Martingale: a game of chance
If you have been in binary options trading for some time, the probability that you've heard about Martingale is really high.
Martingale betting strategy was popular in France in the 18th century among gamblers. The game itself was extremely simple: if a coin comes up heads, you win and lose if it the coin comes up tails.
From the very beginning, Martingale was a negative progression system. So, in the 18th century, French gamblers (and their complicated descendants) doubled their bets after every loss to recover all previous losses with the first win. Plus, this way they could win a profit equal to the original bet.
Also, the martingale is still commonly used among roulette players since the probability of hitting either red or black is close to 50%.
How does it work?
The strategy itself is quite simple: you double your investment amount after each loss until you win. The classic scenario for the Martingale strategy is trying to trade an outcome, where there is a 50% probability with zero expectation. In other words, nothing to gain, nothing to lose.
When you decide to trade Martingale, several simple scenarios can happen. E.g., let’s pretend to try it right now with the initial investment of $5 and 100% return:
- You win your first trade and profit of $5.
- You lose the first trade and win the second one (your first $5 are lost but your second trade for $10 is a win, which leaves you with $5 profit).
- Lose 2 trades and win the third one (your first trade for $5 and your second one for $10 are lost but you win $20 on the third one, which still gets you your $5 profit).
Sounds too sweet? That’s because it really is. Though Martingale has a certain allure, it has its downsides, which shouldn’t be ignored.
Why is Martingale not the best trading strategy for BO?
When you are only starting to make your first steps on the path of becoming a trader, Martingale seems extremely attractive. Trading with such strategy seems completely logical and profitable (well, eventually). As long as you are persistent with your trades, you'll be onto a good thing someday. However, no one actually knows when that day will be exactly.
One of the serious drawbacks of this strategy is that your funds are not infinite and it can simply run out before the trend changes. As a result, there is a depressing possibility of ending up with a bunch of losses and no profits to make up for them.
If you are considering using this strategy, don’t forget that it isn’t designed for winning. The main purpose of Martingale is insurance from losses.
What about Anti-Martingale?
There is also another strategy somewhat close to Martingale, but with its own followers. It’s known as Anti-Martingale or Reverse Martingale.
While a classic Martingale is about doubling investment after each loss in hopes that there will be a win to cover your losses eventually, the Anti-Martingale approach preaches to increase the stakes after each win and reduce it after losses. Traders who practice such a trading style believe that they will profit from a winning streak while reducing losses. However, the evidence suggests that Anti-Martingale usually fails traders.
Generally speaking, both strategies have a place to be in the world of binary options or forex trading. However, in addition to its advantages, there are massive pitfalls included, which can be lethal when you are only starting to flex your trader’s muscles. Martingale or no Martingale, there is no such thing as a Holy Grail in trading, only reasonable, tested and well-thought-out approach.