Martingale Opinion

Hi all,

I am looking for more feedback regarding the martingale strategy within EAs, can anyone shed any light on whether this trading is stable?

Thanks

Nasser

Anything with martingale in it is an absolute guarantee of losing everything.

Stay away from Martingaling

Chadd20 said:

Hi all,

I am looking for more feedback regarding the martingale strategy within EAs, can anyone shed any light on whether this trading is stable?

Thanks

Nasser

Click to expand...

Remember that market price is subject to normal distribution so it has 1/2 chance to go up or down any time. Risk of ruin in this case is 100%
In other words you are guaranteed to lose using any modification of Martingale.

Hi Nasser,
Just to underline the point made by all previous replies to your post - Martingale is a seductive sounding betting strategy but, over time, will always result in you losing your money.

Now, you might think 'what do we know' and what knowledge and experience do we have to make such emphatic statements? That's a fair question, so I recommend you consult an expert. How about Michael Shackleford, aka The Wizard of Odds. He's a professional actuary who has made a career of analyzing casino games. He runs the numbers on new games for casinos and game developers and has helped design many of the popular slot machines on the Internet. He is currently an Adjunct Professor of Casino Math at the University of Nevada, Las Vegas, a former contributing editor to Casino Player magazine, and the author of the book Gambling 102, recently published by Huntington Press. The Wizard's landmark research into the actual returns of slot machines on the Las Vegas strip garnered international attention in 2002, and he has appeared numerous times on national television as a recognized expert on gambling strategy.

Would you listen to someone like him? If so, here's what he has to say about betting systems in general and about Martingale in particular: The Truth about Betting Systems

Enjoy!
Tim.

Lets say you have a simple martingale EA that makes a random trade 4x a day (most EA’s are not much better than a random trade) and the win/loss ratio is 1 to 1.

You want to trade this system for 5 years to make your first million – therefore you cannot risk a blowup in 5 years. Let’s for argument sake you are willing to accept a 50:50 chance in 5 years that your EA will blow the account and lose all the money.

For 1 trade – the chance of a loss is 50% - so you could risk the whole account if there was only 1 trade.
For 4 losses in a row the chance is 0.5 x 0.5 x 0.5 x 0.5 = 6.25%

But we are going to be making 4 trades everyday for 5 years – so that’s 4 x 200 x 5 = 4000 trades. If we do the maths then that means there is a roughly 50% chance in that period of 13 losses in row – therefore we will tune our EA to cope with 13 consecutive losses but no more.

So now we need to work out what risk per trade we can start with in order to cope with that size of loss. This will be BalanceAtStartOf1stTrade/TotalOfAll13Losses. I’m going to ignore margin requirements for this example.

With each loss the position size doubles – so the total losses will be – Initial Risk * (1 + 2 + 4 + 8 + 16…. + 4096) = Initial Risk * 8191.

So therefore each trade should only risk 0.0122% (1/8191) of the account. On a $10,000 account that’s 1.22 cents per trade.

So how much will your EA make in 5 years? If we assume EVERY trade is successful (i.e. no losses whatsoever) then you will make $6926 (using compounding) profit. This is the absolute theoretical maximum the EA can make. The realistic figure is not even half of that amount - it's $2765 with compounding.

So here you have a martingale EA that has a 50% chance of losing all your money that is expected to make 27% profit in 5 years (5% average per year).

Definitely NOT worth looking at!

The results can look very good but a run of losses will happen sooner or later and wipe you out.
Maybe a hybrid martingale is ok though. For instance
loss
double down after say 20 pips, original stake times 2
another loss after another 20 pips
then reverse the original bet times 3

That's enough as losses could still be significant.

IF you got lucky you can make some money short term with Martingale , however like everyone else said already - in the long run you will lose. You cannot trick math..

gerryg said:

Remember that market price is subject to normal distribution so it has 1/2 chance to go up or down any time. Risk of ruin in this case is 100%
In other words you are guaranteed to lose using any modification of Martingale.

Click to expand...

It's not normal distribution. Nor are you guaranteed to lose. But still it's not advisable to martingale as it provides no edge

Hoggums said:

But we are going to be making 4 trades everyday for 5 years – so that’s 4 x 200 x 5 = 4000 trades. If we do the maths then that means there is a roughly 50% chance in that period of 13 losses in row – therefore we will tune our EA to cope with 13 consecutive losses but no more.

Click to expand...

I think 50% chances of earning 3K is too optimistic forecast. Martingale will place trades progressively till first win as interrupting it at 4 trades per day means basically you will start from completely other position next day.

I understand that you considered it from the point of probability theory but for example trying buying at lows with Martingale has more chances to end with profits in early stage so we also need to consider that.

buying at lows with any system will make you a profit. There is no probability involved with a martingale system, no matter what way you look at it you WILL go bust if you keep playing it. You're literally picking up pennies in front of a steam roller.

I always direct any would be gamblers to that wizard of odds guy, I'd say his website is genius but in reality it is just fact. The problem is that a gambler will disregard what he reads on there and will still believe that he will be able to win.