Martingale strategy for binary options

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Martingale

Martingale is a popular form of betting strategy and often used in binary options; read on to find out why you should not be using it.

The Martingale Method

A martingale is one of many in a class of betting strategies that originated from, and were popular in, 18th century France. The simplest of these strategies, all intended for gambling and gaming, was designed for a zero-sum game, that is, a game in which each side bets the same amount and wins and losses are absolute. If I win, I win all, if you win you win all.

The basic strategy has the gambler double his bet after every loss so that the first win would recover all previous losses plus win a profit equal to the original stake. In today’s world the martingale strategy is most often applied to roulette as the probability of hitting either red or black is close to 50%.

The idea behind the martingale is a simple one: Double your previous loss until you eventually win, resulting in profit no matter what, as long as you are capable of going the distance. The only limiting factor is the size of your account, so long as you can make the next trade you have a 50/50 chance of making all your money back.

What Martingale really does is remove the need to understand the market, technical analysis and trading because the only thing that matters is the outcome of the next trade. All you have to do be able to make a trade, and then double it if you lose.

Martingale is nearly a sure thing as your chances of producing a win grow with each consecutive trade, assuming of course you have an unlimited amount of time and a bank roll big enough to make whatever the next trade needs to be without going bankrupt. The danger lies within those assumptions.

To some, the martingale system seems pretty fail-safe, especially for newbies, but that is a popular misconception. If used incorrectly it can quickly compound ones losses to the point of catastrophic failure. The best thing to do is to use a sound money management technique like the Percent Rule to ensure that no single trade is so big it wipes you out. Save Martingale for having fun at the casino.

Why Martingale is not a good idea for Binary Options

Now with digital options there are some things you have to take into consideration. Number 1, you must be aware of the payout percentages because binary trading is a minus-sum game. You never win as much as you bet. Because they are less than 100% you must increase your stake with that in mind so you cover your previous loss and gain a profit equal to the initial trade, otherwise you will end up losing no matter what happens.

  • If you place a trade for $100 and lose it, then make a trade for $200 and win 85% you only get back $370, covering your cost($100 +$200) but only winning 70% of your first trade.
  • If you went to a third trade, a $400 trade, you would return $740 but only profit $40 or 40% of the initial trade.
  • If you took it to a 4th trade, only doubling the trade size, the profit shrinks again and will turn into a net loss on the 5th trade.

The real risk here is that with each trade, to ensure that you do not end up losing, you have to increase you stake by more than 100%. This means that your potential losses grow exponentially with each trade. The first trade is 100%, then the second is 100% +115%, then the third is 215% + 250%, then the fourth is 465% + 500% so that your first trade is X amount of dollars, and your fourth is nearly 10X dollars and growing with each trade until your account cant handle it any more and you are wiped out of the market. In the end, Martingale is not trading to win, its trading not to lose.

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Binary Options Martingale Strategy

I already went through a little bit of the martingale strategy in the binary options systems article, but now I thought I would go into it in more detail. I will reveal how the binary option robot uses it, where it was originally invented and how you can take advantage of it, even without using the robot.

Origins of Martingale Strategy

The Martingale strategy was originally developed as a gambling strategy in 18th century France. Since a gambler with infinitive wealth will certainly win, it was seen as a “sure thing” by many wealthy players. Some of them won such large amounts in a short period of time that a number of gambling joints banned the use of the system. The simplest form of it was flipping a coin. If the gambler guessed wrong, he would double his bet every time until he guessed right. If he guessed right, he would repeat his original bet. Let’s see an example:

Martingale Coin Flip Strategy

Original bet: $1

I’m guessing that heads will come up every time.

First flip is tails, I bet $2.

Second flip is also tails, now I have to bet $4 according to the strategy.

I guess right this time and heads comes up.

Now I am winning -$1-$2+$4= $1.

So, if I am able to double the bet each time I’m wrong, I will eventually win the original bet amount when I’m right, even If I’m wrong ten times in a row.

And that’s the beauty of this strategy; if you have the bankroll to double the bet many times it is extremely likely that you end up winning eventually. It is not unusual that gamblers using this strategy will win ten days in a row.

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    Martingale and Probability Theory

    Probability theory says, knowledge of past events never helps predict future events. This means that expected returns will remain the same no matter how many times a particular result has come up. Basically, in a coin toss if you have thrown heads ten times in a row, there is still only a 50% chance that it will come up an eleventh time.

