Martingale strategy for binary options
The Martingale method
The risky Martingale money management method came to the world-famous "Foreign Exchange" through the easy hands of gambling enthusiasts. Some traders, especially beginners, perceive the method as a trading strategy and consider the martingale method the only way to achieve a 100% profit. On the other hand, experienced traders are wary of the gambler's tactic because profit awaits the trader at the end of the journey and a likely loss of the deposit.
What is the Martingale strategy?
The main argument "for" the martingale principle in the Forex market is a well-known fact: the martingale tactic, which people successfully used in gambling (poker, roulette) for two centuries, caused the appearance of minimum and maximum bets and two green fields: "0", "00". Although the casino owners protected their business from the martingale system, traders' confidence that the method provides profits is not unfounded.
Paul Pierre Levy, a French mathematician, discovered the mathematical principle of martingale based on probability theory. The original version of the strategy is simple: a player makes a bet, and each time the bet closes with a loss, he doubles the trade. As a result, all losing trades overlap with a single winning position.
The strategy on which the martingale system is based is most convincingly demonstrated by the example of the game "eagle-reckoning":
- A player makes a bet ($5) - flips a coin and bets on a side falling in one direction, e.g. "eagle".
- Each subsequent flip doubles the bet, sticking to the chosen direction ("eagle").
- After waiting for the desired side, the player recovers all losses with a profit in the original bet ($5).
Joseph Leo Doob, the American colleague of the famous Frenchman, argued that this strategy could make a 100% profit.
Nevertheless, forex martingale is still successfully used as a dangerous but effective money management method in the foreign exchange market. However, the simple example of eagle-reckoning demonstrates the vulnerabilities of the strategy: the amount in the player's pocket must be sufficient (and preferably unlimited) to keep in the game until the suitable side rolls while constantly doubling the bets.
Using the Martingale Method in Forex.
A comparison between the casino strategy and the martingale method is clearly in favour of the latter. But, first, the tactics have been significantly improved and, as is usual in trading, demand breeds supply - brought to automatism.
However, do not be fooled - both the money management method and the proposed advisors do not guarantee a 100% profit.
Secondly, the martingale system has an indisputable advantage, compared to the same stocks: any company can go bankrupt, and the country, even with currency devaluation, will not reach "0".
On Foreign Exchange, the martingale method for forex has one more advantage: even with a series of unsuccessful trades, the trader will make the expected profit because a price pullback, a fundamental forex law, will occur sooner or later. The only question is whether the deposit will be enough to withstand severe drawdowns? In currency trading, the principles of gambling and the vulnerabilities of the strategy are retained: the need to double lots implies a bottomless deposit. However, for those who "missed" the trend and opened positions incorrectly, the forex martingale system is the only plan of salvation unless you consider the likelihood of an all-out disaster in which the currency pair will go to "0".
Example of the Martingale strategy
Let's look at a simple example of using this strategy in the forex market.
- Select any currency pair.
- Enter buy or sell positions clearly in the direction of the current trend with the minimum lot. You may use a more extensive time frame chart to identify the trend. Once we have determined the direction of price (for example, upwards), we open a position (in our case, a Buy Buy position).
- To open a position, we always set equally distant Stop Loss and Take Profit orders (50 points each to enter the market).
- If the price knocks out our Take Profit, we open a new position at the same level, buy, and with similar orders.
- If the price has kicked out a stop loss, we open a new Buy trade with the same orders at the same level, but the lot for the position must be twice as big as the previous (already closed) position.
If the first transaction was with 0.1 lot and knocked out a stop loss, then for the new open transaction (in the same direction as the first), the lot should be 0.2 (In this is the main principle of martingale in forex). And so on.
You can set pending orders at their levels to not wait until the price reaches take profit or stop loss, to open new trades in the right direction automatically.
The martingale method is not popular among speculators in the Forex market because it requires a hefty deposit to make an insignificant but expected profit. Instead, exchange speculators tend to create an averaging model similar to the famous "bubble" formula: they operate with large sums and use forex martingale in trading, increasing losses in the hope of a proportional increase in profits.
Martingale system for binary options
A martingale system for binary options is constructed as follows. First, we make a small volume trade, for example, $5 to buy ("Above"). Then if the trader makes a profit, he repeats the same action after a random period. The most exciting thing starts if the trader takes a loss.
If he loses the money he spent on buying an option, the trader must immediately buy another option in the same direction, but for $11-$12. From there again, the trader is faced with the possibility of making a profit and a loss. If the trader makes a profit, it compensates for the trader's losses from the first operation, and there is even a small profit if the second transaction is losing, then the trader buys another option, but for $25-$27.
The whole theory is based on the fact that there cannot be a constant trend in one direction without a pullback in the market. It means that the trader can make a deal at any time for the rise or fall of the price, which is not essential, and then act according to the circumstances.
