Binary Options Martingale Strategy Scam or Legit

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Binary Options Strategy

Welcome to our binary options strategy section. Here you will find a beginners guide to strategies, leading on to more advanced information about things like money management, and articles on specific strategies.

Basic Strategy For Successful Trading

Strategy is one of the most important factors in successful binary options trading. It is the framework from which you base your trade decisions, including your money management rules, and how you go about making money from the market. There is no one Holy Grail unfortunately, if there were then we’d all be using it!

The two most very basic categories of strategy are:

Fundamental strategies focus on the underlying health of companies, indices, markets and economies and while important to understand, is not as important to binary options as the technical aspect of trading.

Technical trading, or technical analysis, is the measurement of charts and price action, looking for patterns and making educated guesses, speculations, from those measurements and patterns.

Strategy simplifies your trading, takes guesswork out of choosing entry and reduces overall risk.

The text book definition reads like this; a plan of action designed to achieve a goal or overall aim, the art of planning and directing operations in order to achieve victory. When it comes to trading the goal is to 1) make money and 2) not lose money.

The number one method of achieving this goal is to use a rules based approach to choosing entries that relies on ages old, tried and true technical analysis indicators. There are dozens, possibly hundreds if not thousands, of ways to trade the market, all strategies. They can be categorized in terms of the tools used, the time frames intended, the amount of risk associated with and many other ways, these being the primary.

  • Price Action/Scalping Strategies – Price action strategies rely on the movement of the market to time entry. These can be trend following or not, long or short term and utilize bullish or bearish positions.
  • Trend Following/Directional Strategies – Trend following strategies target assets that are trending strongly to pinpoint a series of profitable entries with a high rate of success.
  • Range Bound/Short Term Strategies – 99% of the time the market, or an individual asset, is not trending but trading in a range within a high and low mark. These strategies focus on support and resistance levels, reversals within the range and short term trends as asset prices move up or down from support to resistance and vice versa.
  • Long Term/Momentum Strategies – These are the less risky of the strategies as they target stronger signals and longer term time frames. These signals have a higher chance of success but take longer to develop and longer to unfold than other types of signals.

A technical analysis indicator is, most often, a mathematical formula which converts price action into an easy to read visual format. Common types of indicators include but are not limited to moving averages, trend lines, support and resistance, oscillators and Japanese Candlesticks.

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Money Management

Strategy is 1 of the 2 pillars of risk management, the other is money management. You control risk by targeting only good signals, weeding out obviously bad signals, and never putting so much money on one trade that it will wipe out your account.

Money management is the control of your overall trading fund. It should clarify trade size, and long term financial management – leaving you to focus only on trading. A well thought out money management structure should simplify:

  • Trade size
  • Risk management
  • Future growth
  • Stress

A trader with a clear financial plan should not need to be concerned with whether they can trade tomorrow, or if their trade size is correct or how they might grow investments in line with their progress. All those decisions are controlled by managing their overall capital with a clear plan.

Japanese Candlesticks

This is the most common method of viewing price charts. The candlesticks give an easy to read view of prices, open high low and close, that jumps off the charts in way that no other charting style can do. They are the basis of most price action strategies and can be used to give signals as well as to confirm other indicators.

Support And Resistance

These are areas of price action on the asset chart that are likely to stop prices when they are reached. Support is found when prices stop falling, this happens when buyers step into the market and are said to be “supporting prices”. Resistance is found when prices stop rising, this happens when sellers enter the market (or buyers disappear) and are said to be “resisting higher prices”. These areas, often represented by horizontal lines, are good targets for entries and possible areas where price action may reverse.

Trend Lines

These lines connect highs and lows formed by asset price as it moves up down and sideways. A series of higher lows and higher highs is considered to be an uptrend and a sign that prices are likely to move higher, a series of lower highs and lower lows is considered to be a downtrend and a sign that prices are likely to move lower. The trend line can be used as a target for support and resistance, as well as a an entry point for trend following strategies.

Moving Averages

Moving averages take an average of an assets prices over X number of days and then plots those values as a line on the price chart. Moving averages come in many forms and are often used to determine trend, provide targets for support and resistance and to indicate entries. There are dozens of methods of deriving moving averages, the most common include Simple Moving Averages, Exponential Moving Averages, volume weighted moving averages and many more. They can be used in any time frame, and set to any time frame, for multiple time frame analysis and to give crossover signals.

