Top 5 Reasons Why Your Strategy is NOT Going to Make Money!
If you are still new and not making money from trading binary options, you are either still looking for the “Golden Goose” or you have a strategy that isn’t working. In your search, you have definitely come across many strategies ranging from Martingale scams that aren’t even considered a strategy to indicator based strategies that you found on the web. Regardless of which, there are 5 reasons why your strategy is not working and possibly not even going to make and money! Continue reading to find out whether you are in the risk zone and how to save your time and money before it’s too late.
First Reason – You Don’t Understand the Indicators Involved
The first reason is pretty obvious; you simply lack the proper knowledge about the indicators involved in the strategy. Most traders just insert indicators on their charts thinking that; “well if it worked for the creator of the indicator then it should work for me”. Surely, you don’t have to be a major in mathematics to use them but did you know that many of the creators of these indicators were in fact highly educated? For example, the creator of ‘Hurts bands’ was an actual rocket scientist, yeah I’m not making shi** up! Others are authors, scientists, PhD’s and mathematicians. That’s right, we are not dealing with average Joe’s here. The reason I bring this up is to make you understand that you should not expect to learn all about the indicator in three minutes. If it took a rocket scientist to create it then it might take you a week or two to grasp the basics on how it works.
As an example, what comes to your mind when I say Stochastic Oscillator? Let me guess, overbought and oversold? At least most newbies will say that and it’s correct. But Oscillators do indicate a whole lot more than that. For example: Oscillators provide info about divergence, convergence, support & resistance and trend continuation to name the major uses. If none of what I mentioned rang a bell then I have probably made my point! Let’s move on to reason 2.
Second Reason – You Don’t Understand Price Action
It’s good to know how the indicators involved in a strategy work just as I mentioned above and many good strategies you find online are created by people who possess that knowledge. That’s one of the reasons why that strategy has been working for them but don’t expect the same results. Experienced traders who create strategies often take into consideration the price action factor and don’t just follow the indicators alone! Therefore, the best strategies are price action based and you better start to learn how to master price action. For example: which is better? Entering a put option because your Stochastic Oscillator signals overbought or entering a trade at a strong resistance plus your Oscillator signaling overbought? Of course, the latter is much more accurate and has a bigger chance of ending up in the money. In conclusion, learn how to read the Candlestick history.
Third Reason – You Don’t Understand Fundamental Analysis
No matter how well you understand the indicators or even if you trade “naked charts” and have already mastered price action, you should not ignore the power of fundamentals. News releases can have a huge impact on what happens to the price of an asset. You have your trend line in place, your Oscillator signals overbought and price is trending down and you enter at a lower high for a put option. *BOOOOM*, the trend line breaks and price moves 100’s of pips up! What happened? Oh, that’s right, you forgot to check the economic calendar – the US just released their Unemployment numbers. Here below is an example of such case:
If you are aware of an upcoming news release you can use it to your advantage. Cool huh? Read this article on how to use the technical analysis based on fundamentals to enter a trade. In the above case, the Unemployment change pushed the USDJPY up and the breakout of the bearish trend line was a good entry! Just make sure you really check the economic calendar so you know if the numbers will push the asset in question up or down.
Fourth Reason – You Don’t Understand Backtesting
I often read posts from traders who think they have just found the best strategy ever. The stories are often similar, the traders have been backtesting the strategy for a few days and now they wonder whether the broker will let them withdraw their first million Dollar? My reaction is always the same, calm your horses, take a chill pill, cool your jets and don’t quit your job just yet. I’m not against backtesting, it’s always a must. The issue is that most traders don’t understand that backtesting and reality are VERY different. Ever heard of lagging or leading indicators, what about repainting indicators? I have reviewed many strategies and I can tell you that the majority of them look more than awesome during backtesting. If only they worked even near as good on a live market. What to do about it? Try it on a demo account and see how well it does.
Fifth Reason – The Strategy Just Sucks
So you have done all the above and you still don’t get the desired results? Then it might be time to accept that the strategy simply SUCKS. I go by a simple rule, if a strategy uses more than three indicators, 86 it. By which I mean, get rid of it. Too many indicators mean two (bad) things: less attention to price action and more confusion. In fact, try to reduce the number of indicators down to only one or two once you start to get a grip on the price action but it is okay to start with three. To summarize it all: educate yourself on each indicator involved, don’t neglect price action, don’t neglect fundamentals, don’t get hyped over backtested results and if the strategy still doesn’t work then it might just suck. Of course, it could be that you lack the required knowledge too but the only way to find out is trial and error – practice!