Martingale strategy for binary options
The Martingale method
Everyone who works in the financial markets sooner or later learns about the Martingale system and thinks about the possibility of using it in their trading. Beginners feel about it incredibly seriously. After all, the system allows achieving highly positive results despite previous negative trades.
Everybody wants to earn, and nobody wants to lose. Experienced traders cannot ignore the convenience of such an approach in terms of trading psychology, realizing that positive closing deals are more favourable to the state of mind than fixing losses.
But seasoned traders who survive in the industry also understand that dealing with losses is essential for trading. Moreover, they realize that the Martingale strategy has its own Achilles heel - the deposit amount may not be enough to reach the desired profit, and one can lose everything.
However, a trader can ensure profitable trading by applying this strategy correctly and combining it with other strategies and methods.
This trading method requires careful risk management and an understanding of all the features of this technique. You need to understand the strengths and weaknesses of this trading approach, the safety rules to avoid losing your deposit and how to use its powers to trade binary options effectively.
Mathematician P. Levy, a Frenchman by birth, came up with this principle back in the 18th century for win-win casino games. It was based on the theory of probability. For instance, if you flip a coin 100 times, about half of the time, it will go Heads up, the other half will go Heads down. It's the same in a casino. If you always bet, say, on red, you have to wait with such a probability of 50%, and the necessary colour will fall out.
Martingale figured out that if after each loss to double the next bet, sooner or later, the losses will be repaid, and a profit will certainly be made. For example, we bet $100 on red—bad luck. Bet $200 on red. Again. $400 in the same place. Black again. 800$. Red! The final loss is the same: 100 + 200 + 400 = 700$. Total profit was: 800 - 700 = $100 (for example, we do not consider winning odds). Having made a profit, a new bet starts with its original value of $100.
Going off-topic, it is worth noting right away that if black rolls for a long time, it does not mean that the probability of red rolls increases. No, there is a 50-50 chance with each new roll, regardless of previous results. When it comes to casinos, however, there are at least two other things that provide the gambling establishment with an advantage:
- The size of the maximum bet is limited. All casinos limit the maximum bet to protect against this method. In addition, a player may lose too much, and a new double bet is not possible.
- At roulette, there are numbers with colour, and there is also zero, aka zero. And if the player bets on black, he bets against red and zero. If he bets on red, he bets against black and zero. And this is a negative mathematical expectation, which guarantees a long distance to win the casino.
So tycoons gambling businesses beforehand protect themselves from calculating moneybags with bottomless purses, so the casino does not even need to cheat guests. Mathematics is playing against them.
For those who earn on Forex, it is evident that the main risk is waiting for the cherished trade, which will change the previous negative balance. The deposit may not be enough.
How the Martingale strategy work and an example of the Martingale strategy in action
Let's look at an example of how this methodology works. The Martingale strategy does not give signals to enter or exit the market. Instead, it is a type of money management, volume selection and risk management. To use its features, you should have a profitable trading strategy, which allows you to earn.
In other words, the Martingale principle can be used to add the already established and proven trading rules of a trader.
Suppose there is a buy signal and a trade with the volume of 0.1 lot is opened.
But the price goes downward. The current open loss is formed on the trade. For example, there is another signal to buy (using some conditional system), and we open Buy again, but with the double volume of 0.2 lots.
The price continues to fall, creating a floating loss on the second trade. At some moment, there is a signal to buy, and again we enter on purchasing, volume 0.4 lots.
Suppose the price turns upwards. Then, the lower Buy trade profit starts growing, and losses on the first two trades gradually decrease.
At a particular price growth, the profit of 0.4 lots will overcome the losses of the previous two deals. It will let us exit with zero results if we doubt that further price growth is possible.
If the growth of the price continues, we can close all trades and get profit.
In its pure form, this approach allows us to close only favourable deals. But once again, it should be noted that the risks can create an excessive load for the trading account with this approach. The price could continue its fall even further. Because of this, most of the deposits using this trading method are lost.
But if the strengths of Martingale are used correctly, and the risks are managed skillfully, one can achieve good results.
The Martingale strategy for binary options
The first thing to remember is that the Martingale strategy for binary options does not imply making big profits quickly.
