On this lesson we will teach you what money management is and show you why not having discipline in your trading increases your risk of ruin exponentially with each trade
Lesson BTF112. Money Management for Binary Trading
1. Binary Trading Finance
100 - Beginner Course
Lesson BTF112: Money Management
Presented by Orlando Gutierrez for BinaryTradingFinance.com
2. Risk Disclosure
Trading binary options is a challenging and potentially profitable endeavor for
educated and disciplined investors who are willing to take an above average risk
on their capital. Before you decide to enter the world of binary options you
should carefully consider your objectives, education/capability and most of all
your risk aversion. Never invest money you cannot afford to lose.
Moreover, the information presented here is for informational and educational
purposes only; the contents of this presentation are not to be considered as an
offer or advice to buy or sell any particular security.
3. Summary
• What is money management?
• Why is money management so important
– Example when rules are not followed
– Example where rules are followed
• Position sizing and chasing losses
• The 4 rules we must live by when trading binary options.
4. What is Money Management?
• Money management is the process of assessing the risk of your
investment and calculating the correct position size in order to
protect you account in the long run.
• Money management is the most important asset a trader can
have.
• Without proper money management rules the risk of ruin
exponentially increases with every trade.
• Discipline and a correct mind set is what it takes to be profitable.
5. Why is Money Management so important
• Without a hard set of rules on how we will invest our money we will
never be able to profit from binary options trading.
• We might have a winning strategy but we must understand that in the
world of trading there is no such thing as a certain bet; you will loose
trades.
• The art of being profitable on the long term is not to focus on a single
result but on an overall return on investment.
• This can´t be achieved if we are just following trading rules but disregard
the financial aspect of the trade, the position size.
6. Consistent winning with 5% risk
• This is an example of how an account will grow consistently with a 5%
risk.
• As we know it´s impossible to win every trade. Even if we take only
high probability set ups, no strategy is 100% accurate
• This is why we need to correctly manage our capital.
7. Consistent winning with 5% risk
• This is the same example with the only difference that we lost the first
trades but continued with our 5% rule decreasing our position size to
fit it.
• As you can see we lost the first 2 trades but by sticking to the 5% rule
we manage to get back to break even in 3 more trades.
• Now let´s see the same account not following the 5% rule.
8. Account not following the 5% rule
• This is the same example with the only difference that we didn´t
follow the 5% risk rule.
• We started with a 16% risk win then we upped the risk to a 20% and lost the
trade taking us from and 11.4% growth of the account to a -10.9%
• Even though we achieved to recover our losses on the next trade by chasing
them, we risked 45% of our capital to do it. Had we lost that trade we would have
been left with less than 50% of our original capital.
9. Position sizing and chasing losses
• As we saw on the previous examples position sizing is key to long
term profitability on your binary options trading.
• By consistently risking 5% of your account you will be able to grow
it consistently
• The bigger our position size the greater are our chances to blow
our account.
• If we chase our losses (getting bigger to cover losing trades), the
risk of ruin is almost certain.
10. The 4 Rules we must live by
• We risk 5% of our capital on a single trade.
• We increase and decrease position size accordingly
• We stick to our trading rules for entries.
• We don´t ever chase our losses!!!
11. Thank you for joining us
www.BinaryTradingFinance.com