Martingale strategy for binary options
The Martingale method
The Martingale method is a trading tactic characterised by doubling your bet after each loss. This strategy is based on probability theory, which states that there is a 50/50 chance of winning after each defeat.
The essence and history of the Martingale method
This method of the betting system was first documented back in the mid-18th century (the strategy was also called the "Dalembert Martingale", although there is no evidence that Dalembert had anything to do with the strategy). Unfortunately, it is sometimes erroneously claimed that the system is named after a fortunate 19th-century gambler who was a regular at casinos on the French Riviera.
Some sources interpret the meaning of French a la martingale as outrageous behaviour, hence the term 'absurd strategy'. But it's safe to say that the term was coined in the early 20th century by mathematician P. Levy, who studied the paradoxes of gambling. Levy's concept was widely developed in the works of another mathematician, Doob.
The Martingale method principle.
The easiest way to understand the principle of martingale strategy is based on examples of gambling bets. The essence of the system is as follows: start the game with a pre-selected minimum bet. After each loss, the player must increase the bet so that if he wins, he pays back all past losses in this series with a small income. (For example 1-2-4-8-16-32-64 etc). If the sequence is followed, the player's profit when he wins will equal the initial bet. If the player wins, the player must go back to the minimum bet.
Martingale strategy for binary options
When entering the binary options market, many beginning traders try to choose the most effective trading system that will allow them to multiply their deposit size in the shortest possible time. In such a situation, it is not surprising that many of them turn their eyes to the Martingale method for binary options.
However, for all its apparent simplicity, the Martingale system for binary options in its pure form has not won many people a fortune. The fact is that a trivial increase in the size of transactions without regard to the specifics of binary options in 99% of cases will lead to loss of the deposit. In order for such a strategy to work, a trader needs to know some tricks.
There are two approaches to using the Martingale technique. The first one is simpler, which does not use any indicators. The second one is the indicator one, which is more precise thanks to it. As practice shows, both trading systems can bring stable profit. But these approaches will be written about later.
How to use the martingale strategy in binary options?
So, there are some essential aspects to consider for successful trading.
- The number of negative trades, following one another.
It is necessary to test your working strategy and find out the average number of deals closed in minus and followed one after another. That is the value of a series of consecutive negative trades. This is to understand the average number of trades that this martingale strategy can open in order to make a profit.
If the test revealed that the system has an average of four losing trades in a row, then Martingale needs to calculate at least four unidirectional trades, also known as "knees", taking into account the required volume for them in lots.
Testing should be done on history.
- Stop loss.
Using a stop loss in a binary options martingale strategy is one way to control higher risks. A too-small stop will lead to frequent closing of positions at a loss. On the other hand, if the stop is too large, you can lose almost all of your money, just as if there were no stop loss.
But if you work without a stop, the speculator is playing with fire, and his trade without the control of the risk turns into a runaway train, which at any time can go off the rails and plunge into the abyss.
Stop Loss should be selected based on testing the trader's trading strategy on the history. The loss limiter must be larger than the average drawdown to let the system breathe. Also, the stop loss should be selected considering the average number of knees used in the past results for getting to zero or plus on Martingale. If the average number of knees was four, then the stop should be such that when it is triggered, there is enough money left on the deposit for a new series of trades of at least four knees.
- Regular withdrawal of profit.
The market is an unpredictable thing. Sooner or later, the price movement can occur, going beyond the averages obtained in history. This can lead to a sudden loss of your deposit.
To be ready for this, you need to withdraw your profit periodically. For instance, you have doubled your deposit. Therefore, it is worth withdrawing half of it. If a deposit is wiped out, you can continue working with the withdrawn money.
Technical analysis of binary options
To use the martingale system for binary options correctly, you need to know the current trend - rising or falling. Unfortunately, it is impossible to do this without technical analysis.
Technical analysis is an essential and crucial stage of analysis as it allows you to determine whether the current trend is up or down. Financial analysts use many tools, such as basic technical analysis figures or various indicators, to identify the type of trend and its long-term nature.
Over the years, the arsenal of technical analysis has been enriched by a host of rules, criteria and laws.
A technical analysis figure is a graphical representation of a price that has a specific pattern of change. Thus, if you fix the formation of one of the figures of technical analysis, you can, with a high degree of accuracy, predict the further price movement.
The basic shapes of technical analysis include:
- Triple top.
- Three of Indian.
- Head & Shoulders.
Analysts have developed particular indicators to determine the asset's future price direction.
