Gambling strategies are a special type of trading strategy that can help you make money with binary options without having to predict what the market will do next. All you have to do is find a situation in which you will make money regardless of what will happen.
In this guide, we explain how to execute a gambling strategy with binary options. For this purpose, we will answer these questions:
- What are gambling strategies?
- Why use a gambling strategy?
- How can I use a gambling strategy with binary options?
- How should I manage my money with a gambling strategy?
With the answers to these questions, you will be able to make money with binary options without having to predict the direction in which the market will move.
What are gambling strategies and binary options?
Gambling strategies are a special type of trading strategy for binary options. In contrast to conventional trading strategies, gambling strategies do not try to predict in which direction the market will move next. Instead, they are trying to find market environments in which you will make money with your binary option regardless of the direction that the market will move in.
To understand gambling type strategies, let us use a simple example: Imagine a coin flip. With a conventional strategy, you would try to predict the outcome of the coin toss and invest accordingly.
- If you predict that the coin will show heads, you invest in an option that predicts heads.
- If you predict that the coin will show tails, you invest in an option that predicts tails.
With a gambling strategy, however, you would not try to predict the outcome. You would ignore the question whether the coin will show heads or tails completely. Instead, you would try to find a situation in which you were sure to make money with any outcome.
In the case of a coin toss, this would mean that you need to get a payout of more than 100 percent. In this case, you could simply bet on both outcomes, heads and tails. One bet would win, one would lose. Since you get more than a 100 percent payout, in this example, you would win more on your winning bet than you would lose on your losing bet. Consequently, you would end up with more money than you started with.
In short, gambling strategies focus on generating odds in your favor instead of anticipating the market’s next move. They get you to invest in these odds continually, knowing that you might lose some trades but that you will make money by the end of the month and the end of the year.
Why use a gambling strategy and binary options?
Compared to regular trading strategies, gambling strategies have a number of distinct advantages that make them uniquely suited for some trading situations.
On short time frames, market movements are erratic and random. Predicting what will happen next is difficult, often always impossible. Under these circumstances, using a trading strategy that requires you to make a high percentage of correct predictions is hard to use.
This is where gambling strategies shine. While they are equally unable to predict which direction the market will take next, they can find market situations where the odds are in your favor. To trade 30 and 60 seconds options successfully, you should strongly consider a gambling strategy.
While trading longer time frames enable you to use predictive strategies, too, many traders employ gambling strategies nonetheless on these time frames.
- Further reading: Binary options – trading or gambling?
How can I use a gambling strategy with binary options?
Unfortunately, employing a gambling strategy with binary options is not quite as easy as with a coin flip with a payout of 100 percent and a winning percentage of 50 percent. If brokers designed the risk/reward relationship of binary options in a way that allows traders to make money with random investing, all brokers would be bankrupt by tomorrow. Consequently, things are a little more complicated:
- High / low options, which enable you to invest with a 50/50 chance, only generate a payout of up to 85 percent – too little to make you money with random investing.
- One touch options offer higher payouts of up to 300 percent, but your chances of winning a trade with random investments are much lower than 50 percent. You have to wait for the right market environment before you trade a one touch option.
- Ladder options offer payouts of up to 1,500 percent but face the same limitations that one touch options face, too: you need a special market environment to win a ladder option with such a high payout, and random investing will lose you money.
These limitations make it difficult to use gambling strategies with just any binary options type. Do not worry, though, because there is a simple way to use a gambling strategy with binary options. All you need is a boundary option and a momentum indicator. Based on these ingredients, you can create a strategy that is so simple that even complete newcomers can execute it but that has a high earnings potential nonetheless.
In this example, we will use the average true range (ATR) as a momentum indicator. There are many momentum indicators, but the ATR is the most popular example. The ATR indicates how far the market has moved per period on average over the last time, which is exactly the type of knowledge that you need to win a boundary option.
A boundary option is double-edged one touch option. Where a one touch option defines one target price, and you have to predict whether the market will reach this target price before the option expires, a boundary option defines two target prices. One price is above the current market price, and one price is below the current market price, but both target prices are equally far from the current market price. The result is a price corridor around the current market price.
To win a boundary option, the market has to trigger either one of the boundary option’s target prices. In other words, the market has to break out of the price corridor. In that case, you will get a payout of 200 to 300 percent.
To win your option, the market does not have to remain at the target price. It is enough if it touches the target price briefly, and you will immediately get your payout.
