Wednesday, November 20th, 2013 by Michael Freeman
One of the most talked about strategies, and the most commonly used probability technique in the gambling world is the Martingale Strategy. Get an inside look into the Martingale Technique and it’s application with binary options. How well does it work? Let’s start by defining it properly and see if we can apply it with binary options.
The Martingale Technique was first introduced in the late 18th century in France and was used by old-school gamblers in one of the most ancient gambling games, Coin Flipping with two possible outcomes, Heads or Tails. This technique made and still seems to make sense to gamblers in the Roulette Game which similar to Coin Flipping, provides the gambler with a %50 probability of hitting red/black. As a golden rule, the Martingale Strategy is used when the probability of winning or losing is equal to %50.
The Theory behind Martingale
Assuming there is a %50 chance to win a bet, according to theory advocates for every losing bet the gambler must double the investment which will recover the loss and break-even, even with consecutive losing trades as the investment is always double the total loss, eventually yielding a break-even. On every winning bet, which statistically occurs in %50 of the times, the next investment must remain equal to the previous investment amount. On losing investments we break-even eventually and with winning investments we generate profit.
Doesn’t it sound a little bit too good to be true? The strategy doesn’t take into account the exponential increasing of the investment amount which is unavoidable and is required in order to stay in the game, as the goal is to double the investment and recover the lost capital on losing investments. There are no investors on this planet with an infinite budget, therefore after an X number of investments, bankruptcy is inevitable. There is a limit to how many times one can double his/her investment due to budget constraints and as we keep doubling the investment amount on every losing traders eventually we are bound to lose everything on a single and final trade!
Using Martingale with Binary Options
The good thing about binary options is that it allows traders to conduct a market analysis and technical analysis in order to make sense out of an investment decision, meaning that this decision is not limited to a random choice of Up/Down, Black/Red or Heads/Tails. In general when it comes to’ investment in financial assets’, there are actually known factors that affect the movement of price such as supply and demand, market events relating to the asset we trade and respectively these factors can be measured and studied using Price Action Analysis and Fundamental Analysis. There is no room for a gambling strategy that doesn’t even work when all things are equal and the probability of winning is %50. Keep in mind that with binary options, traders must maintain a winning ratio of 6.5/10 or %65 in order to generate profit which already disproves the Martingale Technique as being of any practical use when applied with binary options, as it doesn’t even work with better odds equaling to a 5/10 ratio or %50 chance of winning. The only outcome is a losing outcome when the Martingale strategy is being used. Gamblers will always advocate strategies that are based on emotions and irrational thought process, let’s face it, gambling is an addiction and just like a drug addict, gamblers tend to feed themselves with lies and wishful thoughts. Don’t believe the videos promoting this strategy with Binary Options! It simply doesn’t work.. If you are interested to learn about legitimate binary options strategies, visit the strategy resources below.
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