy I had build some custom indicators with alert, which signaled on situations with higher win probability to enter the trades. On each situation I also made a manual technical analysis to confirm the signals.
So what is my 'aggressive money management approach'?
When I trade manually I usually start with low investment - being somewhere from $500 to $1000. Then I sit and trade as many situations I can find with manual technical analysis. And I still combine multiple strategies (which not advised for beginners). I use 4% - 8% per-trade (high-risk) with exponential money management system and in around 50% of times I manage to reach my profitability goal - which I usually set somewhere around 500% of my initial investment.
Example: I invest $1000, and my end goal is $5.000. When I reach this goal, I pull out the profit out and then go again - again starting with $500 or $1000 investment. Such attempt to reach 500% is usually broken into 6 to 10 trading sessions, each lasting for around 4-5 hours. So it can take around 2 weeks of disciplined trading to reach this goal.
I would actually need to reach my goal only once from total of 5 attempts to break even - but I realized that with my style of trading I can reach my goal almost every second time. So for each $5.000 profit, I make $1.000 loss. Sometimes I pull out the profit even before I reach my end goal of 500%, but never before reaching the 250% target.
This suits my aggressive trading style and works best for me when trading manually - however, since I started developing my own robots I tend to use these instead. Robots are much slower and not so flexible as with my manual trading style. But trading with robots saves my time - So I actually can have my free time and I can also focus on other things besides trading.