Oscillators

Oscillators may be the single largest division of indicators used for technical analysis. They include tools like MACD, stochastic, RSI and many, many others. These tools, in general, use price action and moving averages in a combination of ways to determine market health. They are displayed as a stand alone tool, usually as a line that ranges between two extremes or above and below a mid point, that can help determine trend, direction, support/resistance, market strength, momentum and entry signals.

Trading Psychology

With any form of trading, psychology can play a big part. A lack of confidence can mean missed trades, or investing too little capital in winnings trades. At the other end of the spectrum, over-confidence can lead to over trading, or increased risk – either of which could wipe an account very quickly.

So the trading psychology of the trader is very important. It can also be actively controlled or managed (at the very least, acknowledged). It is another often overlooked area of trading skill, but one well worth spending time to consider.

Read more on trading psychology and learning from experience.

A Basic Binary Options Strategy

Here is an example of some basic rules for a binary options strategy.

  • The trend is your friend, only take trend following entries.
  • In an uptrend only enter when prices are near support, in a downtrend only enter when prices are near resistance.
  • When prices are near support/resistance wait for a confirming candlestick signal.
  • When the candlestick signal appears wait for stochastic and/or MACD to confirm, a bullish crossover in an uptrend or a bearish crossover in a downtrend.
  • When rules 1 through 4 are met, enter the trade, only use 3% of account on each trade.
  • When choosing expiry use 2XCandle length. IE, if you are using 1 minute candles then 2 minute expiry, if 1 hour candles then 2 hour expiry.
  • If the trade fails examine why it did not work, make adjustment if necessary and move on to the next trade. If the trade works move on to the next trade.

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Strategies for Different Markets

Choosing a Trading Strategy

Developing a trading strategy for the binary options market requires a key understanding of how the market operates in terms of the trade contracts available, the various expiry times, and the understanding of the behaviour of the individual assets.

Unlike the forex market where the asset has to move in one direction or the other by an appreciable number of pips to the trader’s favour before profits are made, the binary options market is peculiar. Apart from the Up/Down trade which is based on direction and mimics the requirements of the trades in other markets (except the pip movements), other trade types in the binary option market operate in totally different ways. There are different trade contracts for different platforms. Some binary options contracts do not even require the trader to get the direction of the asset correct. For instance, trading the OUT contract will need the asset to hit one price boundary or the other for profit to be made. So it takes the trader being able to identify a suitable trade contract to be able to fashion a suitable strategy. What is used to trade the Up/Down contract is not the same as will be used for the In/Out contract. The contract type will determine the strategy.

For instance, trading the Up/Down contract will require a strategy that can determine if the asset will make a bullish or bearish movement. Trading the In/Out contract will require either a range trading strategy or a breakout trading strategy to identify a time when the asset stays in a range or breaks out of that range. If you are looking to develop a trading strategy for the In/Out trade, this is how your mind should be working.

In developing a strategy based on the binary options trade types to be traded, there are tools that can assist the trader. This is where chart patterns, signals services, candlesticks and technical indicators will come in. A simple tool like the pivot point calculator can be used as part of a TOUCH trade strategy with very effective results. Using tools like these will take us to the next part of choosing a strategy, which is how to understand and set expiry times.

Understanding Expiry Times

Expiry times are very important to binary options, because all trades in this market have time limits. However, not all binary options trades require time limits to be successful. Trades such as the Up/Down trades must reach expiry before the trade outcome is known. In contrast, trades such as the OUT component of the boundary trade or the TOUCH component of the High Yield Touch or Touch/No Touch trade contract must not necessarily reach maturity before the outcome of the trade is known. If a trader bets on a TOUCH outcome and the asset touches the strike price well before expiry, the trade outcome is already known and the trade is terminated as a profitable one.

So if the trader is not very good at setting expiry times/dates (and really, no trader in the market can boast of getting his expiry settings right all the time here), the binary options trading strategy will have to be tailored towards trade contracts which are not totally expiry-dependent.

Now when you identify and separate trades that are not so dependent on expiries from those that are, you can better understand what kind of strategy you would be looking at.

Understanding Asset Behaviour

The binary options market combines assets from different asset classes into one market. These assets do not behave alike. Some assets are very volatile with large intraday movements. A very clear example is gold. Some binary options assets are not traded round the clock but only at specific times e.g. the stock indices. The factors that may trigger a massive move in a stock index would obviously not be the same for a commodity or a currency. Even within the same asset class, no two instruments are exactly the same or behave alike.

