With the appearance in 2008 of new instruments binary options, their first users applied strategies and trading tactics from the Forex market. Despite the differences in trading currency pairs and buying option contracts on them, this practice of exchanging experience is relevant to this day.
In turn, the Forex market borrowed one of its trading tactics from gamblers casino gamblers. It consists in unidirectional trading with constant opening of orders when the loss increases by a certain amount. And today we want to offer you two strategies for working with averaging positions in binary options: simple and advanced.
To save a losing position, two types of trading are used, which have received the following names:
- Grid orders equal in position size to each other;
- Martingale is a gradual increase in each new position by a constant or variable coefficient.
- This tactic assumes that the trader can avoid a loss in the event of an erroneous forecast by averaging the entry price. This will allow it to close at zero on the correction, when quotes bounce in the previously selected direction.
“Grid” and “Martingale” on binary options
The above tactics are applicable only for binary options “Above Below” due to the similarity of the principles to trading on currency pairs. The buyer of the options contracts makes a profit if the price has changed in the correctly predicted direction.
The difference in trading currencies and options for it lies in the presence of an expiration time that limits the duration of the contract, while a forex trader can hold a position until the deposit is completely depleted or profit is taken at any time at will.
That is why the grid strategy the withdrawal of new orders after a certain step of falling or rising quotes is not used in binary options. The reason is that the trader “until the last minute of expiration” believes that a losing trade will turn into profit and there is no point in opening new positions as the price moves. In addition, a very small number of binary options traders are able to place pending orders for these contracts in order to automatically enter a deal when the price changes.
Martingale, on the contrary, is widespread and widely advertised in this market. The strategy was born for roulette and card games. After losing, the players constantly raised their bets for the same outcome: one color or even odd, the likelihood that the next hand will score more points than the opponent’s, and so on.
Therefore, in binary options, the same scheme operates after the loss of the option premium, the trader opens the same contracts “Higher” or “Lower”, constantly increasing the amount of investment.
Fatal error of the Martingale strategy on binary options
In the materials posted on the Internet describing the Martingale strategy on binary options, there are many tips for choosing the right entry point, but none of them say anything about changing the expiration time.
If the trader does not increase the duration of each subsequent option, he will doom himself to drain the deposit. This is due to the peculiarity that characterizes the directional movement within the day the formation of long, recoilless sections by the quotes.
Let’s say a trader trades intraday on binary options with expiration within an hour. Look at the EURUSD hourly chart (the situation will be the same on small timeframes). During 10 working sessions on the chart, it is easy to find 15 multi-hour recoilless areas of growth or decline.
If the trade on binary options “High Low” brought a loss, then there is a high probability that the trader went against the direction of the trend. When entering this recoilless area, the Martingale trading is doomed to get a huge minus. Forced to constantly increase investments in a binary option according to the Martingale strategy, in order to bring the first deal by 25 to zero, already on the seventh option (knee), more than 5000 will need to be invested.
Where and how you can use Martingale a simple and advanced strategy
If a trader has decided to constantly use the Martingale strategy to buy contracts “Higher Lower” in order to recoup the minus of the first investment in a binary option written off at a loss, then to determine the next points for a reversal, he needs to use reliable levels or zones that are likely to guarantee reversal of quotes.
Trading with Fibonacci levels can be a simple strategy for finding points to buy additional options. These are the percentages dividing the segment of the trend chosen by the trader into retracement levels, from which the price often repels. They are built automatically, the indicator is present in many terminals
By placing the indicator at the beginning of the trend and stretching the grid to the point where the reversal occurred, the trader receives pre-built levels of a possible price rebound. The main lines are considered to be 38.2%, 50% and 61.8%.