The Mathematics and Logic Puzzle Pieces!
The last part of your Binary Options Strategy puzzle is optional to start with and completely logical after you gain a little experience. Once you have mastered the timing and choosing the correct trades you will have some trading history start to build up. This should be done via a demo account in the very beginning and then using small money as you progress. Once you start getting more trades right than wrong you will have accumulated your own personal trading history to review, this is your weapon. You will now be able to introduce a mathematical edge in the order that they are presented on this page if your personal results allow it.
The first edge you can gain is through compounding your profits, the second is a low risk and very calculated martingale. The latter is very optional and only you will know if you have the stomach and skills for it as time progresses.
Compounding Profits Application
In a previous lesson we have already talked about the concept of compounding so you should already understand it. Here is the compound sequence up to a maximum of 6 like before and based on 80% returns with $10 starting stakes.
|Trade #||Stake Amount||Trade Profit||Running Profit||Secured Profit|
Now you need to figure out if it is for you based on your own personal trading history. If for example it looks like 3 wins in a row seems to be your maximum frequent winning streaks then you should consider only performing a 3 trade compound, then reset or stop for the day. Either 3, 4, or 5 win streaks can be more profitable through compounded stakes vs basic stakes as long as you stop and reset after. Let’s take a look at the numbers again to understand that.
|$10 Stake with 80% Payouts||Basic Stakes Results||Compounded Stakes Results|
|Win 3 in a row, then reset||$24||$28|
|Win 4 in a row, then reset||$32||$48|
|Win 5 in a row, then reset||$40||$80|
|Win 6 in a row, then reset||$48||$120|
The numbers don’t lie and anything from 3 wins upwards will pay off with compounding but only if you stop for the day, or reset back to initial stake size once the win streak is complete. This is very important because if you do continue compounding until a loss then compounding only makes sense if your win streaks are 5-6. Winning 5 followed by a loss won’t give you any extra profit than if you didn’t compound. It would only serve the purpose of giving you that chance for the 6th win with no consequence if your 6th trade loss. If your 6th trade lost it would just be the same as if you didn’t compound at all so there is nothing lost and nothing gained. If you do nail the 6th win though you will get a much greater reward for compounding, just like if you decide to stop at the 5th consecutive win, that also provides a significant greater reward. The chart above shows you that even if you reset at 3 or 4 wins in a row and the reset or stop for the day it is also worth it.
You can only judge how far to take compounding based on your own results or the results you are getting from a signal provider. If you stop and reset after 3, 4, 5, or 6 wins in a row then compounded stakes will pay you more than basic stakes, BUT ONLY IF YOU STOP AND RESET. The consequences of continuing to compound and getting a loss before the 6th win need to be considered, this next table of numbers says it all.
|$10 Stake with 80% Payouts||Basic Stakes Results||Compounded Stakes Results|
|Win 1, Lose 1||$-2||$-2|
|Win 2, Lose 1||$6||$6|
|Win 3 in a row, Lose 1||$14||$1|
|Win 4 in a row, Lose 1||$22||$8|
|Win 5 in a row, Lose 1||$30||$30|
|Win 6 in a row||$48||$120|
If you can get 6 wins in a row 2 or 3 out of 5 days / sessions then compounding is the clear choice. A 6 trade win streak pays you nearly 3 times more than having a day or session where you win 8 and lose 2 in no particular order using basic stakes. If you decide to stop at 5 then compounding still pays you double what you would get off of a ‘win 8 and lose 2 in no particular order using basic stakes’ day. Stopping at 4 gets you a little extra and stopping at 3 not so much when compared to a ‘win 8 and lose 2 in no particular order on basic stakes’ day.
The reality is that only you can make the decision on how far to take compounding and if you will even benefit from it. Your trading history from your personal trading or your trading history that you have accumulated via a signal provider answers the question for you. Keep this all logical because it is just simple math, use it to your advantage were you can.
Low Risk Martingale Application
In a previous lesson we have already talked about the basics of a low risk martingale so you should already understand it. Martingale can get out of hand easy and become very high risk so it must be limited to only going 2 levels deep. This allows you to quantify what is your maximum loss so that you can then quantify what is the minimum amount you need to consider a win. The following table of numbers is similar to what we have already looked at but this time we will use 80% returns to match the compounding data above.
|80% Returns||$10 Start||$25 Start||$50 Start|
|Losses to Lose||3||3||3|
To keep in sync with the compounding results above you would only really be focused on the $10 stake column. If you were to use this low martingale strategy then a day or session that you would call a loss is $84. In order to complete a loss you will need to lose 3 in a row. Once again your trading history will show you how common it is for you to get a 3 trade losing streak. It doesn’t matter if you get them occasionally but it would matter if you got them often. Low risk martingale is not for you if your trading history shows you frequent 3 trade losing streaks, plain and simple. You can revisit this add-on later once you have corrected that.
So if $84 is your losing day or session, then $84 or higher is your winning day or session. In order to get $84 using basic stakes you will need 10.5 wins so you need to round that up to 11 wins. That is 11 wins in no particular order as long as you don’t lose 3 in a row. The math never lies and just like with compounding only you can judge, via your trading history, if a low risk martingale application is going to benefit you long term.
Compounding with Martingale
If you don’t lose 3 in a row very often, and you do get winning streaks often enough, both compounding and martingale can be used in harmony very effectively. Your session loss based on $10 starting stakes and 80% returns is $84. A 5 trade winning streak gets you $80 and with 1 standard martingale win on top of that your returns would exceed $84. A 6 trade winning streak returns you much more than $84 and if you keep a ‘win, lose, win, lose, win’ sequence going all day then every win is still counted as 1 win out of the required 11 that you need to equal what you have quantified as a loss. In fact even if you win 3 in a row and then lose 1, your next win will still be counted against your 11 martingale wins needed, plus you get the $1 extra to add to it, then you reset your compounding and martingale to their start points. The most important point is that if you have started compounding and you encounter a loss, your next stake amount is not a martingale of that compounded amount you were at, it is your first level deep martingale amount. The compounding and the martingale take care of themselves individually!
To reiterate what was just said, it is recommended that you run the 2 strategies in parallel but separate. What this means for you is that you have 3 options, you lose 3 in a row and you are done for the session or day, you win 11 times without any streaks, or you get 5 wins in a row plus 1 martingale. The final option for maximizing your profit day or session is to take that last option to 6 in a row on the compound, this makes your winning day or session 1.5 times greater than a losing day when you get a streak, and equal to a losing day when you don’t. If you lose 3 in a row 2 times out of 5 days or sessions, you will still be profiting overall, losing 3 in a row just 1 time out of 5 though will be much better for your pocket. There will be weeks where you don’t lose 3 in a row at all plus you get some winning streaks as a cherry on top!