The Value of “What If” Scenario Planning in Binary Trading
When you sit down in front of your trading platform and click “Up” or “Down,” you are probably thinking about your potential profits more than your potential losses. But failure plays a regular role in a business of risk like trading. Nobody will win 100% of the time. In fact, if you can achieve a win percentage around 75-80%, you should feel pretty pleased with yourself.
Losing streaks happen. Trading systems break. A day will eventually come along where you say, “I don’t understand.” A day may even come along when you feel tempted to throw in the towel and be done with it all. Binary options trading can be very frustrating when things start going wrong.
One way you can prepare for bad situations in advance is through “what if” scenario planning. “What if” planning allows you to anticipate mishaps and come up with a plan of action that you will default to if bad things do come to pass. “What if” planning is not about hypervigilance. It is key to remember that not all bad things you imagine will come to pass. It is also essential to remember that mishaps are not the end of the world. Your trading career will not end if you have a losing streak or a problem with your system. Your “what if” scenario planning is not about scaring yourself; it is about developing a plan to help you weather the bad times and return to strong performance as quickly and efficiently as possible. It is about bolstering your confidence.
While suspense can lead to increased levels of stress (waiting for something bad to happen—but that is not what you should be doing with your “what if” planning!), so can surprise. Surprise has the additional danger of acutely upsetting your balance and overwhelming you with a flood of unexpected emotions. When you are surprised, your perceptual abilities are compromised. It is difficult to act calmly and rationally. You may feel an urge to act in the moment, without a thorough understanding of the consequences. Your desperate attempt to regain control can actually make things worse.
“What if” planning, done properly, should result in a checklist of procedures which you can reference if things go wrong. The checklist can help you to reestablish control and balance your emotions. Since you established the checklist while you were calm and rational, you can trust it in times when your own rationality has flown out the window.
Here are some examples of several common “what if” scenarios and possible plans you could concoct to deal with them:
1. What if I experience a losing streak?
Losing streaks are common and expected during the course of regular binary options trading. In fact, a losing streak may not mean anything, depending on the situation. You can panic if you find yourself in the midst of one though. Here is an example of a plan which could address this “what if” scenario:
- Ask myself: Is this losing streak within the expected bounds? Have I experienced losing streaks of this duration in testing? If “yes,” continue trading as usual.
- If “no,” I need to ask myself if I could have avoided any of these losses. Did I make obvious mistakes? If so, what would have happened if I had traded properly? Would this have eliminated the losses? If “yes,” make a note going forward so I will not repeat the mistake. Resume trading as usual.
- If I answered “no,” to the question above, I clearly am missing something pertinent. Either conditions have changed, I am misapplying my system in a way I do not yet understand, or some other factor is skewing my results. I will stop trading until I figure it out. I will immediately seek help on trading forums and return to testing. Once I have solved the problem, I will return to trading live.
This “what if” plan prevents panic in the face of a losing streak. It stops you from turning a minor, expected losing streak into a major disaster by making unnecessary changes to your trading method. It also stops you from trading when you shouldn’t, if your system really does need adjusting.
2. What if my system is broken?
This is an extension of the situation above. If your system has suddenly stopped working as expected, you will feel like the rug has been pulled out from under you. Here is a possible troubleshooting game plan:
- Stop trading live immediately.
- Return to demo testing if I continue doing anything live. Test demo trades here.
- Go back to backtesting too. Test a period I have tested before, and see if I have different results than I did in the past. This would indicate that it is something I am doing, and not another change in conditions. Look back at my notes and figure out what I am doing differently.
- If that does not generate results, post charts of my trades immediately on a relevant forum to see if anyone can lend a hand.
- Check the market conditions and compare them to previous conditions. Have they changed?
- Zoom out and look at the bigger picture. See if the context has changed.
- Figure out which trades are losing money. Do they all have something in common? Is there a simple tweak to the system that will make them into winners again? Or a tweak that will simply stop me from taking these problematic trades?
The above list may take a few “rinse and repeat” run-throughs before you get the answers you are looking for, but a plan like that will help you stay focused. That way you are less likely to be tempted to go back to the drawing board and find a brand new trading method. That is your absolute last resort.
3. What if I burn out?
Some “what if” scenarios have more to do with your psychology than anything else. What if the stress gets to you and you feel like quitting trading? You could come up with a game plan like this:
- I will cease all trading activities for a week.
- I will look for other stressors in my life that I can eliminate.
- If I feel ready to trade again at this point, I will.
- If I do not, I will continue to take time off for as long as I need to, or I will come back with a reduced schedule and workload for a while.
- I will remind myself as often as I need to that burnout, while draining and depressing, is often temporary. If I care about my trading, I will persuade myself to take the necessary time off, knowing that sometimes taking a break is the responsible thing to do, and the only way to get back to trading.
There are so many other great examples of “what if” situations that can come up when you are trading. They may relate to the technical aspects of trading, money management, or other aspects of your life or psychology. Having game plans in place can make all the difference in the world when the going gets tough and the tough gets going. Trading is not an easy road, and obstacles are pretty much a guarantee. You may not know what form they will take or when they will block your path, but you can be ready for them when they do.