An understanding of asset behaviour is therefore key to being able to develop a trading strategy for the market. It is up to the trader to study the behaviour of assets, understand the technical and fundamental indicators that will influence the behaviour and price movement of that asset, and then create a trading strategy that will work for that asset.

Demonstration

In this section, we will demonstrate the application of all the parameters we have mentioned above using a simple but effective trade strategy.

– The strategy we will use determines price bullishness/bearishness, so we will trade a Call/Put contract.

– We will trade the strategy on a one hour chart, so it will be have an expiry of one hour. We do this using our understanding that the effect we want to trade on the hourly chart, will happen in an hour.

– We want to use this on an asset that is liquid and responds to the strategy. So we will use the EURUSD.

The strategy has been used to create a colour-coded indicator, which shows a green arrow on bullish signals and a red arrow for bearish signals. It aims to trade the EURUSD because this currency responds very well to price stimuli during the London/New York overlap in the forex time zone, and the response can be delivered in an hour.

As soon as the red arrow appeared (as shown above), the signal was to trade a PUT option on the Call/Put digital option. Using this signal, the trade was executed on the binary options platform. The price of the asset (EURUSD) fell in one hour from the time the signal was generated to the expiry, producing a trade result in our favour.

This strategy (a custom strategy) fulfilled all our conditions:

a) It was suited to a trade contract on the binary options market.

b) It was a strategy that was suited to help the trader use a suitable expiry.

c) It was suited to the behaviour of the asset and above all, THE STRATEGY WAS A PROFITABLE ONE.

Binary options trading by Martingale strategy

The martingale strategy in binary options — a very dangerous tactic, which in unskilled hands almost in a matter of moments is able to zero out the deposit. But in the hands of a professional this strategy is one of the most simplest and profitable. Despite the fact that martingale is often criticized because of the huge risk, for example, in the Forex many expert advisors are built on its principles (Boomerang, Cash Hummer). So you just need to understand how to use it, as we’ll continue.

The basics and principles of the martingale strategy

The martingale strategy in binary is simple for understanding and complex at the same time. Its essence is that in the case of an erroneous forecast the next bet is doubled. And so as long as the prediction will be correct. Example. There is a deposit in the amount of $ 100. We do forecast in the amount of $ 2 and use the martingale in case of error:

  • stake 1 — 2 USD. A loss, double the bet;
  • stake 2 — 4 USD. In case of success and option profit 90% profit is 3.6 USD, recouping the previous loss. Net income is 3.6-2=1.6 USD;
  • stake 3 — 8 USD;
  • stake 4 — 16 USD;
  • stake 5 — 32 USD;
  • stake 6 — 64 USD (the may may subject to additional deposit of 26 USD).

At this point, for the previous 5 bets loss would have been 62 USD, 6th forecast would be the last. If it failed, then in 6 predictions we’d lose the entire deposit in 100+26 USD! If the 6th forecast would be successful, then we would have earned 64*0,9=57,6 USD. But the total loss amounted to 62-57,6=4.4$. By the way, the profit we could get only to the 4th, inclusive of the forecast (total loss of 3 forecast — 14 USD, profit — 16*0,9=14,4. Profit — 0,4 USD).

If we started with a sum of 4 USD, the breakeven point again would be the 4th prediction: the loss amounted to 4+8+16=28 for a profit of 32*0,9=28,8. Similarly, to start from 8 USD. This means that while the yield of 90% could be start with any amount of profit we would have received anyway under the condition that at least one of the 4 trades would have been profitable.

Important! One of the main rules of risk management states that risk per trade should not exceed 2% of the deposit on the deal. And if in other policies in exceptional cases it is possible to increase it to 5%, then in martingale strategy in binary options it is not recommended to do this!

Advantages of martingale strategy:

  • tactics has nothing to do with technical indicators and fundamental analysis. However, if you apply it in its pure form, but it’s just not recommended (why, I will explain below);
  • with the right construction of a mathematical model and a gradual increase in the lot of the losses can be offset.

Conditions for trading with Martingale method

Two main conditions:

  • the trend must be clearly rising or falling. Moreover, it is better not to take the period of expiration of 60 seconds, because even the upward trend is never a straight line;
  • deposit amount must be several times greater than the amount of the bet.

