fall downHave you ever trained up in a martial art or in the sport of free running?  If so, one of the very first things you probably learned was how to fall safely so that you would reduce the damage caused by the impact and have the best chance of getting back on your feet quickly.  Learning to fall in a martial art usually entails protecting your head from damage, properly slapping your palms onto the ground to prevent your wrists from breaking, breathing out to absorb the impact, folding your body up, rolling as you strike the ground, and so forth.  You practice learning how to fall on a soft surface such as a practice mat so that you do not harm yourself while you are learning.

Why am I detailing the art of learning to fall?  Because it can be seen as a metaphor for learning how to trade.  You are trading to win, which probably means that you focus a lot of your time and mental energy on the concept of winning.  While it is good to stay focused on your goals and optimistic, you do not want to forget that you are going to take some knocks along the way, especially as you are starting out.

In martial arts, if you do not learn about falling safely, you are endangering yourself.  It does not matter if you know every kick and punch in the world if you are going to be destroyed by the first blow that you take.  A relatively unskilled opponent would be able to easily defeat you if you gave him so much as a small opening, or even if you stumbled.  Likewise, it does not matter if you know every trading technique in the book, if the first string of losses you take is going to destroy you as a trader.  Success is built on failure, and you need to learn how to handle your failures before you can turn them into success.

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Here are five steps you can take to fall safely when trading binary options and get up on your feet again fast:

  1. Always break your fall (set a stop loss).
  2. Fold yourself up to minimize damage (manage money wisely).
  3. Roll with the punches (stay flexible).
  4. Learn on a soft surface (demo test).
  5. Get up again quickly (recover from your losses).

Now let’s break down each of these steps and discuss how they can help you to become a better binary options trader.

  1. Always break your fall (set a stop loss).

In my falling metaphor, I mentioned slapping your palms against the ground (briefly) in order to help absorb the impact and protect your wrists and arms from breakage.  Doing this also keeps your torso and head from slamming into the ground.  In binary options trading, breaking your fall means setting a stop loss each and every time you trade.

A “stop loss” is a concept from Forex trading which does not translate perfectly into the binary options world.  Forex trades can be open as long as the trader wants, and closed at any time.  A “stop loss” is a price value at which the trader decides to cut off his or her losses and not allow them to continue.  In binary options trading, the broker chooses how long you are in the trade for the most part.  That is determined by the expiry time.

You can set a “stop loss” however by using the early close function if it is provided to you, and also by refusing to rollover in losing trades.  Never allow a single trade to drain you of money indefinitely, no matter how hopeful you feel about it.  Rollover can be useful, but most of the time it is just hopeful thinking.  If reason tells you a trade is losing, get yourself out and break your fall.  Do not just keep hanging on.

Learn to manage your bankroll here.

  1. Fold yourself up to minimize damage (manage money wisely).

When falling, it is wise to fold yourself up by bending your ankles, knees and hips.  When you fold into yourself as you fall, you reduce your height so that your torso and head are not falling from as great a height.  The closest parallel in binary options trading is the concept of money management.  Money management, like folding your body into itself, allows you to minimize damage.  It determines the financial “height” which your account can fall on a single trade.

How much do you invest on your trades?  Do you do it based on a particular dollar amount, or a particular percentage of your account?  How much or how little money do you invest?  The smartest way to manage money is by investing a small, consistent percentage of your money.  Always base it off your risk (how much you can stand to lose), not how much you hope to gain.  If for example you choose to invest 3% of your account on every trade, this is like saying, “I will only ever fall three feet to the ground.”  If you were to invest a larger percentage, say 30% for example, that is like saying, “I will only ever fall 30 feet to the ground.”  Maybe now you can see why it is important to keep that percentage small!

And if you have no money management rules at all, you are giving yourself no protection.  You might fall three feet to the ground—or you might plummet 30, and lose everything.  Keep your investments small and calculate them precisely so that you always know what you stand to lose.

  1. Roll with the punches (stay flexible).

If you are falling in martial arts, it is usually a good idea to roll as you hit the ground.  This helps to distribute the impact so that you are not concentrating it all onto one part of your body.  This in turn protects you from serious injuries.  Similarly, if someone hits you, you want to do what you can to minimize the damage with your movements.

In binary options trading, you never want to get too rigid.  If you are rigid when you fall, you are trying to absorb an absurd amount of energy which you should allow to wash through you.  The tenser you are, the more likely you are to break bones or tear muscles.  As a trader, you may be tempted to stiffen up and remain rigid in the face of change or challenge.  You might think that relying on routine and the rules you have set for yourself is always the right choice.  But resisting a massive, game-changing force is only going to get you hurt.

You should stick with your rules while they are working, but sometimes you have to roll with the punches while trading.  Sometimes there is nothing you can do to absorb the impact of changes in the market, and instead you need to learn how to loosen up, adapt, and move with those changes to reduce the damage to your account.  Adaptability is one of the most important skills you can develop as a trader.

  1. Learn on a soft surface (demo test).

When you are training to fight, you do not want to break your body for the sake of the lessons, or you will never be able to reach the point where you are doing well.  You will spend all your time recovering from your injuries instead of training.  This is why students typically learn how to fall on soft mats which can help absorb the impact of their falls.

When you are learning how to trade binary options, do you want to spend all your time chasing your losses and recovering from drawdown, or would you rather spend your time learning how to trade and moving in a positive direction?  You can learn how to trade on a soft surface by demo testing.  A demo account can absorb the impact of your trading losses without creating any real drawdown.  Instead of losing money while you make mistakes, you learn how to make mistakes and recover from them in relative safety.  New traders are often impatient to get on with the business of trading, and do not want to take the time to demo.  But demo testing ultimately saves time and money!

  1. Get up again quickly (recover from your losses).

When you are in a fight, the longer you are down and vulnerable, the greater the advantage of your opponent, and the more likely you are to lose everything.  Similarly, in binary options trading, you do not want to stay down for the count for long.  You need to learn how to recover quickly from your losses, regain your confidence, and get back to your feet, armed with all you have learned from your mistakes.

When you learn how to deal with failure in a safe, healthy manner, you are building the groundwork for winning at binary options trading.  Stay flexible and adaptive, set limits for your losses, manage your money wisely, demo test, and take the time to understand your losses and learn from them.  With these principles in hand, you can jump into the fast lane for binary options success.

Don’t fall victim to these binary options misconceptions.