To be able to prosper in binary options trading, you will need to formulate a solid general strategy and develop the right strategy for managing your investments. Once these foundations have been established, the next step will be to consider using individual strategies to win more trades and build your profits. The following strategy is one that is not for the faint of heart. However, it is used by enough traders that it warrants discussion.
The Martingale strategy involves doubling your investment amount after each consecutive loss and continuing to do so until a win occurs. The assumption is that this doubled investment would cover the previous losses when a win occurs, leaving you with a profit. In general theory, this sounds like a solid plan, but many people ignore the fact that it is essential not merely to double each single investment, but the total of all past investment amounts lost. The totals can rise quickly, and for those who are risk adverse, this may not be a comfortable strategy.
Consider the following example: Assuming you purchased a binary options contract for $25 and the trade finished out of the money, so you then enter into a new contract using an investment sum of $50. If this trade also finishes out of the money, the next investment would total $150, and if this too is not profitable, then you would need to dedicate $450 to the next trade. Is your account funded well enough for this type of financial commitment? And if so, are you willing to continue on until a win occurs? These are questions that you will need to answer before using this type of binary options strategy.
Of course, if it possible to use this strategy along with actual analysis so as to increase the odds of having each trade finish in the money. However, many new traders choose to use it without analysis, hoping that the statistical law of averages will work in their favor. These laws do point to the fact that consecutive win or loss streaks cannot continue on forever. At some point, the outcome will change. While this theory is solid in its foundation, the aforementioned questions about financial positioning and risk tolerance must still be answered.
There exists an alternative version of this strategy, known as Anti-Martingale. In this version of the strategy, traders only increase their investment amounts after a trade finishes in the money. Should the contract finish out of the money, the stake on the next trade is decreased. Keep in mind, however, that if a number of failed trades occur and your account balance has diminished by 20%, you need to boost your next investment by 25% in order to generate a profit (assuming that position is a winner).
Always remember that the way to succeed is a practical approach: have a plan, stick with it, and make decisions in advance about the maximum amounts you are prepared to commit to each trade. This binary options strategy is certainly not for everyone, especially those who prefer to keep risk levels low. For those traders, a tight compounding money management strategy will be the better choice.