The martingale strategy in binary options is often used together with technical indicators determining the direction of the trend and its strength (trend indicators and oscillators). It is the combination of these tools (and not a martingale separately) able to make a profit.

And the second important aspect is the testing strategy. Any strategy should be tested on a demo account and analyzed (the optimal testing period is 6 months). After the analysis you will see the average number of losing trades consecutively and will be able to calculate the required magnification ratio of the bet.

An example of curve of the deposit on the successful implementation of the strategy of the martingale

Main moments when it is better not to trade with this method

The use of the martingale strategy in binary options is not recommended in the following cases:

  • when the market is flat — horizontal movement of the trend. This suggests that the market is experiencing a lull or investors or they are unable to determine the prospects of the asset. The possibility of chaotic price movement at this point, the biggest risks make mistakes in the forecast of the maximum;
  • when the amount of the deposit is less than 4-fold amount of the minimum bet. For example, if the minimum bet is 10 USD the deposit sum is 40 USD and less.

Example of curve of the deposit of Martingale strategy with the deposit loss

Martingale Calculator

From the example at the beginning of the article is shown that a simple doubling of the rate leads to a loss after the 4th prediction. So each subsequent bid must be increased by a factor of more than two-fold difference. Since this ratio depends on the profitability of the option, it makes no sense to calculate it manually each time. Open any martingale calculator, indicate the first rate, the yield of the option and receive rate values that need to be done. By driving the data from our example we get the following result:

An example of trading by Martingale

Take the demo accounts in the amount of 10 thousand USD. The yield of an option — 90%, trying to drive a bet of 100 USD and yield in the calculator and get the following grid rates: 100, 225, 506, 1139, 2563, 5767. Try to trade.

In this case, we were lucky immediately on the second transaction. The first $ 100 proved unprofitable, the second in the amount of 225 dollars brought an income of 405 USD, covering the loss of the previous deal. Despite the fact that the strategy requires a large deposit, the probability of 6 consecutive losing trades are very small.

Are you ready to trade in this method?

To understand whether you are ready to trade on the martingale system, answer the following questions:

  • Is everything clear from this article? If not, write your questions in the comments;
  • have you tested a trading strategy?
  • are you willing to accept the loss of the entire deposit?

If the potential losses are not confusing for you, but you have thoroughly understood the principle of the martingale, you are ready for this strategy. And finally, a few final recommendations:

  • Martingale is recommended to be used as a subsidiary strategy to the main tactics, based on finding a strong trend;
  • no need to try to increase the bet in 2 and more times. Based on the analysis backtest you will see a number of profitable and losing trades consecutively. On the basis of these figures you will choose the optimal magnification rate so that the number of subsequent profitable trades turned off the losses of previous ones.

If you have experience with this strategy, you have any suggestions on how to improve or on the contrary you consider it a loss, write about it in the comments!

Is the Martingale Strategy Suitable for Money Management in Options Trading?

Is the Martingale Strategy Suitable for Money Management?

One of the main ways to sustain profitable options trading is money management. You’ll want to minimize losses and increase your winning trades. This way, winners will offset the losing trades and leave you with some profit.

But when you incur a loss, adjusting your trading to reflect the remaining capital is vital to long term trading. Common sense dictates that you lower the amount you place on trades following a loss. But one strategy advises the opposite. This is the Martingale strategy.

How does the Martingale strategy work?

The Martingale strategy requires that you increase your bet amount even if you lose. That is, if you lose on a trade, the amount you invest on the next trade should be a multiple of what you lost. If you lose again, increase your investment until you finally get a winning trade. Once you get a winning trade, start all over again with the initial small investment.

How does the Martingale Strategy work? What’s the point of increasing your stake even after losing? Martingale practitioners argue that if you eventually hit a winning trade, it will be able to offset the losses incurred in previous trades.

See Martingale evangelists view options trading like betting. Each trade has a 50/50 chance of winning or losing. In addition, there’s no way that you can have an infinite losing streak. More so, the probability of losing decreases with the number of trades you make.

Can Martingale be practically applied to options trading?

Probability vs psychology

If you view the Martingale strategy from a probabilistic standpoint it can work in options trading. Every trade has a 50/50 chance of winning or losing. In addition, it’s unlikely to lose many consecutive trades.

