Pre-Trade Preparation For Trading Binary Options and Spreads


By Darrell Martin

What is the ideal way to begin your trading day when trading binary options or spreads? An expert trader outlined the following, beginning with what he does the night before.

The Night Before

Take into account any seasonal tendencies for potential impacts on the market. Review the Government release calendar to see what trade opportunities exist. Follows the charts but this will give you an idea of potential market bias. Review deviation levels and put together a trading plan. Then, review binaries or spreads at the time of the trade to see the best strikes based on deviations and price (risk/reward).

The Beginning of the Trading Day

Make sure you are in the right frame of mind! If trading scared (due to losses), overly elated (thinking you can conquer the world), trying to revenge trade (make back previous losses), having a bad day (spouse, kids, family, friends, work, etc.), in a bad mood (for whatever reason), feel horrible, not focused, etc., DON’T TRADE! It is much cheaper to take a day or more off, than to trade in the wrong frame of mind, as it leads to poor trading decisions. Be honest with yourself, as your trading account will be honest with you. If you cannot stop yourself from trading, limit yourself to demo trading. However, this is a bad idea. If you make money in this frame of mind while demo trading, you are building a bad habit.

Don’t look at what you could have made yesterday if you would have…. Be realistic and happy that you hit profits, made any profits or at the very least, traded well by following your strategy rules and risk management, even on a bad trading day.

Reboot your computer. This ensures everything is setup and working properly.

Make note of any important levels on daily and weekly charts. Once everything is all set up, have a defined system for any trade you are going to do. This helps with risk management and entry definition. Alarms on a phone or computer can be set as reminders for certain events.

Depending on what is seen, decide on the strategy you will do. Will it be straddles, strangles, and butterflies, In the Money (ITM) / Out of the Money (OTM) / At the Money (ATM) binary options? Master one or two strategies with a laid out system before expanding your playbook.

Set your risk tolerance for the day up front. Once it is hit, stop trading, no matter what. Set a profit goal and a schedule for when you are willing to focus on trading.

Throughout The Day

Review your trades as they pertain to the strategy or system you are using. Are you following the rules? Could you tighten stops?

Review a variety of news sources to see if anyone is making any statements, or if any market moving news is released.

Watch treasuries and dollar strength on futures, and the correlation or reverse correlation to other markets. For indices, look for bigger company’s potential news. Many have a direct impact on the indices. Monitor all markets to see those hitting deviations for a variety of possible plays.

End of the Day

Review your day. What did you do right? (So you can repeat it.) What did you do wrong? (So you do not repeat it, even if it worked, but you made money–you do not want to start bad habits.) What happened that you could look for next time to give yourself notice? What was out of your control? (It is important to be humble about this i.e., there was no way you could have known it was going to happen.) Don’t beat yourself up. Realize in the end, anything can happen in the markets, but learn to control what you can: system, entries, following rules, risk management, reading the markets, what to watch, etc.

These are suggestions that can help you in trading binary options and spreads. If you want to be profitable, it is important to treat your trading as a business and not a hobby. Learn all you can and practice what you learn.