Martingale strategies

Martingale

Martingale is the surest way to lose all your money. It doesn’t have anything to so with forex, it’s just a betting strategy originated from France and widely used for roulette games. It consists of doubling the bet after each loss hoping that eventually the odds will turn in your favor and when this happens all previous losses gets recovered. But that involves infinite wealth because a losing streak of 20 trades/bets is not that uncommon. This system is used by greedy forex robot vendors who try to make a quick buck by speculating the customer’s greed. Once such a system is used, the one who uses it will learn the hard way that martingales will sooner or later blow the account. It’s not a matter of if, it’s a matter of when. If you flip a coin there are 50/50 chances of head/tail but in fores things are a bit worse: once a trend is started it tends to continue and kills all positions opened against it. In forex statistical events are dependent (humans behave according to psychological laws and crowds make no exception from this rule). If the selling.buying pressure is strong the currency goes down like a rock because every player is in a hurry to grab a piece of the pie. So, here are the most common martingale based strategies:

Martingale strategy #1
This is the simplest martingale strategy. Open a random position and if the market turns against it by X pips just double the lotsize and open another until the basket hits the initial take profit. Or until the account is blown 🙂

Martingale strategy #2
One trade is randomly open. If the market moves against by X pips then the lotsize gets doubled and another trade is open in the opposite direction. If the trend continues, then the basket is closed for profit. This method is called “chasing the trend”.

Martingale example

Martingale example

But what happens when the market moves up and down?

 

Martingale example 2

Martingale example 2

If it continues like this for a few days you’ll end up so so many floating orders in red and your account will be blown.

Of course there are other variants derived from martingale but all of them are dangerous. If you want to play safe don;t even thing of running such a system on your account. Or if you do, make sure that you don’t mind losing that money and at least choose a system with no more than 3 open trades, each one having its own stop loss. I have yet to see a martingale based system that survives a 13 years backtest without a huge drawdown.

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