Martingale strategy for binary options

Martingale strategy in trading 

The history of financial market development is replete with success stories of many traders who have used various trading and investment strategies to make money. In the 30s, investor Jesse Livermore used a simple price action strategy to make a fortune. In the 50s, Warren Buffett started his investment company with a long-term view. Today the company has a market capitalisation of $516 billion. In the 80s, James Simmons introduced the concept of algorithmic trading. Today his fortune is more than $18 billion. At the same time, Steve Cohen made over $11 billion from insider trading, and Carl Icahn made over $16 billion as a corporate trader.

These examples show how diverse the capital market is and how people have used different methods to make money. In addition, thousands of other strategies are used by traders worldwide in everyday trading. Some of these methods, such as value investing and price action trading, are widely accepted. Others, such as the Martingale trading strategy, are more controversial.

What is the Martingale strategy?

It is an old strategy developed by French mathematician Paul Pierre Levy, who laid the foundations for several probability theories such as local time, stable distributions and characteristic functions.

Binary trading on an online platform
Binary trading on an online platform

Initially, his Martingale strategy concept was used in the gambling industry. To this day, many casinos apply his ideas for introducing minimum and maximum bets. In addition, the same approach was used in the roulette wheel design, which has two green markers in addition to odd or even bets.

The strategy is based on the ideology of returning to the mean. According to this strategy, the trader or player doubles the losing bet. 

For example, if you make a bet of $10 and lose, the strategy recommends making another big bet. If the bet loses again, the trader initiates another, larger bet. With an average reversal, the strategy assumes that the losing streak will reverse at some point, and a more significant win will cover all losses.

How does the Martingale strategy work?

The value of securities and other financial assets moves up and down every day. As the value moves, assets form patterns that include pullbacks in price action. When a trader starts a trade, his goal is to profit from the trend. When a trader opens a buy trade, his goal is to capitalise on an uptrend, and when he sells, his goal is to capitalise on a declining price. The most profitable trades are those that match the trend.

Because the financial market is risky, these trends are difficult to identify. This is why even the best traders in the world make unexpected losses. When this happens for a trader using the Martingale approach, they double the amount of the transaction.

If the initial transaction were to buy 0.01 lot of EUR/USD, the trader would buy 0.02 lot. If the second transaction makes a loss, the trader will buy another 0.04 lot, and if that transaction loses, he will double again by purchasing a 0.08 lot. It is assumed that if the final trade brings profit, it will cover previous losses. Therefore, lot size and asset price become better for trading.

This approach is also based on the cost averaging method. In this method, the trader or investor doubles trades when their price moves against them. For example, suppose you bought shares in Daisy, LLC for $50. A few days later, the investment bank publishes a report that the stock has declined in value, causing the stock to drop to $40. You may decide to exit the investment with a loss of $10. However, if you believe in the company, you can continue to buy the stock. If the stock recovers, you will make a big profit.

Choose an asset for binary trading
Choose an asset for binary trading

Briefly: Martingale is a cost averaging strategy. It is done by 'doubling your risk' on unprofitable trades. This results in lowering your average entry price. The idea is that you double your trade size until, eventually, fate leads you to one winning trade. At that point, thanks to the doubling effect, you can come out with a profit.

For example, a trader bought a stock at $400. Then the stock went up in price, and the price is $500. Then the price began to fall and reached $250. At this time, the trader buys more shares. Then the stock started to rise again and got a cost of $550.  As a result, the investment in the stock that the trader bought at $250 was more profitable than the original investment. 

Martingale strategy for binary options 

What do you think it takes to make money on binary options? There are many opinions. You need to understand the market, know what is going on, learn how to place the right bets and even a little bit of luck. Every day trading binary options involves many new people, but it has to be said that not all of them turn into a source of income at once. 

Nevertheless, it is pretty understandable, logical and explainable. To achieve something, you, first of all, have to want it badly and know how to reach it in theory and practice.

Only a blind player would use Martingale strategy for binary options as the only strategy to cheat the market. If a trader wants to use the Martingale method for binary options as the only strategy, he would instead choose sports or blackjack for investing money because they are more exciting options than complicated financial instruments. 