Some brokers also offer boundary options with target prices that are closer to the current market price and lower payouts. These boundary options work in the same way as their higher-risk/higher-reward cousins, and you should be able to adapt this gambling strategy easily. In our example, we will focus on the 300-percent version of boundary options, but before you use this strategy, make sure to check the payouts that your broker is offering you and adapt your strategy accordingly.
The basic idea for our strategy is simple. To find out whether the current market environment is well suited for winning a boundary option, you have to set the distance from the current market price to the touch option’s target price in relation to the ATR’s value. Let’s take a closer look at the logic behind this idea.
The ATR’s value indicates how far the market has moved on average per period. If the ATR has a value of 0.5, you are looking at a chart with a period of one hour, and the asset is currently trading at $100, you know that the asset has moved $0.50 in one hour on average over the last periods. Consequently, you can expect the asset to move to $100.50 or $99.50 over the next hour. The price might not remain at this price level, but with a boundary option, there is no need for it to do so.
The ATR can also help you with expiries that are longer than one period of your chart. If you are looking at a chart with a period of 10 minutes and think about trading a boundary option with an expiry of 60 minutes, you can simply adjust the period of your chart to one hour. To find the best trading opportunities, however, such a simple adjustment will not be enough.
Gambling strategies shine with binary options when you find niches in the market. Consider this example:
- The target prices of your boundary option are three times as far away from the current market price as the value of the ATR.
- Your touch option has an expiration time equivalent to six periods on your current time frame, an expiry of 90 minutes on a 15-minute chart, for example.
In this case, you know that there is a good chance that the market will reach the target price. The market has to move in the right direction only three of six periods, and you will win your binary option. Since we are talking about average periods here, some periods will feature more movements than others, making it easily possible for the market to reach the target price with one strong period.
If your broker offered you a significantly shorter expiration time in the same example, you would know that this is not a good opportunity to invest in a boundary option. With an expiry equivalent to one period in your chart, for example, the market would be unlikely to move three times as much as the ATR’s value. Consequently, you should not invest.
The great advantage of a gambling strategy like this is that you do not have to predict what the market will do next. Instead, you try to find a market environment that puts the odds in your favor. That’s the main characteristic of any gambling strategy for binary options.
Of course, there are much more possible gambling type strategies you can create. Feel free to modify this strategy or to create an entirely new strategy.
How should I manage my money with gambling strategies and binary options?
By now, you have understood that gambling strategies do not try to win you every trade. They try to win you enough trades to make money by the end of the month. This approach requires you to manage your money well.
To understand this statement, think of a few simple examples.
- If you would invest all your money on every trade, you would sooner or later lose a trade and end up bankrupt.
- If you would invest half of your money on every trade, you would sooner or later lose half of your account balance with one trade. Now you would need to make a profit of 100 percent to trade your way back to where you were. Before you can accomplish this goal, you would likely lose another trade. Even a small losing streak could ruin you.
With binary options in general and gambling strategies specifically, losing streaks are inevitable. When you accept that you will win only a percentage of your trades, you will sooner or later lose a few trades in a row. The sheer power of the odds dictates that losing trades will not occur evenly spread out over all your trades but sometimes in bulk.
To be in a position to survive losing streaks, you have to manage your money better than in these examples. This means that you have to invest only a small percentage of your account balance on a single trade. We generally recommend to never invest more than 5 percent of your account on a single trade.
With an account balance of $1,000, for example, you should never invest more than $50. When your account balance increases, you can increase your investment per trade accordingly. When you suffer a losing streak, you have to decrease your investment per trade accordingly.
To find the ideal the ideal investment per trade, we recommend starting with an investment of 2 percent by trade. If you should find that you win enough of your trades to invest more, you can increase your investment step by step until you find the ideal value for you. In any case, it is better to start too low and increase your investment over time than to start too high and lose all your money with a short losing streak.
To execute a gambling strategy profitably, you have to use an excellent money management.
Gambling strategies allow traders to make money with binary options without having to predict the direction in which the market will move. They are ideal for traders who either lack the skill, the time, or the interest to perform complex market analysis.
The easiest way to use a gambling strategy with binary options is by combining a momentum indicator such as the ATR with boundary options. Whenever the ATR’s reading indicates that the market is volatile enough to reach either target price of the option, you invest.
To make money with gambling strategies, it is important that you manage your money well. Invest a small percentage of your overall account balance on every trade, and avoid straying from your strategy or increasing or decreasing your investment outside of your money management plan.
As long as you stick with the tips that we presented in this guide, you should be able to easily trade a gambling strategy with binary options and make money.