The Martingale strategy is one of the most well known gambling methods in the world, so we have decided to evaluate its usefulness when it comes to binary options trading. It’s a very simple theory, actually, and that’s a large part of its appeal. You start with a minimum wager or risk amount, and then if you lose, you double that on your next attempt. Every time you lose, you double again. Once you have a successful wager, then you reset back to the minimum. If this is done right, in theory you should find that you churn out a small but consistent profit over the course of time. This is more of a money management system than it is a trading strategy, but it does blur the lines a bit in this respect.
How to Use It?
Let’s look at how the Martingale works in real life binary options trading. Let’s say you want to trade the euro/U.S. dollar currency pair and have a good read on what the market is doing for this. Taking an approach of waiting until the price chart shows that the euro is set to rise against the USD, we start with a minimum risk, let’s say $25. If your prediction is right, you just keep going with $25 risk amounts until you are wrong. The first time you are wrong, Martingale says that you double your risk to $50. If you’re wrong on $50, you double to $100. Wrong again, double to $200. And so on, until your prediction is correct. Then, you go back down to $25.
There are limitations to this, and if you don’t impose them right away, you could find yourself trying to risk more than your broker will let you. Some brokers have a risk maximum of $1,000 while others go up to $10,000. Either way, if you are not careful, it’s very easy to find that suddenly you need to risk more than you are allowed to, and this will eat into your profit rate. This is why casinos have max bets, and it’s why binary options brokers do, too. It helps them to protect not only themselves, but their customers.
What Can Go Wrong?
As you can imagine, even a modified Martingale approach to trading binaries does not work. There is not enough predictability by going blind into trades without thorough research on technical information for the assets you trade. Also, the stakes are too high with this. Even if you start out with a $10 trade, it’s conceivable that you could be incorrect on your 60 second trades 10 times in a row. If this were to happen, you would end up losing $10,230—just on 10 trades. When you are correct on your 11th trade—where you are risking $10,240 to earn $7,680 in profits given a 75 percent rate of return—the payoff is hardly worth it. The Martingale assumes a 100 percent rate of return, and this is seldom available in the binary market. Modifying your risk increments will minimize this risk so that you are increasing your risk by 50 percent instead of doubling, but it is still far too risky for far too little return. It’s a great theory, but the Martingale simply does not work in a real life trading situation.
Given a perfect situation with 100 percent returns and no maximum risk amounts, you will find that this strategy will only churn out very small profits. There are other methods that do not require unrealistic expectations that can create far better profit rates for you, and it is this fact alone that you should not use any variation of this strategy, no matter what it claims to be able to do. It needs perfection, and it has tiny long term benefits.