Martingale strategy for binary options
The Martingale strategy, primarily known to gambling enthusiasts, is often used in binary options trading. And with varying degrees of success. That is why discussions on the subject continue to this day.
Undoubtedly, many have heard about the Martingale strategy for binary options. But many novice traders have not yet actually learned anything about Martingale strategy. Therefore, in this article, it is possible to explore the issue in more detail.
What is the Martingale strategy?
Origins
Martingale in investing is an orderly system of money management, which involves increasing the bet after each loss and is applied until the first win. Each time the amount of the previous bet increases, the bet is lost to make up for the money lost in the long run. This method provides for a theoretical win sooner or later, which can recover all the money spent. Indeed, at first glance, this is quite an ambitious and promising strategy. However, in practice, it looks far from that. When using this method, the capital loss is relatively high and inexperienced traders are dominated by gambling and an irrepressible desire for revenge.
The Martingale method is not named after the man of the same name; however, the real reason for the name's origin has not yet been established. The first references to the use of this system or method were dated around the mid-18th century. It was also erroneously referred to as "D'alembert's Martingale".
The popular notion of Martingale was in casinos when playing roulette. It meant that in a bet with equal odds, each subsequent bet was doubled if you lost. The method was popular among gamblers because of the increased risk.
The Martingale strategy is based on a mathematical pattern. Its principle is closely related to probability theory. To test the method's effectiveness, you can perform a simple experiment at home: flip a coin and pay attention to how many times in a row falls eagle. The theory of probability says that if you roll the same coin nine times in a row, there is a 99.7% chance that on the 10th flip, you will get heads and tails.
The characteristics of the Martingale method
The main advantage of the martingale method is the theoretical ability to break even on any negative trade by doubling your bets in the same direction. In addition, as mentioned above, the martingale method is universal and can be used in any strategy.
The peculiarities of the method lie in the fact that in the case of successive trades, the amount invested in them is spread over time and length. This amount is invested gradually as the price moves in the opposite direction to the desired one. When the moment is reached and the trend reverses, even a tiny price movement brings considerable profit, as the trade is already at maximum stakes.
Trading the martingale strategy is not justified with a small deposit - there is a real danger of losing it.
The main disadvantage of the method is its requirement for the size of the deposit. Naturally, it is logical to assume that the investor's funds may not be enough to continue betting after a long period of negative trades. Therefore, the capital amount for the application of the method must be theoretically unlimited, which is impossible in principle.
How to apply the martingale strategy successfully?
The martingale method in its classic form is hardly ever used in the forex market. However, the vast majority of traders who use it in their trading adapt it to their strategies. As a rule, they use a complex method of increasing lots to minimise potential losses.
The martingale strategies became widespread due to their simple algorithm and the possibility of building automated trading systems. Often the martingale methods are used in the primary strategy as one of the money management systems.
In general, the application of the martingale system in manual trading is as follows:
- You select a currency pair;
- You open a trade with the minimum lot size according to your trading strategy; stop loss and take profit are set at 50 pips;
- If the deal is closed on taking profit, further trading will be done according to the primary strategy;
- If the trade is closed at stop loss, the deal will open at that point, but with a doubled lot, etc.
Martingale strategy for binary options
A Martingale strategy for binary options is a trading strategy that aims to recover capital lost in previous unsuccessful trades by successively doubling the amount invested in subsequent trades.
How to use the martingale method in binary options?
In binary options trading, a similar strategy applies. If the trade closes with a loss, you will need to double your initial investment and buy a new option in the same direction. You should proceed in the same manner until the order closes in profit. The profit will compensate for all the losses and even bring in a net profit. However, high profits will require setting the period of expiration from a few minutes to 1 hour. Because it will be necessary to increase the investment amount in case of failure exponentially, the value of the first option should not be more than 1% of the total capital. Therefore, you will have to make at least ten successful trades a day to generate measurable profits.
Binary options and financial markets, in general, have their peculiarities. For example, long movements of the price chart in one direction are possible and frequent. Therefore, if you use the Martingale strategy for binary options in its pure form, the result is a high risk of losing the invested funds in 1 trading day. Therefore, the Martingale method for binary options should only be used with technical or fundamental analysis. The primary purpose of the Martingale system for binary options is to allow the trader to compensate for losses and reach the expected profit quickly.
The main advantage of the Martingale method for binary options is its versatility. The strategy can be used on any interval chart and any asset.
For the practical application of the martingale system for binary options, you should pay attention to currency pairs:
- EUR/GBP;
- EUR/NZD;
- AUD/NZD.
According to Martingale, these trading instruments differ from their counterparts because they spend 90% of the time in a sideways movement, i.e. descending candles alternate with ascending ones, which creates the most favourable conditions for stable earnings.
The Anti-Martingale Strategy
Unlike the classical Martingale system 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, a trader opens new positions in the same direction and increases 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.
When making a loss, the forex trader gradually reduces the volume to the original volume, which allows, in case of a mistaken trend or price reversal, to minimise the loss of the deposit.
Separately, it should be noted that increasing the volume of transactions cannot last indefinitely. As a rule, the volume increases for 2-3 steps, after which it returns to the level of the initial position. Since the trend is not eternal, this tactic provides some insurance in case the trend changes.
Advantages and disadvantages of the Anti-Martingale system
The main advantage of the Anti-Martingale money management system on the Forex market is that it allows you to significantly increase your deposit in a brief period, without any particular tricks. It is used in many Forex strategies: fixed position trading, fixed interest trading and others. A series of profitable trades bring tangible profits, while the risk, in case of a price reversal, is minimal, as the volume of positions does not increase in case of a loss.
The disadvantage is using the Anti-Martingale money management system only when there is a steady trend. In flat conditions using Anti-Martingale will not work because profitable trades will alternate with losing ones.
Precise market entry points, initial position volume and volume increase steps of subsequent positions are essential for using the Anti-Martingale system. The volume increase coefficient directly depends on the size of the deposit.
In conclusion, it should be noted that, despite its apparent complexity, the Anti-Martingale money management system is widely used by Forex traders. Classical rules are good, but you need to accurately calculate the system's parameters for your deposit for more effective use. And, of course, you should not get greedy. Any Anti-Martingale will not help the greedy trader who wants to get rich instantly.
How to start using the Martingale strategy in Hong Kong?
Registering
The first thing you need to do to start using the Martingale system for binary options in Hong Kong is choosing a broker. After selecting a reliable broker, you should register on the platform. All you have to do is just provide information to identify you.
Demo account
After registration, you have an opportunity to sign up for a demo account. The demo account will allow you to use the Martingale strategy without risking any real money. However, it's important to remember that there are no free lunches in trading. Martingale is not something you can learn in a few days^ because it contains both risks and profits.
Conclusion
Only a proper understanding of the basic principles of the Martingale strategy can lead to positive results. For example, the classic method is calculated based on a standard ratio of profitable to losing trades of 1:1. Thus, the trader with a higher statistical percentage in favour of profitable deals will have better results in strategy implementation.
The primary condition of success using the martingale method for binary options is the efficiency of the basic strategy used. Even the martingale system will not save a trader using a losing strategy from losing the deposit.
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