Martingale strategy in binary options
Martingale is one of the most popular money management methods, which is
actively used in the Forex market and stock exchange when trading almost any trading instrument.
Yes, the martingale is considered the most dangerous trading tactic, but at the same time the most profitable, and the trader using it receives virtually no psychological stress due to the absence of losses.
But is it? Does the most popular money management method work for beginners in the binary options market?
So, let's look at this issue in more detail and try to build a clear picture of the application of the martingale strategy in binary options.
The roots of martingale and its essence
Martingale takes its roots from gambling, namely roulette or coin games. The essence of the strategy is that you must double your bet in case of loss, and this model is applicable only if you have two options, namely black or red, heads or tails.
According to Martingale, you must double your bet and bet not ten dollars, but twenty, and back on black. If you win, you earn $20, and taking into account the previous lost bet, your net profit will be $10.
Actually, by doubling the bet, you seem to ensure that, from a mathematical point of view, you will ultimately win, because sooner or later black will come up and you will win. However, even when playing roulette with an honest cauldron, there is simply a huge drawback, which is that the size of your bet is several times higher than your potential profit in the event of a protracted series.
For example, let's imagine that we bet 10 dollars on black and we got the black number on the roulette wheel five times in a row. Now we calculate the size of our bet in order to win back the initial bet and earn only 10 dollars: 10+20+40+80+160 = 310 dollars.
Just imagine, if your series drags on, you will risk 310 dollars for a profit of 10. Therefore, this method requires the first thing - a strong character and a lot of capital.
Adaptation of the martingale strategy for binary options
Binary conditions, exactly like in roulette, have only two conditions for winning, namely whether the asset will be lower or higher after some certain time. However, the first difference that catches your eye is the size of the winnings in case of victory.
In the case of BO, the winnings are only 80 percent of the bet, but for pure use, all 100 percent is needed. However, let's skip all the nuances and try to create a simple martingale strategy for BO together.
The first thing that beginners forget about is that martingale is a money management model, and not a strategy for entering trades itself. Since the market in its specifics is far from roulette, and the set of probabilities is much greater than in roulette, so if you thoughtlessly open trades against the market, then you simply will not have enough deposit for martingale.
In order to equalize our chances, we need to add at least one indicator . For example, the Iq Option broker has its own platform where you can add a simple moving average.
Trading rules for bets on raises:
1) The price crosses the moving average from bottom to top.
The first thing you do is buy an option at the minimum rate!
Trading rules for a bear bet:
1) The price crosses the moving average from top to bottom.
The first thing you do is sell the option at the minimum rate!
In the examples, transactions were opened with a minimum bet of one dollar, and in the first option we received a plus, and in the second, a minus. According to the Martingale, we double our bet and when the next signal appears, we buy an option with a bet of $2.
So, after doubling, we earned $3.64. And now we carry out quite simple mathematics, namely, we subtract the sum of two bets from our winnings and get the net winnings: 3.64 -1 -2 = 0.64 cents.
In conclusion, I would like to note that the martingale tactic can be safely used when trading binary options, but you should clearly understand that in the event of a series of losses, the total bet after doubling may simply be several times higher than your potential profitability.
In order not to step on the same rake, use martingale as a money management system together with the readings of certain indicators, and not as a separate strategy. As an example, you can take the simple strategy that we discussed in the article.