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Looking for a strategy for trading binary options that actually has some math behind it and not just some schmuck selling snake oil? Well this one has been around for quite a while and used successfully to make money in areas as diverse as casinos and stock markets (well not all that diverse I guess).

This is less what some folk call a “strategy” (and is in fact properly termed a “tactic”) – as in some specific play. Rather it is a method for broadly determining whether a given play is sound and in particular for determining appropriate money management parameters.

Money management is an aspect of trading that far too many people completely overlook, focusing instead on trading tactics (or what they erroneously call strategies), despite the fact that even the very best trading tactics can result in total wipe-out in the absence of a sensible scheme for allocating of funds.

Anyway, if you’ve come here purely for the binary options Kelly Criterion calculator then cut to the chase and click the link, otherwise… are you sitting comfortably?

Let’s be clear – all binary options trades entail placing a financial wager on a future outcome. It’s called gambling folks and if you want to be a successful gambler then the best bet whenever betting is to first and foremost understand the fundamental nature of the particular game.

And you can’t get much more fundamental than the fact that the future is intrinsically uncertain – dubious “math” such as Fibonacci retracement ratios not withstanding.

No matter how hard you try, it is impossible to actually predict what will happen – which is a bit of a bugger when that is precisely what you want to do.

However, there is an interesting property of uncertainty that you can use to your advantage and that is the fact that it is measurable.

You can in fact measure many, if not most, types of future uncertainty with a very high degree of accuracy. Furthermore you can put these measurements to profitable use.

Take perhaps the simplest form of gambling possible: flipping a coin. Now you can never be sure whether the coin will land showing heads or tails (it’s a stochastic variable, to use the jargon) but you can be completely certain that it will be one or the other and that the likelihood of either event is identical.

Taming Uncertainty with Probability

In other words, even if we don’t know what the future holds, we do (in very specific cases) know the probability of any one particular outcome over any other.

For coins, the odds are simply one in two, which can be expressed as: a ratio 1:2; a fraction 1/2 (or 0.5); or a percentage 50%. So 1/2 the time it will be heads and 1/2 will be tails. Sure, you may get a run of tails or more heads in any given sequence of ten throws, but ultimately it will always yield a near perfectly balanced result. So how does that help? Let’s find out…

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