    So, what does that mean for a binary options investor? It means that you should not make assumptions based solely on past results. However, you often get valuable information from results of the past, which can be used in the future to make more profitable investments. But the fact that something has happened often does not mean that it (or the opposite) will happen in the future. You will need other indicators to make such assumptions.

    Martingale strategy originates from gambling

    Martingale Strategy in Binary Options Trading

    Without any software or knowledge, the use of the martingale strategy in binary options trading is not profitable. If you are an inexperienced investor, you will need a reliable option signals provider to help you. You can choose either a fully automated binary option robot (The Real Robot or Binary Hedge Fund) or a signal provider that gives you suggestions, but allows you to make the final investment decision. Let’s go through some of the pros and cons of this strategy.

    Pros of Using Martingale in Binary Options

    • You will rarely have a losing day.If you are one of those people who, more than anything else, hates to have a losing day, using the martingale strategy might be for you. The only thing you need is to find a suitable investment, one where you think you can anticipate the short period value changes. Sixty second options are best for this, start with a small investment and double the stakes if you do not win.
    • It is the most likely way to get a steady income from binary options.If you want to earn a steady income from binary options, this method is more likely than any other way to deliver it. Therefore, this is an excellent strategy for those investors for whom a steady stream of income is the most important factor.
    • If you have a good market analysis based strategy, combining that with the Martingale Strategy can give you extraordinarily good results.Combining these two strategies, you can achieve an incredibly good result. The best thing about this is that you do not even need to have solid knowledge of market movements, your market strategy can be based fully on option signals produced by a robot. If you want to choose the best signals you can use a program like binary stealth, and if you want to also leave this task to the robot, you can use, for example, The Real Robot, which you can get completely free by clicking the button below.

    Cons of Using Martingale in Binary Options

    • When you lose, the losses will be bigger than usual. Even if losses are less common using this strategy, they will come at some point. Some might lose the first time, while for others it may take dozens of trades. It all depends on how lucky you are and the accuracy of the signals you are using.
    • If you try to follow this strategy without a robot or investment knowledge, the results can be catastrophic.Even though I have warned many times, some still want to try the Martingale Strategy without any knowledge or software. Why do some people do this? The advantages of this strategy are so attractive that even though losses are likely, many still want to take the risk. Even if you try the Martingale strategy cold, you can still have many winning days in a row.

    The most important factors when choosing a broker for the Martingale strategy are 1. payout percentage, 2. the possibility to start with a small investment amount, and 3. the possibility to raise the stakes if needed

    Best Brokers for Using the Martingale Strategy

    When you are choosing a broker for this strategy, there are three extremely important factors that must be taken into account. First you have to be able to start with a small initial investment. Secondly you must be able to raise the investment amount if necessary. The third important factor is a good average return rate. I took all these factors into consideration and calculated the four best binary option brokers to use if you want to try the Martingale strategy.

    1. IQ Option has the lowest minimum deposit ($10) and the best trading platform. They also have great bonuses. They came fourth because of the lower number of trading assets.

    Conclusion

    The Martingale Strategy is one of the best strategies for binary option trading, if you use it with purpose and have sufficient information about how to take advantage of it.

    On the other hand, results can be disastrous if you don’t know what you are doing. Therefore, it should be used carefully, only in a favorable situation, unless you are willing to take the risk that you lose your invested assets, for example, when you immediately need $1,000 and you only have $600. If having $600 is no better than $0, then it might be worth the risk.

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    Author: Michael Allen

    Michael Allen is the main author at www.binaryoptionrobotinfo.com. He holds a PhD in Economics and has worked in investment banking for 24 years. View all posts by Michael Allen

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    Full Review of The Martingale Strategy in Binary Options

    This legendary system has been around for a very long time and it’s one of the most talked about strategies of all time. To be honest though, it’s not really a strategy, it’s more of a risk management system but it’s not even really one of those either. Today we are going to explain it in detail and get to the bottom of the all hype to see if it sucks or not.

    The Martingale strategy originates in France and was first used in the 18th century. The most basic form was applied in the game of coin toss – a gambler wins if the coin comes up heads and loses if the coin comes up tails. (To be honest, things are not looking good for the Martingale right now because any association between a coin toss and trading…sucks big time but let’s keep an open mind and continue) If the gambler wins, he plays again or leaves the gambling table to spend his easy money, but if he loses, he must double up on his bet in order for his potential win to cover for the previous loss and provide a win equal to the original bet at the same time. Basically, it helps you maintain momentum when having a great long winning streak by bridging the gap of a few losses.

