In order to play this to "safe" levels it wouldn't be worth the bother.
Let's say you want to run this system for a year - with minimal risk of blowup - therefore you want a 1 in 200 chance that you will blow up. (assume 200 trading days a year)
1 in 200 is 0.5%. In order to generate less than 0.5% chance of losing you need to allow for 8 losers in a row.
0.5 ^ 8 = 0.0039
So lets say you have £10,000 and you want to trade this martingale system, then you need to divide your captial by 256 - (2 ^ 8 = 256) in order to have enough capital to cope with 8 losers.
So... every day you are trading to win £39 (10000/256). So assuming you got your trade right EVERY day then you'd win £7800 - a return of 78% - not bad.
BUT
Law of averages says you will only get half your bets right.
So..
100 days you'll win - that's £3900 (39%)
and the other 100 days you won't because you'll be doubling up just to win your money back the next day.
BUT then there will be days where you get things wrong 2 days in a row and that reduces your profit further.. (I can't be bothered working out the maths)
As you can see you won't get fantastic returns off this system. And if you run it for a year you stand a 65% chance that you will in fact blow out. Run if for 2 years and it becomes an almost certainty (79% chance). So you'll have to reduce the trade size further - which means even more measly profits.
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Hoggums
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Outside of a dog, a book is a man's best friend,
inside of a dog, it's too dark to read. -- G Marx.
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Last edited by Hoggums; Aug 27, 2008 at 3:30pm.
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