Beside the charts analysis skills you need to acquire before trading binary options, risk management is the most important challenge you will have to overcome to make money. But even if you know that you have to adhere to a strict discipline, it can be very hard to stick to the rules that we have defined when our mind is clear. Spectre solves this issue with its unique binary options risk management system, which helps you to protect against yourself in certain moments.
Binary options trading: emotions can be overwhelming
If you have already traded digital options, you most probably know how emotions can be overwhelming. Whether it is because you are in a winning or losing streak, you are not able to stop yourself while the wisdom would commend you to take a break.
Once you start winning a lot in binary options trading, you might feel a sentiment of overconfidence, which means that you will start to take trades quicker than usual. And when you are in a losing streak, you might be compelled to overtrade to “recoup your losses”… and probably make things worse.
Spectre risk management: to protect your binary options profits or mitigate your losses
To protect traders against themselves, the smart options platform Spectre.ai has included a risk management system. It is, of course, up to you to determine how stringent it will be. It is highly customizable according to your experience and your risk appetite. You can set it up in Account Settings/Risk Management.
The system comes up with 4 risk management templates:
- No risk
- Low risk
- Medium risk
- Freestyle (high risk)
However, each setting can be customized to accommodate your risk profile. Here are all the parameters you can define, and a short description if the name is not self-explanatory enough:
- Daily stop loss: number of lost trades after which the block will be triggered
- Daily win stop: number of wins after which the block will be triggered
- Stop timeout: number of hours during which you won’t be able to trade once the daily win or loss block is triggered
- Streak count: how many won or lost trades after which the streak block will be triggered
- Streak timeout: duration of the streak block
- Max % allocation: maximum amount, expressed in the percentage of your account balance, that you can wage on a trade. Bear in mind that if your balance is low, this percentage might be quite high.
- Max open positions: how many trades can be opened simultaneously
- Minimum payout: what is the minimum profit percentage you want to trade
- Max drawdown per day %: what is the maximum percentage of your balance you can lose in one day (regular account only)
- Max drawdown per week %: what is the maximum percentage of your balance you can lose in one week (regular account only)
- Max drawdown per month %: what is the maximum percentage of your balance you can lose in one month (regular account only)
Please define carefully your binary options risk management profile as you are allowed to modify it every seven days. This to prevent that you change the rules by frustration.
How to set up risk management in Spectre.ai
Spectre’s binary options risk management templates are very cautious. Even the “medium risk” template, with a daily stop loss of 3 trades and a daily win stop of 5 trades, maximum allocation of 3 percent per trade is quite safe in my opinion, I use something close to that.
I don’t think there is an ideal “one size fits all” set up. Some people won’t need it because they can trade binary options with a lot of discipline. I believe that experienced traders should be able to apply those rules themselves (because when you overtrade, you will most of the time pay for it, and after a few blows it will sink). When you start to trade for real money I would advise you to limit yourself to 5 to 7 trades per day. If I get 3 winning trades in a row I sometimes stop, or I decrease the stake to protect my profits.
Why risk management is so important
Losing profits because you got… loose is one thing, but as annoying as it can be it is nothing compared to draining your account quicker than your bathtub because you are trying to recoup quickly your losses. At one point or another you will feel a lot of frustration, for example if you lost a trade because at the last second one candle jumped all of a sudden to put you out of the money. Then comes the temptation of doubling down while your mind is not anymore able to take wise decisions. I went through those things. Sometimes it will work and you will be happy. Sometimes it will backfire, and your account might be blown, or you will jeopardize your ability to make money with digital options trading. Use very wisely the “Max drawdown per day %” and “daily stop loss/win”: if you don’t, I swear you will regret one day or another that you did not use this binary options risk management feature.
PS : you can register and try for free the Spectre platform here