Martingale Trading

[johnedward 10]

Just wondering if anyone else here is using a martingale based strategy. Although it seems risky, I use one but diversify across 4 or 5 currency pairs at the same time (I only day trade forex) in order to keep my risk low. I've been trading since August and have only had one negative day (a doosie!).

 

Anyone here use one? Or have a strategy that is based on the martingale principle?

 

:missy:

[bh_trade 10]

Run don't walk from the idea of trading martingale style as a retail trader. Leave that to the institutions who have access to helicopter Ben's backstop :crap:

[Ray_Johnson 10]

I don't use it myself because from what I read, Martingale works only succesfully if you have unlimited funds .. I don't fall into that category :embarassed:

[bobcollett 10]

Just wondering if anyone else here is using a martingale based strategy. Although it seems risky, I use one but diversify across 4 or 5 currency pairs at the same time (I only day trade forex) in order to keep my risk low. I've been trading since August and have only had one negative day (a doosie!).

 

Anyone here use one? Or have a strategy that is based on the martingale principle?

 

:missy:

 

Dear John,

That sounds like my first rejection letter from Mary .

 

Because you are trading forex, your double up will work.

No currency will ever reach zero, so you just need sufficient funds to wait for the turn.

BUT

lots of stress... lots of pain... lots of anger.

And the risk / reward ratio is stupid

If you loose 4 trades in a row , you now risk 8 goons to win one. Thats 8 to 1 against.

Come on!!

Rather just buy the horse

Please let me know if anyone from TL is using a Martingale strategy.

I have this bridge for sale (Brooklyn)

Kind regards

bobc

[jackb 10]

This has been identified in real time and it played out exactly as expected:

 

PowerCharting Joins TTM - Page 16 - Traders Laboratory Forums

 

Gruesome...and he's still selling his "professional trading" services.

[Klotzki 10]

Just wondering if anyone else here is using a martingale based strategy. Although it seems risky, I use one but diversify across 4 or 5 currency pairs at the same time (I only day trade forex) in order to keep my risk low. I've been trading since August and have only had one negative day (a doosie!).

 

Anyone here use one? Or have a strategy that is based on the martingale principle?

 

:missy:

 

Hi John,

 

I don't necessarily agree with the earlier replies in the post. In theory, I think Martingale 'betting' could actually work as long (1) your trading strategy has positive expectancy, (2) you start out risking a very small portion of your equity, and (3) the win rate is high enough that you won't run the risk of losing all your equity before getting a positive trade.

 

In practical terms, especially if you're a discretionary trader with trading system that ought to produce a reasonable high win rate (e.g. over 25-50%), you run the risk of taking less than ideal trades and trying to make your money back by doing martingale.

 

Klotzki

[SIUYA 11]

Klotzki, I think the previous posts all still point out the problem with the strategy..... and the reasons you may disagree - and even if in theory it "may" work are still largely irrelevant as the issue still remains - deep, deep pockets are required

I say this using your reasons as.....

(1) your trading strategy has positive expectancy....over a period of time, this may be the case, however a string of losses - in a row - may mean you go broke unless you have unlimited capital. There is one thing you can guarantee in back testing, and that is that your biggest loser is yet to come. If you are completely discretionary, then this is also likely to occur

 

(2) you start out risking a very small portion of your equity, ...again a string of losses - in a row - make the exponential nature of this strategy likely you will lose, unless you have deep pockets. what happens when margins go up and you have just had a string of losses? The equity has to be so, so small you would likely be better just using a stop loss and going again and even if you had a high win rate - you have to do a lot of trades to make any money as you would be unlikely to have any meaningful heat on the table.

 

and (3) the win rate is high enough that you won't run the risk of losing all your equity before getting a positive trade.....the win rate can still be 90% but lets say you get 10 losers in a row.... your contract sizes are

1,2,4,8,16,32,64,128,256,512

 

a one lot trader is unlikely to have capital to trade 512 contracts.

 

I am sure someone has tried, but I have not seen it as i usually avoid losers averaging losers, but I wonder if anyone has done variations of this and rather than doubling up used a geometric (?) progression of contracts sizes for each successive trade loser of....1,2,3,4,5,6....

you need less money and if you do have a really high win rate, it could work. ....or you work for a firm and just loose your job.

 

regardless, unlimited capital is required to make the strategy work.

[Klotzki 10]

Siuya,

 

You don't necessarily need deep pockets. To illustrate what I've outlined, imagine a system whereby:

- You risk only 0.25% of capital (point #2)

- Win rate is 80% (point #3)

 

5 consecutive losing trades is less than 0.03% probability, and yet you'll still be in fairly good shape with an 8% drawdown. Doing monte carlo will also probably yield acceptable risk of ruin.

 

Klotzki

[bh_trade 10]

80% win rate? If u came up with said holy grail would think obtaining the "deep pockets" part isn't a problem. Unless of course avg loser = 4x avg winner like it usually is with such high probability systems.

 

Siuya,

 

You don't necessarily need deep pockets. To illustrate what I've outlined, imagine a system whereby:

- You risk only 0.25% of capital (point #2)

- Win rate is 80% (point #3)

 

5 consecutive losing trades is less than 0.03% probability, and yet you'll still be in fairly good shape with an 8% drawdown. Doing monte carlo will also probably yield acceptable risk of ruin.

 

Klotzki