An indicator is a graphical model that gives signals when the price direction changes.
The interactive price charts allow visualisation of indicators - click on Indicators and select the required indicator from the list that appears.
At the heart of any indicator are the trend and a number of other, more subtle algorithms, which allows for reasonably accurate prediction of future price trends in the short term.
Some of the most commonly used indicators in technical analysis are:
- Moving Averages;
- William's Volumes;
- MACD - Moving Average Convergence/Divergence;
- Bollinger Lines
Some strategies use several indicators at the same time. For example, the Tunnel strategy contains iA, WMA and RSI indicators.
Conducting technical analysis of the market using a chart, you can accurately determine the current direction of the price, predicting the time of the auction, i.e. whether the trend will be short-term, medium-term or long-term.
By evaluating the main chart parameters, such as trend direction, time frame and volatility, you can calculate when to buy or sell a binary option.
Non-indicator and indicator-based strategies
The non-indicator strategy
The classic Martingale method involves doubling your bet and you make a loss on a trade. However, in the case of binary options, you should increase the deal size not by two but by 2.5 times. This is due to the fact that in case of a successful prediction, the profit will not be 100%, but 70-80% of the initial bet. So it is this approach that will not only cover the loss of a failed trade but also make a profit.
The Martingale method for binary options is based on a simple observation: green and red candles on a live chart rarely alternate. Instead, it is much more common for several candles of the same colour to line up in a row. This is commonly referred to as a price trend.
That is, to implement this trading system, we should do the following steps. First, open a live chat on the most profitable investment asset at the moment. Then, in the chart setup, set the time frame to 1 minute. In other words, each Japanese candlestick on the chart should display the asset's price movement in the one-minute time frame.
If the closing candle is green, the trader needs to click on the Call, opening trade to go up. If the last candle is red, then click on Put to open a down trade. The expiry time, or when the trade is opened, should also be 1 minute.
Wait for the expiration. If your binary option turned a profit, you would open another position using the same rules. If trade shows a loss, the Martingale principle comes into play. The trader needs to increase his initial bet by 2.5 times. If you make a loss again, increase your bet by 2.5 times and so on until you make a profit.
Nuances and tricks
This strategy can be applied in its pure form. However, if you want to reduce risks and increase successful trades, you should follow these recommendations:
- First, you should enter the market only when the trend is in place. If you see a sideways price movement or a flat, you should not buy a binary option. A flat is an interval in the chart when the quotes of an asset successively replace each other.
- Secondly, limit the number of price increases in your trade to 5-6 increments. In a situation where you did not manage to make a profit after the specified number of repetitions, you need to break the trading chain. Yes, you will cause a loss, but you will not wipe your entire deposit. Such situations are scarce. Nevertheless, a trader should be morally ready for such cases.
- Third, the minimum stake at which you start trading should not exceed 2% of your deposit.
The indicator strategy
To use this trading system, you will need two indicators:
- MACD with standard settings;
- SMA or moving average line with a period of 60.
So, keep in mind the main aspects you need to consider when trading with the trading system in question:
- Timeframes on the live chart are equal to 1 minute;
- Open a position in the direction of the current trend;
- The expiry time of the binary option is 15 minutes.
The leading indicator is the MACD. We use the moving average only to confirm the trading signals we receive. So, let's follow the MACD histogram. We are interested in the moment when the indicator bars cross zero.
When the MACD crosses from negative to positive, and the moving average moves upwards, the trader should open a long position by clicking the Call button.
When the MACD changes from positive to negative and the moving average moves downwards, the trader should open a down position by clicking on the Put.
Such moments are called entry points. The trader should be cautious not to miss a trading signal.
Then comes the Martingale system. Its working principle remains the same. If the first trade is unsuccessful, then increase the price of the binary option and so on.
The Martingale strategy for binary options can be used with a 75-80% success rate of any trading strategy.
How to start using the Martingale strategy in the UAE?
To start using the Martingale strategy for binary options, you need to register on the website of the platform you have chosen. The registration process is straightforward usually and does not take much time. All you have to do is provide some information to identify yourself.
A demo account is a great way to try out a trading strategy without losing money. Always learn your strategy and use it on a demo account. That is a great advantage for all newbies.
Once you have gained experience, you can start trading with a real account. Simply make a minimum deposit. The feeling of real trading, even with minimal amounts, is very different from a demo account. You will feel a vast range of emotions from actual trading.
Of course, trading is a risk, and you must keep it in mind. However, those who learn and strive will always succeed. Good luck in trading!