Every trade has 50/50 chance of winning or losing On the other hand, if you view this strategy from a psychological standpoint it’s probably the worst money management strategy for an options trader.

No one wants to lose money. And while a trader might be comfortable losing small amounts in the first few trades, fear might set in when the losses accumulate.

Conversely, winning the first few trades might motivate the trader. However, a single huge loss in subsequent trades could wipe out all profits generated by the small winners.

Long term profitability isn’t possible

For the Martingale strategy to work, you’ll need huge amounts of capital at your disposal. Even then, you’re counting on the winning trades to offset the losses. You might have winning trades at the onset.

But one losing trade in the future might take out a huge chunk off your account. On the other hand, a winning trade might offset the losses incurred in earlier trades. However, whatever profit is left might be too small to justify your huge investment in that one single trade.

There’s no guarantee that you’ll eventually hit a winning trade

Although Martingale advocates argue that there’s no chance of getting an infinite number of losing trades, it’s still possible to make so many losses that your account is totally depleted.

Without hitting a winning trade. Even if you get a winning trade, it might not be enough to offset previous losses meaning your account will have incurred a loss. Over time, you might find that your account is slowly being depleted until it’s wiped out.

Your first objective as a trader is to safeguard your money

Your first objective as a trader is safeguarding your money As an options trader, you’re using your own money to make money. Your goal isn’t to lose money.

Many successful traders agree that in order to make money, you must first safeguard whatever money you have. The Martingale system on the other hand advises you bet a good chunk of your money hoping you’ll eventually make money.

In the end, you might end up investing your entire account on a single losing trade which wipes out your account.

Can you apply the Martingale strategy to trade in your IQ Option account?

Suppose, you’ve identified a downtrend and decide to use the Martingale strategy. Each candle represents a 5 minute time interval. You decide to enter 2 minute sell trades.

Your strategy could involve placing sell trades for 3 consecutive bearish candles then observing if they produce winning trades or not. If they all make money, you can continue increasing your trading amount on 3 more sell trades.

Martingale strategy In theory, the strategy might work. However, you cannot predict how the market will be in the future. The trend might suddenly reverse in response to an event or news story.

A single change in the markets might mean you’ll lose all the money you invested in one trade. Overall, the Martingale strategy carries an enormous risk when applied to options trading.

Tips for applying the Martingale strategy to options trading

Applying the Martingale strategy in your IQ Options account is by no means impossible. However, rather than blindly risk larger amounts of money on each trade, you can adopt a simple trading system. It goes like this.

Have a set amount you’ll trade for a specific cycle

Rather than continuously increase the trading amount, you can decide to use just a small portion of your account. For example, you can decide to only risk a total of $200 for one cycle of trading.

This can be broken down into $50 for the first trade, $70 for the second and $80 for the third. Note that the $200 is a fraction of your total account balance. In addition, you’ll only trade this amount until it’s depleted.

Set a maximum amount to trade in a single cycle If you’re wondering what I mean with the term cycle, it’s a set time frame. For example, in a downtrend, you can decide to trade three bearish candles along the trend.

One common feature about cycles is that when the price enters a cycle, the probability of the trend reversing is high. However, you don’t know when exactly this will happen. So your objective is to ride the cycle and make as much profit as possible before the trend finally reverses.

For example, if the price reaches the support or resistance level, you expect it to range, reverse or breakthrough. You just don’t know when. But since you’ve identified the resistance/support level, you can use the Martingale system to test the direction of the markets.

The small amounts invested might result in losing trades. But by the time you’re investing larger amounts, you’ll have determined the market direction.

You can use the Martingale system for longer trades

If you prefer remaining in position longer, the Martingale system can prove useful. You can decide to enter 3 different trades; in the morning, afternoon and evening.

Using Martingale for longer positions The morning trade will essentially be used to test the markets and therefore needing a smaller amount.

The afternoon trade is used to confirm the market’s trend. If both win, you can enter the evening trade in the same way as you did the morning and afternoon trades.

This strategy has several advantages. One is that you have more time to analyze the markets based on the success of your trades. Second, it allows you to test the market direction using small amounts. This way, you chances of making a winning trade are increased.

Although I wouldn’t advise using the Martingale strategy, it does have its merits. Only use it when you have a proper money management strategy (no one should ever risk a large portion of their account on a single trade).

In addition, flexibility is needed when applying this strategy or else you might end up losing all your money on a single trade.

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