The Martingale system for binary options is explicitly aimed at minimizing the risk of total bankruptcy while actually guaranteeing a profit (if all its rules are followed over a long period of time).
The Martingale strategy for binary options is used mainly on short stakes, i.e., lasting up to 5 minutes.
So, what is the Martingale system for binary options?
Applying the Martingale method for binary options is as follows: the trader initially determines the minimum bet (at most brokers, it is $1) and the prediction parameter (for example, the rate in the next 5 minutes will become more expensive).
If the forecast is wrong, the next stake is multiplied by 2 - this is the basic idea.
That is, now the trader bets $2 and again points to the growth of quotations.
If he is unlucky again, the next bet will be $4, and so on (following the most straightforward geometric progression).
And so on until the prediction is successful.
Would such a strategy work? Only if the winning percentage is approximately 75% or higher.
Otherwise, the multiplication factor is less (for example, 1.5, rather than 2).
What is the result?
The first win fully covers all the costs incurred for previous bets, but the trader still has a small profit!
The task of the user is to calculate the same multiplication factor at which a successful forecast will fully recover the losses and leave at least a minimum profit on top.
The scheme of action:
- Step one: start with the minimum amount.
- Step two: if you get a profit, you return to step. If you get a loss, you double the bet.
- Step three: if you get a profit, you return to step 1. If you get a loss, you double the bet again.
Types of Martingale strategies for binary options
The essence of the strategy is to double the volume of the trade after each losing trade. And, when after doubling the volume, there is a closing surplus that compensates for past losses, you should return to the original trading volume.
2. With floating odds.
When the current minus on a position is formed, the next one is opened not with double volume but with 1.2-1.5 times more considerable volume, which reduces risks a little compared to the classic method. This coefficient is better to be calculated statistically, for instance, using historic runs in the strategy tester. In some cases, the lot is increased by more than two times to break even in a minor pullback. But such a variant dramatically increases the risks, so a trader should be very confident in the trader trading system, based on which trader takes such a decision.
3. Approach based on Fibonacci numbers.
In the Fibonacci numbers series, there are numbers equal to the sum of two previous numbers (1, 1, 2, 3, 5, 8, etc.). Martingale also applies this approach to choosing the position volume. For example, the first buy trade was opened with a volume of 0.1. The second one is also opened with 0.1 volume. The third one is opened with the volume 0.1 + 0.1 = 0.2. The fourth one is opened by volume 0.1 + 0.2 = 0.3, etc. This approach also reduces risks as compared to the classical method, and your deposit may stand much bigger drawdowns. But to break even or make a profit, the price will have to move more than in standard lot selection.
4. The method of averaging.
The method of averaging is a particular method for exiting from a losing position. For example, we buy 0.1 lot. The price decreases by 100 points, the position is in deficit. Again there is a buy signal (by this or that trading system), and one more buy of 0.1 lot is opened. If the trader closes both trades and gets the zero result in total, the price has to pass upwards of half of the distance between these trades, i.e. 50 points. That is averaging. One can use the Martingale approach and open the second trade with a double volume. Then to break even, the price must go up by 25 pips instead of 50 pips.
Such a variant of strategy is also called Pyramiding. Unlike Martingale, the idea is to open deals of the same direction when the initial agreement is not in the loss, but on the contrary, in the profit. For example, there was a buy. The price went up, the trader sees the potential for further growth and opens one more buy without closing the previous one. The trader can open new orders as long as he sees the potential for further growth. This method allows the trader to increase the deposit and gain super-profits quickly. But it is only effective in trends and useless, and even dangerous in flat markets.
First of all, to use the martingale method for binary options successfully, you need a working trading strategy to decide on entering and exiting the market. Only then you can try to supplement it with useful martingale features.
In addition, high leverage will give you an advantage in this approach. Higher leverage will provide less collateral when opening new trades, meaning it will free up more of your money to open more positions, which, as you can easily guess, may require quite a few.
How to start using the Martingale strategy in New Zealand?
It's easy to get started with a martingale strategy for binary options. You need to choose a reliable broker and register on the website. It won't take you long to sign up. You just have to provide some personal information.
A demo account is a great way to try out your strategy without any losses. So be sure to take advantage of it.
Have faith in your abilities, learn and success is guaranteed.