Martingale Strategy for Binary Options Trading. Usually more commonly associated with gambling, the Martingale Strategy is also successfully used as a betting strategy for binary options. Now you may have heard of the Martingale strategy without actually knowing what it is all about. So lets explore. The Martingale strategy was first created by Pierre Levy sometime in the 18th century, and was first used for successful predictions on gambling bets in France. The principle is very easy.
The Martingale strategy is based on what is known as the doubling down strategy. According to Pierre Levy, it is possible to successfully recover any money that has been lost in previous bets by consistently setting up bets in the same direction, each time doubling the size of the investment. The thinking is that eventually, the increased payout from a successful trade down the road would cover for any losses that had been sustained earlier.
The strategy, which was first used in the gambling tables, has been adapted for use in the financial markets, as well as in binary options. Obviously, it is not a very good idea to just keep doubling bets continuously, or to keep doing this all the time. So a modification was made to this strategy for use in forex and binary options. Martingale Strategy for Binary Options. The Martingale strategy for binary options is a trading strategy which aims to recover capital that has been lost in previous failed trades by consistently doubling the investment amount in subsequent trades.
The thinking behind the strategy is that by increasing the amount invested in subsequent trades, it is possible to get an increased payout if the trade is successful, thus eliminating any previous losses that may have been sustained on the account. How to Apply Martingale Successfully. To better understand how the Martingale strategy in binary options works, the table shown below has been drawn up to enable you get a hang of it. The trader starts with a capital of $2,000 and starts off with an investment amount of $100.
We will also assume that the trader’s payout for a successful trade is 80% of invested amount, and that there is no loss return (any invested amount lost = 0% payout). Trade Direction. The first trade in this example resulted in a win of $80, representing 80% payout for an initial investment of $100. Unfortunately for the trader, the next trade was a loss. Given the fact that a losing trade can wipe out a previous winning trade of the same level of investment with residual loss on the account capital, the trader’s account went below the starting capital.
We can also see the sequence of loss continued with the next trade. Now down by $220, the trader decided to employ a Martingale strategy by doubling up on the previous investment. The resulting win ended up covering the losses sustained and still left the trader with $100 extra on the starting capital. This is a demonstration of how the Martingale trading strategy works. However some points must be duly considered.
Important Considerations. Market conditions are not perfect, and there is indeed no guarantee that the doubled up trade will always end in profits.
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