A trader should use Martingale strategy for binary options in combination with other trading methods. For instance, if you are a trader, you can often predict the market in the right direction, but you keep losing money because you do not have a straightforward way to manage it. In this case, the Martingale strategy can be helpful for you because it is a fixed money management system in place; all you have to do is apply it accordingly.

The Martingale system looks like an understandable trading method on paper because it seems to help you recover all your losses with just one trade. However, this strategy has its drawback. You can incur significant losses that accumulate very quickly on a bad day and cannot imagine until you experience them personally.

As an aside, this strategy remains quite popular. Use other trader's tools (indicators, lines) in addition to Martingale. It will allow you to receive a stable income not as a gambler but as a genuine market player, working technically and using a logical approach to your work. 

This strategy is interesting enough and has a right to exist, but remember that you have to prepare for it carefully, and if you are not ready for hard work, only luck can help.

Choose an indicator for technical analysis
Choose an indicator for technical analysis

How to use the martingale strategy in binary options?

So, what do you need to prepare to trade the Martingale system for binary options?

First, you must have enough money in your account. Calculating the amount you need to work with the methodology is not tricky. You already understand that (i.e. each new bet that ends in a loss is calculated by doubling the previous amount).

Secondly, in this kind of trading, it is essential to keep an eye on money management. For example, you should calculate your position size to know your losses and profits in advance. This point will also help you decide on the amount of investment that is comfortable for you. 

There are different variants of raising bets on the Internet, unique calculators, tables, which show how the profit will grow after the raising bet on certain conditions. Thus, traders try to systematise the Martingale strategy. 

The Martingale table for binary options will allow you to plan your funds wisely and avoid losses. 

Here is an example of titles of columns:

  • Trade number;
  • Probability;
  • Bet;
  • Cumulative loss;
  • Expected winnings;
  • Expected return.

Thirdly, you will need a calm attitude when trading the strategy, not the excitement and worrying about possible losses of your deposit.

Why is Martingale not a good idea for binary options?

Unless you have a large sum in your pocket, the Martingale method for binary options can hurt you. For this reason, the Martingale strategy is not recommended for novice traders. 

If you are emotionally unstable (or if you are starting out in trading), stress can accompany the application of this strategy, as losses can be very high.

On a more positive note, you will still have a slight advantage because currencies never devalue to the point of going to zero. That means that at some point, the  currency's price will get more robust than before, so if you go all the way, you will be a winner in theory. But this is if you could take actual negative trades during a losing period. 

Another advantage for binary options traders who trade currency pairs is that the currency as savings will give its growth over time. When using a Martingale system for binary options to cover their losses, many binary options traders buy currencies that carry a higher interest rate than others to gain interest over the long term.

Due to its straightforward operating principle and ability to work out profitability and expense ratios in advance, the Martingale strategy is used in forex and binary trading.

Martingale strategy can be an excellent method of making money if used correctly, but it can also be a destructive method if used blindly. Therefore, it is advisable always to think carefully, and remember that experience is the first thing you need. It is achieved through mistakes, and you need to go through this before applying any trading strategy.

Use the news on the platform for fundamental analysis
Use the news on the platform for fundamental analysis

How to start using the Martingale strategy in the Philippines? 

If you are a novice trader and wonder how to start using the Martingale strategy in the Philippines, you should choose the broker. After that, you can register on a website. Usually, the website will ask the customer for some personal information to confirm their identity. 

Registration to the investment platform
Registration to the investment platform

Demo account 

It is worthwhile for traders to test the methodology on a broker's demo account using virtual funds. It will help you feel more comfortable with actual trading. As a result, you will work with a lot more confidence. A demo account is also an excellent option for practising your Martingale strategy for binary options.

How to open demo account
How to open demo account

Real account

Learning how to trade options can be pretty time-consuming. A category of traders sees trading in binary options as similar to gambling in a casino. Well, perhaps at first glance, there are a lot of similarities. You bet on whether an asset's price will fall or rise, and if you get it right, you win. If the prediction doesn't come true, however, you lose everything you bet. So you have to train on a demo account first. Then, when you feel it is time to give it a real try, you can open a real account with 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. Tomorrow is a work in progress, and it is a lot of work. This is the way to ensure a comfortable future.

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