If the trader makes a profit, the series is immediately terminated. But, on the other hand, if the trader suffers a loss, he will directly buy a binary option of a higher amount, necessarily in the same direction as the first case. So we can have a series of trades with 2, 3, 4, 5 or more positions.
Important! Before you start working, it is necessary to define the first purchase price to calculate how much money you will need to make 4, 5 or more transactions.
The danger of using the martingale strategy for binary options is that the trader may not have enough money left to purchase more contracts in a trading series. In what follows, we will look at an opportunity to avoid such problems.
Applying a martingale method for binary options is risky, so you should carefully calculate your budget and risks.
How to use the martingale strategy for binary options?
Let’s consider an example of using a Martingale method for binary options.
The first thing to do is to choose an expiry time. Here we can be guided by the considerations that we need an option with a maximum payout, in addition, so that we can work comfortably. From this point of view, 60 seconds might not be suitable for everybody, as you have to act all the time, without taking your eyes off the screen, as they say.
Let's take as an example an expiration time of five minutes. Let's begin with the fact that we distinguish the chart for convenience. Next, which is the filter of the strategy, we wait for the situation when in the market three consecutive five-minute options close with rising or fall.
It does not matter which way the price goes, up or down, as long as the three binary options in a row are all directed in the same direction, e.g. upwards. As soon as the third contract is closed, the trader acquires the next option, but on the rate's fall.
This is not a cunning method that allows traders to start when the trader would have already risked losing money three times in a row under other circumstances. The trader skips the series of 3 options and begins with the fourth, which puts him in a much better position.
It is enough to have exactly as much money in the deposit as it takes to open five positions. Since the trader missed three trades, and another five can be made on the trader's capital, the probability that eight consecutive five-minute options will go in one direction is very low. But always be careful because there is always a risk.
Of course, you will need a broker to work with such a strategy, where small trades are available. Therefore, you have to calculate the following transactions based on the profit percentage obtained from the purchase of the option. For instance, if we add 80% to the amount spent on buying the contract, the series of deals could be as follows: $5, $12, $27, $57, $125.
In the suggested series, it will happen that if any of the first four trades is successfully closed, the trader will earn money. If the series reaches the last fifth option that completes the series, the trader will exit with a minimum of $1. It turns out that to work in the suggested way with 80% profitability per option and a minimum deal of $5, the trader will need $226.
Unlike the classical Martingale strategy for binary options that implies an increase of position volume at a loss, the Anti-Martingale Money Management is based on increasing the volume of profitable position and decreasing the volume of loss-making position.
The standard scheme of Anti-Martingale implies doubling the volume of profitable position, but the number of increases can be arbitrary. Nevertheless, the Anti-Martingale Money Management System has successfully proved to be popular in the Forex market and among professionals and beginners.
The Anti-Martingale system principle is as follows. Having chosen the right way to enter the market, traders open new positions in the same direction and increase their volume as profitable positions are closed. The trader independently determines the levels at which profits are fixed.
The first increase in the volume of opened positions does not follow after the first profitable trade but only after the second one. As it was mentioned above, the volume of a new position shall be doubled. Thus, increasing the volume of positions will turn a series of profitable deals into significant deposit growth. It is necessary to consider the size of your deposit, spreads, level of risk determined by the trader, and the amount of leverage. The first trade volume should be calculated correctly, and it is not recommended to open more than three trades at a time.
How to start using the Martingale strategy for binary options?
If you are a newbie in the Forex market and wonder how to start using the Martingale strategy, this article will give you insight into how to go about it. The martingale system for binary options can mean huge profits for you if appropriately implemented. However, it is tough to implement this strategy without a proper broker, training and demo account.
How to register?
When you have chosen a broker, the next step is to register your personal details and your trading account.
After registration, you can log in to your account through your website or email. Or you may also connect to the demo account through your brokerage firm's website. Here you will have to enter the password that you usually use when you are on the website.
Remember, the password and username are essential. You should not share this information with anyone. Never make a password easy to guess.
How to open a demo account?
It would be best if you started with a demo account. This demo account should not be used for actual trading but demonstration only. This demo account should be able to emulate the trading behaviour of the strategy. This will help you fine-tune it and make sure that the strategy works.
How to open a real account?
If everything is going well, then you can proceed with the real account. When trading in the Forex market, it is essential to be comfortable using Martingale. After gaining experience on a demo account, you can open a real account. This process usually requires a minimum deposit.
Thanks to the Internet, all people have the chance to acquire the knowledge they need in any field. It can be a start if one uses the time and energy right. The age of technology offers us new solutions. Online trading is attractive because of its technology and interactivity, the opportunity to earn money and be present in various stock exchange and over-the-counter markets. So use your time, money and skills wisely. This is the key to success.