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Should I be afraid of Martingale

Should I be afraid of Martingale


In most sources, you can find information that Martingale is a direct way to lose a deposit. Many authors claim that this Martingale strategy is a scam for beginners who want quick money. In this case, we can say that trading itself is a path to losing a deposit, since according to statistics, about 70-80% of beginners lose their first deposit. Any tool in the hands of a professional will bring profit, in inept hands – a loss. How to make the Martingale strategy profitable – in this review.

Martingale Strategy – Trading Rules

Standard simple Martingale – opening a trade with a double volume in the direction of the trend until a profit is made. For example, they opened a deal with a volume of 1 USD, then 2 USD, 4 USD, etc. until the trade is profitable. Or until the money runs out.

The Martingale calculator shows that with an initial bet of 1 USD, after 6 losing trades, the amount of loss will be 100 USD with an 80% reward for the correct result. This formula is suitable for binary options, but even with a 100% reward, it is not very easy. A series of 3-5 losing trades is not uncommon. With a minimum bet of 1 USD, in the end, for a profitable trade, you get the same 1 USD, which is not worth either the lost time or the spread.

In Forex, it is more difficult to implement the Martingale strategy – here the transaction volumes are measured in lots. And there is no fixed fee.

  • Example. The exchange rate of the EUR/USD currency pair is 1.1. The deal is opened with a minimum lot of 0.01, which means that the cost of a point will be 0.1 USD with quotes of 4 digits. Given the pair’s average daily volatility of 80 pips, the target could be a profit of 50 pips, which corresponds to 5 USD. Stop is placed at 30 pips or 3 USD.
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Let’s say the first trade closes at a loss. The Martingale strategy provides for doubling the volume of the transaction. But the essence of Martingale is to recoup the loss in the first place. Therefore, a trader can double the take profit. But the price will not physically pass 100 points in 1 day. Therefore, the second option is to increase the volume to 0.02 lots, and lower the goals, for example, to 20 points. The profit will be 4 USD, which automatically covers the previous loss.

If the second deal also went negative, the position volume is increased to 0.04 lots. Already after 4 trades, the final position volume will be 8 times larger than the initial one. Accordingly, the cost of a point will increase by 8 times. Such an increase in position is contrary to the rules of risk management. But since beginners simply do not try to master such calculations using Martingale, they lose their deposit.

How to make the Martingale strategy profitable:

  • Take your time to double the position each time. In theory, Martingale can be used without additional analysis. But it’s just not worth doing it. With the help of technical and fundamental analysis, you should increase the likelihood of a trade being successful. And only then it is possible to apply the build-up of the position. Do not use Martingale in its pure form.
  • Control the ratio. Use odds of 1.2 or 1.35. It is not necessary to double the position every time. Focus on circumstances.
  • Manage the length of stops and take profits. With their help, you can also gain the maximum position volume without closing the deal ahead of schedule.
  • Use pyramiding and reversing. It is not necessary to open a deal in the same direction, it can be reversed. Pyramiding – building up the current profitable transaction.
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Conclusion. The Martingale strategy in its purest form without searching and confirming the signal is a guaranteed loss. The use of Martingale elements will help increase profits with virtually no change in the level of risk, provided that mathematical calculations are used. This is where spreadsheet editors can help.

About Eric R. Brinkley

CEO Fxbotreview.com Algotrader. Blogger. I write interesting content, do content with you, and also maintain a website with independent reviews of forex software. Trading robots, Indicators etc..

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