Binary options and Martingale
- VFX Blog
Trading using the Martingale principle is constantly found in binary options for newbie’s courses, even though in terms of the number of lost deposits it takes first place with a huge margin from competitors. New strategies and advisers are constantly appearing, “smart martingale” methods and other strange things. The binary options market also did not stand aside, and in this article, we will try to understand whether there is a profitable martingale trading strategy or is it just a marketing technique for receiving money from traders.
Briefly about the strategy. The term comes from the world of gambling and provides for an increase in the volume of the current bet compared to the previous one to compensate for past losses. So after losing $ 10, we have to bet the next one at $ 20 and so on. It should be noted that this technique is prohibited in most casinos and gambling houses. Let's finish our tour of history and move on to binary options.
Features of martingale on binary options
Considering the options for using Martingale on binary options, you should always remember that the size of the profit in this market is fixed and does not change during the entire term of the option. There is a binary trading platform that allows you to close transactions before the expiration date with a smaller profit, but this is rather an exception to the rule.
Excluding turbo options, the profit margin is less than 100% and this does not allow closing previous loss-making transactions by simply doubling the volume of the next, as is done in the Forex market. Here are examples of options:
Let the series begin with the EUR / USD option, closed with a loss of $10 and a planned profit of $8.5 (85% of the option amount). To compensate for losses and make a profit, the next transaction must have an income of $18.5 = $10 (loss on previous option) + $8.5 US (profit 85%). After the calculation, we get the volume of the second transaction equal to 22 dollars, check the profit: $22 * 0.85 (85%) = $18.7.
As you can see, to compensate for losses and profit, strategy for binary options need to use a coefficient of 2.2, which is higher than on Forex, where doubling the volume is enough. This fact places high demands on the size of the deposit, and with an average option yield of less than 75-85%, the use of martingale becomes even more expensive and risky.
How much money does need?
Let's not write a lot of text, but just calculate a deposit for trading on martingale based on an example from the previous section. So the entry conditions are as follows:
First option amount: $ 10
Estimated profit: 85%
Number of losing trades in a row: 5.
As a result, we get a table:
Option amount, $
Option payout, $
Profit / Loss, $
Deposit amount required, $
The calculation data is not very encouraging: even with a minimum initial bet of $ 10, five lost trades in a row require more than $ 900 from a trade deposit. If readers think that long losing series of binaries option trading signal, we hasten to “reassure” them: such situations happen regularly, especially when using advisers and in small periods that beginners love so much. In the future, costs will grow even faster, and everyone must decide for themselves whether such trading risks are necessary with low profits or not.
Binary option strategy and martingale
Martingale trading does not use any special and unique strategies that “author's courses " like to talk about. Profit is obtained only in the trending sectors of the market, and if the strategy is good at determining the points of its beginning and end, it can be used for double deals. The main discussion concerns the volume of subsequent transactions to compensate for losses - in some methods, it is fixed, in others, it "floats" depending on the current size of losses and the total volume of open positions. But the meaning of these mathematical calculations does not change: the trading strategy must give at least 7 out of 10 profitable points to open an option.
As an example strategy with the profitability of 70%, let's take groups of moving averages.
Important: options do not open before closing or opening trading sessions, in the afternoon of Friday, at time of publication fundamental news and statistics.
The strategy uses two groups of simple (SMA) moving averages: “fast” and “slow”. This makes it possible to filter out false binary options signals and trade even during flat periods, although in this case without Martingale.
Trading asset: all trend assets except cross currency pairs;
Timeframe: from M30 and above. In periods of decreasing volatility, the recommended hour (H1);
Medium periods: “Fast” red - 15, 12, 10, 8, 5, 3. “Slow” blue - 60, 50, 40, 35, 30
- “Slow” SMA turn up in the following order: 30... 35... 40... 45... 50... 60, which confirms an uptrend;
- “Fast” is also up with the order 3... 5... 8... 10... 12... 15. On them we look for the beginning and endpoints of price rollbacks and corrections;
- Open an option with the expiration of 3-5 candles after closing the bar, on which both conditions are met;
Groups of averages decrease in the opposite order to the CALL condition;
The entry point is an interval of 3-4 candles, so you can open after crossing the group of "slow" several "fast".
The strategy is simple and can use Martingale to cover losses, and each trader must make his selection of an increased ratio depending on the market situation and the size of the deposit. There can be no universal solutions, despite assurances authors of paid strategies and advisers.
Recommendations for use:
Despite everything, this type of trading remains popular. Let's give some recommendations that will help binary options trader to properly use Martingale with any strategy:
- Martingale is not synonymous with short-term trades or scalping. An expiration time and timeframe can be anything from one minute to four hours and day. As with any other technical analysis strategy, the older the timeframe, the more reliable the signals are.
- Conclusion of their previous paragraph - forget about turbo options! They are primarily paid attention to binary options strategy sellers and binary brokers, but it is here that the largest number of false signals and non-market quotes.
- We start with the minimum allowable option amount. Even if you have thousands of dollars on deposit, you should not be tempted to increase the starting transaction. Always be aware of potential losses.
- We regularly take profit. Martingale always leads only to losses, so use periods of a strong trend to the maximum.
- Choose the right expiration date. The term of the option should be at least 3-5 bars of the working timeframe. This allows you to wait for moments of short-term corrections and rollbacks before resuming the trend.
- We monitor market changes. No trading technique gives a 100% guarantee, if after 2-3 losing options in a row you realize that you made a mistake in the direction of the trend, you need to stop. Add volume, open the opposite trade and do not increase losses.
Let's summarize. Are there any advantages of martingale trading compared to other options strategies? You can answer not and need to think about how to make money on binary options increasing the following transactions. This type of trading is the riskiest even in the Forex market, and for options, it increases many times over. There are two main reasons, and they cannot be addressed:
- The percentage of profit is less than 100% and in most cases, there is no possibility of early closing of transactions, even with a smaller profit.
- On small timeframes, long losing series of free binary options signals are not uncommon due to the incorrect choice of the expiration time. In the Forex market, transactions can be opened indefinitely until the Take Profit/Stop Loss order is up and down or the position is manually closed. The option may end a few minutes before the market starts moving in the direction we need, and what can be the losses read in the section on the size of the deposit.