    How to Use the Martingale Strategy?

    Here is an example: if the first flip of the coin is a loss of $1, on the second one he bets $2. If the gambler wins this toss he wins $4. This returns his $2 stake and he covered his loss of $1 on the first bet and on top of that he made an extra dollar. All good so far but if he loses the second toss as well, he must double up his previous bet so now he has $4 at stake. If he wins he profits $4 on the trade which will cover his previous losses and bring him an extra dollar (first loss – $1, second loss -$2, total – 3 dollars).

    If he loses, he will again double up the previous loss, which means he will bet $8. Ok, I’m not going to bore you anymore and just tell you that this doubling up will go on indefinitely until a win comes along. It will look like this: -$8, -$16, -$32, -$64….hmm, pretty long way from $1, which was our initial bet, but the point is it will cover all your previous losses and provide a $1 profit once you hit a winner. Well, in our scenario the gambler keeps trading until eventually the coin feels bad for all the losses and comes up heads for the final win. Given that our current bet was $128 (double the previous loss) we gain that amount and cover all the losses, plus $1 (all or losses summed up were -$127, basically your profits will be the current return – (the cost of the current trade + cost of the previous trade) = amount of original bet). That’s about it with the explanation so let’s look at the pros and cons of the strategy:

    Why does the Martingale Strategy Suck?

    Think of it this way: what if the streak of losses extends to 10, which is very possible? Assuming you just started with a bet of $1, your current bet would have to be $512…and if you win that, you make a measly profit of one buck (all your previous losses are -$511). Our bets will grow exponentially with every loss and the numbers will quickly get out of control if you never win and eventually you will run out of money. This strategy has no “edge”, nothing to make it work other than pure LUCK! It is clearly and with no doubt a gambling strategy and does nothing for you except the illusory promise of capital preservation…but maybe there is still hope for it and we could make it work in trading. Of course, before we move one, there is a bit of a problem when using Martingale with binary options. For it to work as described your trades must pay 1 to 1 or 100%. If you trade $100 you have to get $200 back on a win otherwise its a losing game. If you only get back say 80% then you only return 60% of the original trade.

    Why the Martingale Strategy Doesn’t Suck

    It is mathematically proven that eventually the coin will come up heads and we will win , , , if we can keep betting. The fact that you will win without a doubt and make at least a little profit generated the huge hype of the Martingale. However, you need two things to win for sure: infinite money and infinite time…yes, both hard to find, but don’t forget we are traders, not gamblers. A trader tries to tilt the odds in his favor using technical and fundamental analysis. If we combine Martingale and good analysis of the market…we might have a winner. Now, I’m not talking about a complete novice that just uses Martingale and has no idea about market environment, but a trader that can get the direction right at least once in five trades, or depending on his account balance, even once every ten trades.

    Playing To Win Or Playing Not To Lose

    Money management and risk control are the bread and butter of all traders, or gamblers for that matter. If you lose your wad you just can’t make the next trade, it is that simple. The problem is that it is possible to over manage your risk, to keep to tight a control on your money and thereby keep your self from making profits. This is called playing not lose. You may not lose your wad but you don’t win much either, and that is what the Martingale Strategy is, a way to play not to lose. All it does is prolong your play time until all those previous losses add up to an amount that will wipe your account right out of the market. It is by far better to play to win. You want to manage your risk, but you also want to let your winners win and to do this you have to accept your losses (one of the virtues of trading), and move on from them. This is why true money management and the Percent Rule we here at ThatSucks.com (former BinaryOptionsThatSuck.com) love so much is so very important. It keeps losses small so that no one loss, or losing streak, will wipe you out and yet will also let each trade grow as your account grows, maximizing profits. So, are you playing not to lose or are you playing to win?

    Conclusion – Use the Extreme Caution!

    I am not really a follower of traditional trading and money management techniques but I kind of like the Martingale and I consider that if used wisely – and please note that the bold characters are not used by mistake- it can turn out to be profitable. I mean, it’s fun to use when you’re playing roulette and can be used to have fun with binary options but not as a strategy by itself, because that is just gambling and hoping. If you are confident that your thoroughly tested system has an average losing streak that won’t blow your account or you just want to make a few trades to see if you like it, then you might consider a Martingale system to help cut your losses, knowing that eventually a winning trade will come. If all you do is gamble wildly on the market and think of yourself to be a trader then the Martingale will eventually blow in your face and you will be left with no money in your pocket.

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