My name is Marek Hawk and I am a professional trader of Horizon Trading team. For today’s article we selected a controversial topic often discussed in trading community, it is the Martingale trading system. Would you be interested in a trading strategy that is virtually 100% profitable? Many finds this system as gambler’s tool with high risk exposure and they do not think about starting with the Martingale at all. But the Martingale strategy is based on probability theory, and if your pockets are deep enough, it has a near 100% success rate.submitted by Horizon_Trading to u/Horizon_Trading [link] [comments]
Does it really work? Is it possible to win always in the end? Let’s find out!
How Martingale WorksThe Martingale system is a simple process that involves doubling your bets after a loss. The idea is that if you can make a trade that offers probabilities, you eventually win and make enough money on the win to cover all your previous losses, and have a profit left over equal to your first bet.
The Martingale is a mechanism of placing double bet in case of loss.
A martingale strategy relies on the theory of mean reversion. In the end you should win at some time, the theory says, and you should make a profit. Let’s look at mechanics of the martingale system.
Examples of the Martingale StrategyLet’s assume trading strategy which works with 1:1 risk-reward ratio and initial risk for first trade is 100 $. Your initial account balance is 10 000 USD.
First trade was speculation on growth and your long trade worked out. In another situation you found an interesting entry level to open the new long trade, but the speculation did not work out and you are back to the initial bankroll value. Next trade you needed to double your risk and you needed to open a larger position to cover the previous loss and to gain profit. Unfortunately, you suffered another loss and you had to double your risk again to 400 $. Next trade you won, and your equity raised to 10 200 $.
The problem with the Martingale is the situation when you get a long streak of losing trades. You must always double your risk and in the end your last trade in the row could be huge portion of the capital, and you can be still wrong…
Money Management of the Martingale SystemWhile the Martingale System seems like a fantastic way to make money by trading, it’s not a good solution in case of money management. In pure mathematical terms the system is bulletproof, however, in the reality of the trading world it’s full of problems. The main issue with the Martingale is that it requires an extremely large capital. Let’s look how you would carry on with the system with your equity of 12 200 $ in case of losing streak.
With initial trade which was less than 1 % of your capital, you suffered 6 losses with the Martingale system, and you are done. It is not possible to continue with doubling your risk as you run out your capital for next trade and you end up with the drawdown -6 300 $, more than 60 % from the peak of equity! Because of this reason, it is necessary before putting the Martingale system into the real world, to know statistical attributes of your trading system. You can use useful mathematical and statistical applications, like MATLAB, and run statistical simulations, like Monte Carlo, which are widely used in trading industry. You need to know a precise output of your strategy in matters of your risk and money management!
Example of Monte Carlo analysis and the equity of various scenarios of the Martingale Strategy. For gaining more than 50 %, the system had to overcome even negative results. The account would be wiped out many times.
Usual equities of robust trading system simulated by Monte Carlo analysis.
Trading Forex with the MartingaleOne of the reasons the Martingale strategy is so popular in the currency market is because, unlike stocks, currencies tend to go back to their mean. Although companies in term of probabilities can bankrupt more often, countries cannot. For example, even if currency is devalued or depreciated, the chances that currency's value reaches zero are very low.
Principle of averaging the price of the Martingale trading strategy.
The forex market also offers the ability to earn interest which allows traders to offset a portion of their losses with interest income. This means that a martingale trader may want to only trade the strategy on currency pairs in the direction of positive carry. In other words, they would buy a currency with a high interest rate and earn that interest while, at the same time, selling a currency with a low interest rate. With many lots, interest income can be very substantial and could work to reduce your average entry price.
ConclusionIn this article I described principles of the Martingale trading strategy. The system may look like a perfect winning system; however, it carries huge risk exposure of your capital. A trader needs to be prepared to work on professional money management techniques in case of building working Martingale system. I gave you some hints which tools can help managing this mathematical trading system. I described the examples of trading the Martingale trading techniques on forex markets.
Martingale System Introduction. The martingale systems are widely used casino, sports betting, but the principles are also used by many traders in the financial markets. And not only that. Martingale’s principles are often part of the automated trading systems. How do you recognize a martingale trading system? Usually by the fact that the ... Martingale trading systems are very popular in Forex automated trading because it’s quite easy to create an expert advisor that would look interesting and attractive using martingale. A system developer can back-test his martingale idea on an optimal history to show charming results, and with a bit of luck, he can even show equally charming ... Martingale system is a popular betting and trading system, which is commonly used in bets with equal or close to equal chances (red-black, odd-even, heads-tails etc.) According to martingale system gambler (trader) should double his bet after every loss and return the bet to initial amount with every winning bet. E.g. gamblers bets $10 on red, if he wins he bets $10 again, if he loses he bets ... Forex Trading Using the Martingale System. Most forex investors (traders) will probably reply with a resounding “Yes!” if there were asked whether they would be interested in a trading strategy that is practically 100 percent profitable. Amazingly, such a trading strategy exists and it dates back to the 18th century. This strategy is mainly ... The Martingale System is a betting strategy that has the gambler doubling his bet after every loss. It was popular in 18th century France before the days of television, where people had little else to entertain themselves with. Learn how to use the Martingale system to win more and use the FREE bankroll to practice online. A beginner's approach to the Martingale betting system. The Paroli Betting System, which is also widely known as the Reverse Martingale betting system, also takes its roots from its way older cousin the Martingale System. This particular betting system is the direct opposite of the Martingale betting system and falls under the positive progression category which is a safer option for gamblers to use in order to minimize the risk of depleting their ...
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