Roulette strategies for binary trading

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Using Martingale in Binary options trading

Trading binary options using the Martingale strategy is a contentious subject with many reputable traders, as well as mathematics itself, suggesting it can only have limited success before depleting a trading account entirely of its capital. But what about those binary options traders who use this method alongside their own, back-tested system which has proven to give them a clear edge in the markets? Further exploration of how this method can be effectively used for binary options trader needs to be undertaken, however, it is clear that for certain trading opportunities and strategies, it can be an effective way to successfully use an increased probability of success to an advantage.
The Martingale trading strategy was first introduced by casino gamblers, and especially roulette players, to continue betting after a loss in order to not only cover the previous losses but to also profit from the increasing probability that their bet will be win. Essentially, Martingale trading involves increasing the stake after each loss in order to increase the returns when the winning bet eventually come in; with the understanding that a winning bet is always on the horizon. The classic scenario of a gambler consistently doubling their bet on the red of a roulette table until the ball eventually lands on red (a perceived 50% probability) shows how the simple theory could, in practice be profitable as long as a gambler is willing to spend a considerable period of time at the table.

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Are there any advantages of Martingale in binary options trading?

As attractive as the Martingale strategy may look to both binary options traders, increasing the investment on each high-probability trading set-up, it is initially flawed by two misconceptions. The first of these is the so-called ‘gamblers fallacy’ and an assumption that both the roulette wheel and a financial market have a memory to remember what happened on the previous bet/trade. This assumes that since the roulette wheel has landed 15 times on red, it will realise this and throw a black in there to make amends. In fact, each roulette spin is entirely unconnected to the last and has the same probability of continuing to land on red for the eternity as far as it is concerned. Financial markets, on the other hand, do formulate memory and, whilst this is not guaranteed, the probability of a particular set-up is only based on history which gives a small advantage to the binary options trader using Martingale strategies to counter failed, high-probability set-ups.

The second misconception which may distinguish between using Martingale in a purely gambling sense and for trading binary options is the understanding of the chances of success. Casinos often outlive the gambler for a reason and this is that it always has a statistical ‘edge’ over its customers. Whilst the red and black of a roulette table may seem like a 50% game of chance, the introduction of the green ‘0’ square makes it an unfair game over time with a skewed bias towards the success of the casino. Binary options, on the other hand, can involve methods of trading which, on extensive back-testing, can reveal a bias in favour of the trader and, therefore, the possibility that if Martingale is employed strictly can result in a favourable skew in the direction of the trader.

The risks involved with using Martingale methods with binary options

The major problem for most binary options traders in using Martingale, even with a great strategy producing a 70% win rate, is the possibility of a run of statistically improbable trades. Many binary options traders employing Martingale will have assessed, historically, that their system has only ever encountered a maximum of 6 failed trades in a row. However, since history is not a definitive predictor of future price-action, it is possible that this could be exceeded dramatically. Psychologically, and financially, a run of 9, 10 or even 11 failed trades using the multiplier of Martingale can push an account to depletion. Many strategies when seen on paper look profitable using Martingale may incur periodic drawdowns beyond the resources of the account and here lies the fundamental problem. Having said this, many binary options traders can successfully reduce the risk of this occurring by beginning by trading only a very small fraction (up to 2%) of their account. Although losses can accumulate quickly, this is the only way to mitigate the risk of an improbable, but highly possible run of account-depleting trades.

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Binary options – trading, NOT gambling

This question has been repeated so many times that we thought it deserved a special section. A lot of people like to think that Binary Options is like gambling because you are basically investing your money on something that you simply cannot tell with a respectable degree of confidence. Since you are trying to predict whether the cost of an asset will appreciate or depreciate within a specific time period, you can either be right or wrong, regardless of what you may have learnt. Let’s take a look at whether this assumption is true or not.

What is Gambling

Gambling is essentially an investment into an activity in the “hopes” of winning something of a higher value. Gambling is extremely popular the world over; places like Las Vegas are frequented by millions every year who try to find that lucky break which will turn their thousands into hundreds or thousands or even millions. Of course such an outcome is tempting!

All you do is show up, place a bet and chances are you will walk away with enough money to make the rest of your life hassle free and comfortable. Popular forms of gambling include lottery, horse race, casino games like blackjack, roulette, bingo. There are even wagers which are placed on the outcomes of certain sports such as cricket and football, these bets include predictions such as who will win the toss, how much will the team score after a particular time period and whether a particular team will win or not.

The keyword in all the activities above is “hope”. The decision to place a wager is purely an emotional one and there is virtually no way that the gambler can even hope to get a clue regarding whether the eventual outcome will be in his or her favor. Gamblers often place large sums of money saying things like – “I just know it!” or “this is my lucky day”, hardly a well thought out decision. Gambling by its very nature is extremely risky and the odds from the get go are always stacked against you. Simply put, you are gambling if…

  • You have absolutely no way of knowing how the activity will turn out.
  • You are making financial decisions purely on an emotional level.
  • You did not bother to study the game you are investing in.
  • You believe that chance, luck or fate favors you.

Gambling vs. Investing in Binary Options

So does Binary Options fit the above description? Well for starters there is no way you can state with a hundred percent confidence that the outcome of the trade will go as you saw it, but the same could be said about anything else in life, ALL activities have some degree of risk attached with them and there is no way you can ever predict with total certainty that your plans will work out your way.

