If you do not know what the Martingale betting system is, or you are wondering whether you should apply the Martingale method to Binary Options trading, then this article is for you.
“In trading, it doesn’t matter whether you are right or wrong. The major thing is when you’re right how much you earn and how much you lose when you’re wrong.”
This is one of the most classic sayings of George Soros. And the Martingale strategy is the best evidence for that saying.
I will divide this into 3 main parts:
– What is Martingale? What are the conditions for using the Martingale method?
– Why do 99% of Martingale strategy users lose money?
– How to use the Martingale method successfully?
Please read carefully. Because this article is probably the best way to keep your money safe.
What is Martingale method?
Martingale is a simple method to make sure you are profitable. The principle is if you lose, make a double bet until you win.
In terms of theory
The creator of the Martingale betting system is a French mathematician – Paul Pierre Levy. He once stated that the Martingale strategy is a 100% profitable method.
With enough capital, traders cannot lose for consecutive N times. Therefore, after each loss, the next bet will be doubled. When you win once, the profit gained will be enough for you to recover your lost capital.
In terms of statistical probability
The Martingale betting system is absolutely right. Let’s imagine a coin flipping game with 2 faces. There are heads and tails with the appearance probability of 50/50. Let’s say you focus on betting on the head only.
- So the probability that you get it wrong the first time is 50%.
- The probability for you to get it wrong 2 times in a row is 0.5 x 0.5 = 0.25 corresponding to 25%.
- And the probability for you to lose 3 consecutive times is 12.5%.
- So on, the probability for you to lose all 4 consecutive times is 6.25%.
- The probability for the tail to show up 5 times in a row is ~3%.
- And the probability that you will lose all 6 consecutive times if you only bet on the head is only about 1.5%. This is an extremely small number.
Just like that, the more times you flip the coin, the higher the probability of the head showing up becomes. It also means that your probability of winning becomes higher.
Ok! Now try to get 1 coin and test immediately. Within 7 tosses, there will definitely be one head.
So, with the Martingale betting system, when you lose, just double the bet. The more you bet, the more likely you will win. And when you win, the profits will compensate for all the previous losses.
What are the conditions for using the Martingale method?
After understanding what Martingale is, the condition for you to use this method is a lot of money and a reasonable betting system.
You need a large enough capital to use the Martingale strategy in any situation such as gambling, forex trading, etc. Suppose that the 1st time you bet $1 and lose. The 2nd time, you bet $2 and lose again For the 3rd time, you will bet $4. Just like that, you double the bet continuously until you win. If your total capital is not large enough, you will be short of money for the next bets.
At the same time, the betting system is also very important. Suppose that you choose a 50/50 betting system in which you have a 50% chance of winning, then the Martingale strategy will be very effective. But with other betting systems that offer you a 1% chance of winning, Martingale will blow away everything you have.
Applying the Martingale method in trading
Everything, including Binary Options, Forex, Coin, or CFD, etc., comes from an illusionary story like this.
Go online. Search for “technical analysis”. Study some indicators and candlestick patterns, etc. Then create a method for predicting a price trend with 70% accuracy. Finally, apply the Martingale betting system in combination with that method. And now you have an “invincible formula” to earn money.
In Olymp Trade transactions, use the Martingale method to manage capital. If you lose, increase the investment as per $1 – $3 – $8 – $20. If you win, start over again with $1.
The question is: Why is Martingale so magical but after hundreds of years, traders are still losing money? I will answer below, along with advice for you.
Why do most traders lose money because of the Martingale strategy?
Emotions are the most important factor
If you have ever traded Forex, Binary Option, or Coin, etc., then you must know one thing. Emotion is the deciding factor of success or failure. And the Martingale method is a powerful factor in influencing emotions.
So why? The reason is simple. When using the Martingale strategy, the more you lose, the larger the investment you must trade. It means that the trading pressure will increase. The fear of defeating and losing money will cause you to fall off your trading rules.
When emotions overwhelm reason, things will become worse and worse. And just once you are wrong, you will lose everything, starting with all the money in your account.
The Martingale trap
Let’s say you deposit into a certain binary options platform with $300 and a bonus of $15. Your total capital is $315. You trade with the Martingale method and start at $5.
