Before you invest big in your strategy, you have to test it. This article explains how to test your binary options strategy, and how to find the resources that help you make more money.
In detail, you will learn:
With the answers to these questions, you will immediately be able to test your strategy and find the areas in which you need to improve.
You need to test your binary options strategy for two reasons:
Only a thorough test will help you understand whether or not you have a strategy that can make you money, and, if not, where you need to improve.
Without a test, these questions are impossible to answer. There are a million of variables, and to find out which of them you have to improve to make more money is like looking for a needle in a haystack. A good test can simplify things for you and help you understand where you need to improve.
Even if you lose only 1 percent of your account balance over 100 trades, you would eventually end up broke if you trade this strategy. A test will clearly point out this dilemma. Without a test, you will lack the clear indication and might think that your strategy is about right. It would take you longer to make the necessary changes, or you might never make them. Either way, it would cost you a lot of money.
Testing your binary options strategy is your first step to becoming a successful trader. It can save you from unnecessary losses and make you more money – there is no good reason to forgo testing.
The most important value of your binary options strategy is the winning expectancy. Testing your binary options strategy means determining your winning expectancy and, if necessary, improving it to a point where your strategy makes you money.
Your winning expectancy is the product of your winning percentage and average total return per winning trade. That might sound complicated but is really easy.
Assume that a strategy wins you 65 percent of your trades. You get an average payout of 70 percent, which means that you get an average total return of 170 percent on every winning trade – you get your investment back (100 percent) plus your payout (70 percent) which nets you a total return of 170 percent.
To calculate your winning expectancy, all you have to do is calculate 170 percent of 60 percent. The result is 112 percent.
Now you know if your strategy is good enough:
The important thing to understand is that the winning expectancy can tell you only whether you will make money with a strategy. It is highly individual value and a bad indicator for comparing strategies between traders.
Every trader is different. They prefer different trading styles, they tolerate risks differently, and they have different strengths. One trader might do better with a strategy based on numbers such as values of technical indicators; another trader might prefer a strategy based on pattern recognition, for example trend analysis or candlestick formations.
If another trader achieves a high winning expectancy with a strategy, this does not necessarily translate well to you. You might lose money with the same strategy.
The point is: to find out your winning percentage, your average payout, and your winning expectancy; you need to test a strategy for yourself.
This test necessarily requires a high number of trades. A test based on only 10 or 15 trades is inconclusive because there is a lot of room for variance and coincidence. You need at least 50, or better 100, trades.
So here’s how you test your strategy:
We recommend doing these things in an Excel file. It can automate all calculations, and you can more easily reevaluate the data later.
It also makes sense to keep collecting this data after your initial test. It will help you to monitor your success and recognize mistakes before they cost you money.
The most important tool for testing your binary options strategy is a demo account. Demo accounts work just like regular binary options account, but they allow you to trade with play money instead of real money. You get all the features, tools, and binary options types, but without having to fear to lose your hard-earned cash, you can try them completely risk-free.
This is the perfect environment for testing your binary options strategy.
A demo account can also free you from the need for complicated calculations. Simply trade your strategy for a while and then compare your account balance to what is was before. If you started with £1,000 in play money and now have £1,500, you must have done something right. If you have $500, you have to improve something.
Binary options demos differ from broker to broker.
To find the right demo for you, take a look at our list of brokers. It will help you quickly understand the differences between brokers and match the multitude of offers to what you are trying to do.
Testing your binary options strategy is the first step to success. A thorough test helps you to find a money-making strategy without risking a single Cent. You can enter the binary options world completely risk-free and improve your strategy until you are ready to invest big.
Testing your binary options strategy also is an ongoing process. Even when you have found a strategy that can make you money, you still have to monitor your success. Careless mistakes can creep into the trading of every trader, which is why you need a tool that keeps you on the right path to success. Testing your strategy is this tool.
With a demo account, you can test your strategy completely risk-free. To find the right broker and the right demo for you, take a look at our list of the best binary options brokers.