Welcome to Binary Options 303, Martingale Trading. This is the third video in our Binary Options 300 series.
Martingale trading is a trading concept used to gain back losses by doubling up. And that’s another term used for Martingale trading is doubling up. With binary options trading, we actually have to do slightly more than double up a position to cover losses and make a slight profit.
And let’s look at this first example, this is the EUR/USD. And let’s say we have a payout of 80%. We enter a trade at $10, and we make a loss. We double that position to $20 for our next trade. The idea behind doubling up is we will cover this loss of $10 and make a profit. But unfortunately, we make another loss. So we double up again to $40. So that’s $20 to $40, and we make a win.
Our win gives us a 80% payout at $40, which is a $32 win. Our $32 win minus our loss– which is 10 and 20, so 30– covers our losses, and gives us a $2 profit. So in this example, I have just doubled up and made a profit.
But the reality is we can’t just double up. There are a couple reasons for this. First of all, our payout is not always going to be this high, at 80%. In order to simply double up each time, we need a payout of 75% or more. And the second reason is we will only be able to make a string of two to three losses before our doubling up no longer works.
In this pound against the US dollar example down at the bottom, this is a lot more realistic, and this will explain things clearer. So our payout is 70%. We make a trade at $10, and it’s a loss. We make a second trade at $20, and it’s also a loss. This $20 trade gives us a payout of $14, which covers our $10 lost and gives us a $4 profit.
Our third trade needs to be at $45– so that’s more than double the $20– which will give us a potential payout of $31.50. That will cover the $30 loss from the 10 and 20, and give us a profit of $1.50. Unfortunately, this third trade is a loss also.
So our fourth trade will need to be about $110, which will give us a potential payout of $77. That’s 110 times by 70%. That will cover our string of losses which accumulates to $75, and gives us a $2 profit. And you’ll notice that $110 is slightly double $45.
This second example is a more realistic example. And you’ll see that the concept of simply doubling up does not work in binary options. We actually have to trade a bit more than double the previous position if it was a loss.
So what is the advantage of Martingale trading? It is simply that we win back the losses and make a profit. And the theory behind it is the trading system, or strategy we’re using, will eventually make a win. And when it does make a win, our losses will be covered. We will win those back, and we will make a bit of money.
Let’s look at a price chart, and I’ll demonstrate the Martingale trading concept further. This is a hourly chart– or a one hour chart– of the Australian dollar, US dollar. This is a very simple trading strategy that I’m going to demonstrate to you.
I have a moving average of 21 on the price charts. And all I’m simply going to do is trade engulfing candles that are above or below this moving average. So if price is above this 21 moving average, I’m looking for bullish engulfings. If there is a bullish engulfing candle, I will take a call. It there’s a bearish engulfing candle when price is below the 21 moving average, I’m going to take a put.
Let me demonstrate Martingale and how it works. So let’s just start here, down the bottom here. So we have our first engulfing here. We’re about the 21 moving average. Let’s zoom in a bit so you can see this more clear. So here’s our first bullish engulfing. We would place a call that would expire in the next hour. Price ends up here. And we win. Price continues to go up. We have a bearish engulfing here, but we wouldn’t take it because price is about the moving average.
Here’s our next signal— big bullish engulfing candle. We would take a call to expire in the next hour. And we would have made a loss, in case that’s our first loss. Price then continues. We have another bullish candle. So this time, we would double our position, or double our position plus a bit more to cover this loss. We would place a call, and price does go higher. So we make a win. And that would cover our loss plus a bit more.
Our next signal is here– bullish engulfing. And that’s a loss. Our next signal is here– bullish engulfing. And that’s a loss. That’s two losses. Our next signal is here. Price is below the moving average, but closes above. And that’s a bullish engulfing. So we now have three losses. And each time we have entered this position, we have doubled up, or we’ve increased the position to cover previous losses.
We have another bullish engulfing here, which is a loss. Price closes lower. So we’ve had four losses now. Those losses are accumulating. We then have a fifth bullish engulfing here, and price closes a lot higher. So we finally have a gain, which is our fifth trade. And that trade would have covered all of these losses and made a slight profit. And that is simply Martingale trading.
It’s important to note that even though there are advantages with the Martingale trading concept– such as we can win back our losses– there are disadvantages to trading face this Martingale concept. First of all, our trading profits will be relatively small compared to a trading system or style that is right 78% of the time, and we’re not doubling up.
Another disadvantage with Martingale is we will need a very large trading account. And we will need to be looking at investing $1, $2 to start off with. Because as we double up our trades, they can soon accumulate to very large investments. A $1 trade doubled up in binary options five, six, seven times, ends up being a large investment we’re making per trade. And we can quickly wipe out our account.
And then the third reason to follow on from that second reason is using Martingale is very high-risk. So please proceed with caution with trading Martingale. Please have a large account, and please look at trading very small amounts.