The martingale strategy in binary options — a very dangerous tactic, which in unskilled hands almost in a matter of moments is able to zero out the deposit. But in the hands of a professional this strategy is one of the most simplest and profitable. Despite the fact that martingale is often criticized because of the huge risk, for example, in the Forex many expert advisors are built on its principles (Boomerang, Cash Hummer). So you just need to understand how to use it, as we’ll continue.
The basics and principles of the martingale strategy
The martingale strategy in binary is simple for understanding and complex at the same time. Its essence is that in the case of an erroneous forecast the next bet is doubled. And so as long as the prediction will be correct. Example. There is a deposit in the amount of $ 100. We do forecast in the amount of $ 2 and use the martingale in case of error:
- stake 1 — 2 USD. A loss, double the bet;
- stake 2 — 4 USD. In case of success and option profit 90% profit is 3.6 USD, recouping the previous loss. Net income is 3.6-2=1.6 USD;
- stake 3 — 8 USD;
- stake 4 — 16 USD;
- stake 5 — 32 USD;
- stake 6 — 64 USD (the may may subject to additional deposit of 26 USD).
At this point, for the previous 5 bets loss would have been 62 USD, 6th forecast would be the last. If it failed, then in 6 predictions we’d lose the entire deposit in 100+26 USD! If the 6th forecast would be successful, then we would have earned 64*0,9=57,6 USD. But the total loss amounted to 62-57,6=4.4$. By the way, the profit we could get only to the 4th, inclusive of the forecast (total loss of 3 forecast — 14 USD, profit — 16*0,9=14,4. Profit — 0,4 USD).
If we started with a sum of 4 USD, the breakeven point again would be the 4th prediction: the loss amounted to 4+8+16=28 for a profit of 32*0,9=28,8. Similarly, to start from 8 USD. This means that while the yield of 90% could be start with any amount of profit we would have received anyway under the condition that at least one of the 4 trades would have been profitable.
Important! One of the main rules of risk management states that risk per trade should not exceed 2% of the deposit on the deal. And if in other policies in exceptional cases it is possible to increase it to 5%, then in martingale strategy in binary options it is not recommended to do this!
Advantages of martingale strategy:
- tactics has nothing to do with technical indicators and fundamental analysis. However, if you apply it in its pure form, but it’s just not recommended (why, I will explain below);
- with the right construction of a mathematical model and a gradual increase in the lot of the losses can be offset.
Conditions for trading with Martingale method
Two main conditions:
- the trend must be clearly rising or falling. Moreover, it is better not to take the period of expiration of 60 seconds, because even the upward trend is never a straight line;
- deposit amount must be several times greater than the amount of the bet.
The martingale strategy in binary options is often used together with technical indicators determining the direction of the trend and its strength (trend indicators and oscillators). It is the combination of these tools (and not a martingale separately) able to make a profit.
And the second important aspect is the testing strategy. Any strategy should be tested on a demo account and analyzed (the optimal testing period is 6 months). After the analysis you will see the average number of losing trades consecutively and will be able to calculate the required magnification ratio of the bet.
An example of curve of the deposit on the successful implementation of the strategy of the martingale
Main moments when it is better not to trade with this method
The use of the martingale strategy in binary options is not recommended in the following cases:
- when the market is flat — horizontal movement of the trend. This suggests that the market is experiencing a lull or investors or they are unable to determine the prospects of the asset. The possibility of chaotic price movement at this point, the biggest risks make mistakes in the forecast of the maximum;
- when the amount of the deposit is less than 4-fold amount of the minimum bet. For example, if the minimum bet is 10 USD the deposit sum is 40 USD and less.
Example of curve of the deposit of Martingale strategy with the deposit loss
From the example at the beginning of the article is shown that a simple doubling of the rate leads to a loss after the 4th prediction. So each subsequent bid must be increased by a factor of more than two-fold difference. Since this ratio depends on the profitability of the option, it makes no sense to calculate it manually each time. Open any martingale calculator, indicate the first rate, the yield of the option and receive rate values that need to be done. By driving the data from our example we get the following result:
An example of trading by Martingale
Take the demo accounts in the amount of 10 thousand USD. The yield of an option — 90%, trying to drive a bet of 100 USD and yield in the calculator and get the following grid rates: 100, 225, 506, 1139, 2563, 5767. Try to trade.
In this case, we were lucky immediately on the second transaction. The first $ 100 proved unprofitable, the second in the amount of 225 dollars brought an income of 405 USD, covering the loss of the previous deal. Despite the fact that the strategy requires a large deposit, the probability of 6 consecutive losing trades are very small.
Are you ready to trade in this method?
To understand whether you are ready to trade on the martingale system, answer the following questions:
- Is everything clear from this article? If not, write your questions in the comments;
- have you tested a trading strategy?
- are you willing to accept the loss of the entire deposit?
If the potential losses are not confusing for you, but you have thoroughly understood the principle of the martingale, you are ready for this strategy. And finally, a few final recommendations:
- Martingale is recommended to be used as a subsidiary strategy to the main tactics, based on finding a strong trend;
- no need to try to increase the bet in 2 and more times. Based on the analysis backtest you will see a number of profitable and losing trades consecutively. On the basis of these figures you will choose the optimal magnification rate so that the number of subsequent profitable trades turned off the losses of previous ones.
If you have experience with this strategy, you have any suggestions on how to improve or on the contrary you consider it a loss, write about it in the comments!
Good luck with your trading!