Statistical Approach Strategy – Martingale & Principle of Kelly
The strategy of using a statistical approach
This method of binary options trading has its positive and negative sides. Among the first are the highest level of reliability strategies and less time consuming.
This strategy is based on the use of probability theory, the principle of Kelly, as well as the method of Martingale. Let us consistently analyze all of these methods. Probability theory says – after a coin thrown up several times fell tails on up, the following should drop on heads. As applied to trade, it looks way set out below.
Let us consider an example of statistics in 2011, when the probability that a half-hour candle moves in the opposite direction, was significantly increased if the previous three candles were going in the same direction. The maximum number of candles moving in the same direction, according to statistics is eleven pieces. The greatest likelihood of movement in the other direction candle appears after the third candle, but sometimes it comes from a fifth to the seventh. In 50% of cases, the movement of the candles in the opposite direction takes place on the fourth candle, about 25% of cases – on the fifth, and 10 to 15% in the sixth. The remaining percentage, that is about 10%, accounted for all of the remaining cases; however, more than eight consecutive candles happen very rarely.
How to use this information? We need to purchase an option of a certain type only after a few candles go in the same direction. The rate will be calculated using the principle of Kelly. The principle includes the accounting value of the deposit that belongs to you, the total number of candles and the fact that the purchase price shall be increased by the principle of the Martingale.
It should be noted that the maximum rate of some brokers may be limited.