If you win on any order, return to $5. If you lose, double the investment and keep opening orders until you win. So your cycle will consist of up to 6 orders as follows: $5 – $10 – $20 – $40 – $80 – $160.
There are 2 cases that may happen: (i) You win 1 cycle, (ii) or you lose 6 consecutive orders and go bankrupt.
This is the paradox of the Martingale betting system. If you lose, you lose everything. But if you win, your profit is very little.
Traders who want to improve their profit will have to trade more. At this time, the Martingale trap is activated. The more you trade > The higher the losing probability becomes > 1 loss = bankrupt.
You are the “donkey” of IBs
Who is the one who taught you to use the Martingale method to trade binary options? He probably is IB (Introducing Broker).
The IB of platforms will continually draw beautiful perspectives for you. They will stimulate you to trade and keep trading. It doesn’t matter whether you win or lose. The important thing is that the more you trade, the bigger the IB’s commission will be.
Three steps to apply the Martingale method successfully in binary options
Step 1: Combine the cycle with a proven strategy
Learning a trading strategy in binary options is not difficult. The difficulty is that you have to practice it yourself and check the winning probability of that strategy. Then, you need to repeat long enough to train your patience in trading.
What is the winning rate of the trading strategy you are using? Is it 50%, 60%, or 70%? Make sure that the trading strategy you are using has a winning rate of over 60%. This is the most reasonable percentage for you to apply the Martingale betting system. You can read the articles in this section to achieve your own binary options trading strategy: Trading strategies and how to use indicators in trading.
Ok! If you are new, let me start with a total of $30 capital and 1 cycle of 4 orders. We will have the following cases:
Case 1: 1 order
You open 1 order with $1 and win. So this cycle will end with one single order. And for the next order, the investment will still be $1.
Case 2: 2 orders
1st order – $1 – lose. Open the 2nd order – $3 – win. Suppose the profit rate is 82%. Then after 2 orders, you have a profit of 3 x 0.82 – 1 = $1.46. This cycle ends with the 2nd order. The next order returns to $1.
Case 3: 3 orders
This is the case when you lose the first 2 orders. The investment for the 3rd order will be $8. The profit gained is 8 x 0.82 – 4 = $2.56. This cycle ends with the 3rd order. The next order returns to $1.
Case 4: 4 orders
This is almost the last resort. You lose 3 consecutive orders and this is now the last one. The profit gained for 1 cycle ending with the 4th order is 18 x 0.82 – 12 = $2.76. This is the final order, losing means you will lose all money.
Step 2: A specific money-making plan
Now you know how much money you make on an average cycle. And now it’s time for you to come up with a specific plan.
For the same example as above, you deposit $30 and want to earn $10 a day. That means you need at least 5 or 7 transaction cycles to reach the goal. So you just need to focus on 12 to 16 transactions to achieve the number you need.
Once you achieve your daily goal, stop. Turn off the computer and stop observing the candlestick chart. Do not let yourself fall into the trading vortex and the Martingale trap. Remember, the more you trade, the higher the probability of losing money is.
You think $10 is too little for 1 day. No, it is not. Making $10 per day over the capital $30 means that you can totally earn $100 per day over the capital of $300. But, let’s start with a small number.
Step 3: Be patient, please!
The most stupid thing that traders often do is to constantly trade with the Martingale strategy.
First, they will adhere to the principles and trading strategy. But after a few winning cycles, they start to get subjective. They open orders faster with higher amounts. In the end, they lose all the money in their account.
Or there would be another scenario. They may lose 1 or 2 orders at first. Of course, they are eager to recover the loss. They open orders, not in line with the strategy, and forget the original rules. And the final result is completely lost.
Whatever it is, the “death” from the Martingale betting system still comes from the impatience and indiscipline in trading. Above all, if you choose binary options as a money-making channel, you need a lot and a lot of patience.
I hope this article will help you understand what Martingale is. And is it right for you?
I do not conclude whether Martingale is good or bad. Because money in the financial markets goes from the pockets of impatient people to the pockets of the patience. And when it comes to money, most of us lose patience.
My advice to you is if you are new, do not use the Martingale betting system. Because almost certainly you will lose money.
P/S: The platform I use for example is Olymp Trade. And you, absolutely do not challenge yourself.