So there is no doubt an element risk that you might lose the amount you invested to purchase the trade. However, most people do not realize that part of Binary Options trading involves rigorous study of market trends, chart analysis and how assets tend to move from time to time. It also requires an understanding of binary options pricing. This is why those who bother to understand the market in general are the most successful at it.

Therein lies the difference between gambling and investing, while gamblers are emotional people, willing to lose money against a hopeful outcome, traders are intelligent analytical people who have rigid money management strategies and place trades in carefully selected scenarios which offer the highest chance of a positive return. If Binary Options could indeed be classed as gambling then all traders in stock markets are gamblers and surprisingly, many of them are some of the richest people on the planet.

Unlike gambling, in Binary Options you CAN predict with a high degree of confidence how an asset will move! While this does not mean that all the trades you place will win, there are ways you can turn most of your investments into winning ones.

Gambling Trading
Money is wagered emotionally. Money is invested intelligently.
Risk is maxed out. Risk is understood and accounted for.
Gamblers like to rely on luck. Traders like to rely on careful analysis and planning.
Predicting outcome is often impossible. Outcome is treated as a statistical probability.
Gamblers are easily tempted. Traders are inherently suspicious of too good to be true scenarios.

Mitigating Risk in Binary Options

Risk in Binary Options can be brought down systematically by a careful use of charts, market analysis and strategies. With the aid of charts you can understand how the price of an underlying asset is moving so that you can make an informed decision. When you have the history of how the asset has been behaving through a set period of time, you can at least gain an idea as to how it may behave in the next few minutes or hours.

Next, you can use strategies to reduce the risk as well. For instance, you could use a strategy called “Spreading” where you can duplicate a trade across a number of different binary option platforms. Since each of the five trades will be placed a few seconds to a few minutes apart from each other, it instantly increases your chances of scoring a winning trade on at least a couple of them. On an average you can hope to win 70% to 80% of all the trades that you will place when you make a use of the signals which you will receive from Option Bot 2 if you use spreading.

Avoid the Winning Streak Pitfall

One of the biggest errors which both seasoned traders and gamblers commit is getting carried away by winning streaks. A smart investor knows when to call it quits and move away, under no circumstance should you invest more money than you can afford to lose and the best way you can hope to win at Binary Options is by trading slowly and steadily rather than hunting for those special days.

Martingale

Martingale is a popular form of betting strategy and often used in binary options; read on to find out why you should not be using it.

The Martingale Method

A martingale is one of many in a class of betting strategies that originated from, and were popular in, 18th century France. The simplest of these strategies, all intended for gambling and gaming, was designed for a zero-sum game, that is, a game in which each side bets the same amount and wins and losses are absolute. If I win, I win all, if you win you win all.

The basic strategy has the gambler double his bet after every loss so that the first win would recover all previous losses plus win a profit equal to the original stake. In today’s world the martingale strategy is most often applied to roulette as the probability of hitting either red or black is close to 50%.

The idea behind the martingale is a simple one: Double your previous loss until you eventually win, resulting in profit no matter what, as long as you are capable of going the distance. The only limiting factor is the size of your account, so long as you can make the next trade you have a 50/50 chance of making all your money back.

What Martingale really does is remove the need to understand the market, technical analysis and trading because the only thing that matters is the outcome of the next trade. All you have to do be able to make a trade, and then double it if you lose.

Martingale is nearly a sure thing as your chances of producing a win grow with each consecutive trade, assuming of course you have an unlimited amount of time and a bank roll big enough to make whatever the next trade needs to be without going bankrupt. The danger lies within those assumptions.

To some, the martingale system seems pretty fail-safe, especially for newbies, but that is a popular misconception. If used incorrectly it can quickly compound ones losses to the point of catastrophic failure. The best thing to do is to use a sound money management technique like the Percent Rule to ensure that no single trade is so big it wipes you out. Save Martingale for having fun at the casino.

Why Martingale is not a good idea for Binary Options

Now with digital options there are some things you have to take into consideration. Number 1, you must be aware of the payout percentages because binary trading is a minus-sum game. You never win as much as you bet. Because they are less than 100% you must increase your stake with that in mind so you cover your previous loss and gain a profit equal to the initial trade, otherwise you will end up losing no matter what happens.

  • If you place a trade for $100 and lose it, then make a trade for $200 and win 85% you only get back $370, covering your cost($100 +$200) but only winning 70% of your first trade.
  • If you went to a third trade, a $400 trade, you would return $740 but only profit $40 or 40% of the initial trade.
  • If you took it to a 4th trade, only doubling the trade size, the profit shrinks again and will turn into a net loss on the 5th trade.

The real risk here is that with each trade, to ensure that you do not end up losing, you have to increase you stake by more than 100%. This means that your potential losses grow exponentially with each trade. The first trade is 100%, then the second is 100% +115%, then the third is 215% + 250%, then the fourth is 465% + 500% so that your first trade is X amount of dollars, and your fourth is nearly 10X dollars and growing with each trade until your account cant handle it any more and you are wiped out of the market. In the end, Martingale is not trading to win, its trading not to lose.

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