Martingale strategy for binary options

The Martingale method 

Origins

At the latest, the martingale strategy has been known since the middle of the 18th century under its current name. It has also been called "D'alembert's Martingale", although there is no evidence that D’alembert had anything to do with it.

It is sometimes erroneously claimed that the strategy is named after a fortunate 18th-century gambler who was a regular at casinos on the French Riviera. Instead, the name is probably derived from Occitan gambling slang, where a "la martengalo" meant "[to play] in an absurd manner". In turn, the word "martengalo" meant the inhabitants of Martig, who served as images of naive simpletons in jokes.

Historically, the first and traditional application of the martingale strategy is in casinos. For example, in roulette, martingale is mainly used when betting on "even odds": red/even, even/odd. In this case, if you lose, each subsequent bet is equal to double the previous one.

What is the Martingale strategy?

The Martingale strategy is one of the most popular techniques in trading. Nevertheless, its pitfalls are known to many experienced traders. But if you understand the mathematical principles of the strategy, you will find quite profitable options for its application.

The Martingale strategy is considered one of the most controversial. On the one hand, it guarantees a clear win over a long distance. But, on the other hand, this strategy is psychologically challenging to play: you have to keep increasing your bets.

Martingale is a money management system whereby the betting is increased after you lose until you win! For example, you bet $5. If you win, you take away money. If you lose, the next time, you bet 10$ to get back $5 lost. In general, with each loss, you must double your bet to win back the previous one and stay in the black.

The Martingale strategy's main difference is that increasing volume goes either to a winning trade or total deposit loss. With the other methods mentioned above, the volume increase is limited.

How does the Martingale strategy work?

The Martingale strategy as applied to trading would look as follows. 

You enter a trade with the risk of, say, 1% of the deposit. Then, in case of withdrawal from a trade with a stop loss, you enter the next trade at 2% of the deposit. And then 4% of the deposit and so on. And what do we end up with? It turns out that we will have a drawdown of 32% on the sixth losing trade, on the seventh one - 64%. And on the eighth deal, we will lose the whole deposit. But even after the sixth trade, you will already breach this system, as you will not be able to trade in the market with the same volumes. Well, six losing trades in a row is not uncommon in the market. So the use of this system will lead to a loss of the deposit over a long time interval.

Since the size of a losing series is not limited by any rules, losses will happen anyway! Someone will have it for a year, someone for two years. If you want to earn on the market steadily, the Martingale system should not be used permanently. 

How to apply the martingale strategy? 

You enter a trade with the risk of, say, 1% of the deposit. Then, in case of withdrawal from a trade with a stop loss, you enter the next trade at 2% of the deposit. And then 4% of the deposit and so on. And what do we end up with? It turns out that we will have a drawdown of 32% on the sixth losing trade, on the seventh one - 64%. And on the eighth deal, we will lose the whole deposit. But even after the sixth trade, you will already breach this system, as you will not be able to trade in the market with the same volumes. Well, six losing trades in a row is not uncommon in the market. So the use of this system will lead to a loss of the deposit for a long time.

Since the size of a losing series is not limited by any rules, losses will happen anyway! Someone will have it for a year, someone for two years. So if you want to earn on the market steadily, the Martingale system should not be used permanently. 

But how do you get results from this strategy? Well, firstly, divide the deposit into several parts. Let's say it into five parts. And on each deposit separately, use the minimum risk, no more than 0.1% of the deposit for the first transaction. If you manage to double it within a year, divide it into two parts again and trade using the same scheme. If you lose, then use one of the remaining four parts of the deposit. With such division of the deposit, the risks of total loss are minimized. 

Another option is to use simultaneous trade on different parts of the deposit, performing transactions at other times, using different strategies. 

Martingale strategy for binary options 

The Martingale strategy for binary options is one of the standalone money management strategies.

The Martingale strategy for binary options has many opponents for a reason, but there are also supporters for a cause. The Martingale system for binary options is an entirely different strategy where you do not even need to analyze the asset. You buy an option with any prediction. If the trade becomes unprofitable, you increase the investment amount and open the same trade again. As you grow your investment, your profit recovers the previous loss.

The Martingale method for binary options was initially designed to give you a 100% profit, in which case the trade is doubled. But since the gain is 70-80% in binary options, the transaction amount after a loss is more than doubled.

So why does the Martingale method for binary options have particular popularity?

Almost everyone will tell you that it is just a roulette game, a lottery and so on, but many traders, even at the currency exchange, apply the Martingale strategy. For example, most trading robots are based on "Martingale". 

When to apply the Martingale system for binary options? 

It would be dangerous to use the Martingale strategy in its pure form as already at high risk. The amount should be more than doubled. That's why traders use the strategy only in conjunction with analysis.

If you made an analysis and decided that the EUR/USD should go up, but your trade turned out to be a loss because you rushed into an option. You could see that your forecast was correct. You can use the Martingale binary options strategy to break your loss and make a profit.

In trading financial instruments, be it stocks, currency pairs, binary options or any other asset, the trader relies primarily on his analysis and if a loss is sustained. The trader may increase his position in the next trade, which comes from a calculation based on technical analysis or fundamental analysis, to cover the loss of the first trade.

There is also a variety of aggressive currency trading where the analytical approach is used only in the first trade, and all others are based on probability theory.

After a profitable position, the trader reanalyses the instrument, finds a potential entry point, opens the first trade of 0.1 lot, and follows the scenario.

The main points when it is better not to trade using the Martingale strategy:

• Do not apply during the opening of the European and American sessions. This is because, at these times, there is increased volatility, which often has illogical movements.
• Do not trade against the trend.
• Do not trade before important news from the economic calendar.
• Do not trade if you have a small deposit.

In general, the strategy has a point - it recoups losses with profits from the initial trade. With a passing trend or a particular strategy, it is possible to close trades in the plus on the first incremental steps with a high probability.

How to start using the Martingale strategy in South Africa?

Modern life is a rush. The era of quiet, measured existence is long gone. Today, time is man's most excellent resource. It determines how comfortable a person will be in the future. If you manage your time improperly today, tomorrow may not turn out so well. So you have to work on tomorrow and work hard. This path is how you can ensure a comfortable future. 

So if you decide to go deeper into trading and try out different strategies, you need to choose a platform—register on the broker's website, providing some personal information to identify yourself. 

Opening a demo account 

Develop your trading system for practical use. Test the signals on your demo account. Check the profitability of this system with the Martingale method of trading. For example, if you increase your deposit by 30-50%, withdraw your earnings and put them in reserve. Set the maximum threshold in steps. Be that as it may, it is better to stop at a certain threshold amount, e.g. 6-8 steps, by the betting increase method.

Opening a real account

If you realise that it is time for real action, you can open a real account. Then, all you need to do is make a minimum deposit. Then, you can fund your account via e-wallet, credit card or bank transfer - any way you like. 

It is up to everyone to decide whether to use the Martingale strategy for binary options. So much depends on deposit size, experience, preference and desire. Some will find this approach unreasonable, while others will say it's just what they needed.

Not everyone uses the Martingale system for binary options, but many traders do, just as it is used in forex and the stock market.

It all depends on your diligence and willingness to learn and to succeed.