Binary options and Martingale strategies
In this article i would like to talk about using Martingale strategies in Binary Options. I’ve seen many traders trying to apply this money management method in their trading. So it’s important for me that you understand exactly what it means and think if it’s the right method for you. Can Binary options and Martingale strategies “live” happily together? First lets understand what Martingale strategies are.
There are plenty of websites, courses, books about the Martingale trading / betting methods. The main principle behind Martingale strategies consists increasing the amount of the initial trade / investment or a bet. This is done at each loss until a profit is achieved while the profit covers all the previous losses.
For example, let’s say that you opened up a position of 50$ on a rise of the EUR/USD currency pair. If you win you earn 50$. If you lose however, following the Martingale principle you will double your trade, each time until the position will finally will expire on profit. So if the 50$ position was lost, the next one that will be opened is of 100$. If you win the next one you will again earn 50$ as -50+100=50. If you lose again, you will open a 200$ trade and so on.
The principle is to offset the losses of previous trades until achieving the initial targeted profit. In this case 50$. It is very simple to understand that with each loss you risk higher amounts. The risk becomes substantial if you then suffer a series of consecutive losses. By doubling your binary options positions you risk more than you might think. Statistically you will eventually destroyed your account. Of course, unless you have a fantastic binary options strategy that can win with extremely high rates. But if you don’t, few losses on a row will occur eventually and then you will find yourself with an astronomical amount to invest and probably burn your account.
In our example, after 5 losing trades in a row you will have to invest 1600$ just for the possibility to earn your desired 50$. It might work for a while. But you will need more than 30 wins of 50$ in order to get to a potential profit which is equal to your potential loss after only few consecutive loses. I saw so many people burning their account that way! I don’t mean that Martingale methods can’t work. There are ways to use it smartly. If you do use it, make sure you have enough margin for error in your account. You need to have a large amount of money. Secondly, when you use Martingale strategies in binary options, always set yourself a well-defined target. Stop trading after you reach that target.
For example, you might want to win 100$ each day. When you earn 100$ stop trading and withdrawal that money. Then start again. That way you will guarantee a certain amount of profit. Otherwise you will lose it all, cause eventually it doesn’t take a lot for the market to wipe your account. And trust me, this scenario will happen. Don’t build your trading strategy on a luck that can work from time to time in the casino. I recommend that you invest your time and energies in studying and practicing trading strategies based on technical and fundamental analysis. Then you can apply a more solid risk management system. Still have questions? Comment or contact me!
Check out Binary Options Long Term Strategy to learn how to use a profitable and conservative binary options method.