CHAPTER 9

Risk Management in Theory and Practice

We all know that there is no free lunch. The high returns offered by binary option trades are accompanied by risks. The goal of a good risk management program for binary option trading is not to eliminate risks. That is impossible. Each trader has to learn to balance the risks and the rewards. The task requires a handle on one’s own personal risk curve as well as tactics that detect risk exposures in the price action. Let’s first review some important aspects of personal risk psychology and management.

Consider the following scenario: It is Wednesday and you have put on a binary trade that can be closed at $70. What would you rather have: A sure 100-percent capture of the profit, or wait until ...

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