Binary Options Martingale Strategy

By Elad Mor

Meta: The Martingale strategy was devised 250 years ago as a risk strategy to enable gamblers to recoup their losses. Learn how to use this strategy in binary options trading.

The Martingale strategy appears to have been devised by French gamblers around 1750 and eventually found its way to England where 18th century gaming house operator Henry Martingale, recommended it to his clients. The original system was designed to give gamblers an opportunity to recover losses as well as to turn a profit. This was done by doubling up on each successive bet after a losing bet until there was a winning bet; at which point all the accumulated losses were recovered and a profit made. This system was applied to games of chance where there was a 50/50 winning or losing possibility.

The Martingale theory was further developed by Joseph Doob, an American mathematician and probability theorist, who wrote in 1953 that a Martingale is a model of a fair game where knowledge of past events never helps to predict the probability of similar future events.
According to Doob, the gamer can have no expectation of the toss of a coin or the fall of the next card, which are totally random, with no sequence whatsoever.

This flies very much in the face of the view of binary options technical analysis experts who make use of the historical price data of an underlying asset in order to create algorithms for use in forecasting the future price behavior of the asset being analyzed.

Common Ground between Doob and Technical Analysis 

The effect that no historic information has any value, using the Doob theorem, is substantially reduced the minute technical analysis is added to the equation. You no longer have a purely random probability as suggested by Doob, but a probability that is influenced by the information and knowledge that comes from technical analysis.

By applying proven technical analysis strategies, such as Bollinger Bands or Fibonacci, which are designed to assist in understanding a trading pattern and thus having a far better possibility of forecasting future price movement, the binary options Martingale strategy adopts a different probability ratio. Here, you are disturbing the pure Martingale probability by introducing an expectation of a result in terms of your technical analysis. Binary options broker Banc De Binary has very good educational features on their website dealing with a variety of strategies and technical analysis which can be of great assistance and is highly recommended.

Strategies in Tandem with Martingale

Most trading strategies will be enhanced if you apply them in tandem with the Martingale strategy because you tip the scale in your favor by adding historical information.

Support and Resistance

There are numerous strategies that can be used, such as the drawing of support and resistance lines, which give you a price range within which you can expect an asset to trade. By using this knowledge, together with the Martingale strategy when you have had some trading losses, this can assist in the recovery of these losses. This makes optimum use of the trend the asset price has been following by defining the upper and lower trading limits.

Pivot Points

Pivot point trading is another strategy that fits well with Martingale because you are able to predict, with a reasonable degree of probability, which direction an asset price can be expected to move. By using pivot points in association with support and resistance lines, you are able to get early warning of the trend direction an asset may be taking. Pivot points, in conjunction with support and resistance levels, are extremely useful to determine an asset’s future price movement, without a great degree of in depth technical analysis and learning to use them effectively and this can enhance your trading success.

Further reading to improve your knowledge and understanding of these two strategies is highly recommended. Also, if you have registered with a reputable broker such as Banc De Binary, take the time to review their comprehensive educational tools. This broker also offers a demo trading account which will enable you to practice your trading without the risk of losing any money.

Fundamental Analysis

When you are using inherently risky strategies, such as the Martingale strategy, it is in your best interest to try and load the probability factor in your favor to as high a degree as possible. Keep up to date with the financial news and any other data that can influence the value of the underlying asset you are trading in. Fundamentals are generally the catalyst for the price trends you are able to determine and forecast from your technical analysis and can play a large role in tipping the scales in your favor.

Risk Control

Irrespective of what strategy you are using, it is essential that you always adhere to your risk control regime to keep losses to a minimum. The imposition of a daily trading limit is another vitally important aspect of risk control and financial management. Self-discipline can go a long way to turning you into a far more efficient and effective binary options trader.

The Last Word

The very nature of the Martingale strategy that requires you to double the investment on the previous trade where your forecast was incorrect, can become very costly and you might sometimes need deep pockets in order to employ the strategy to the full. Finally, you should only invest money that you have available and never place yourself in debt in order to fund your binary options trading activities.