martingale, good or bad?

cointoss

Member
50 5
Compared to an experienced trader, is he or she can be 100% sure which direction market will go? Definitely no.. there is no such thing as holy-grail. Therefore, professional trader will never risk more than he/she can afford to lose. However, if this is true..then there will never have ppl making huge profit from the market. So obviously, those ppl who made big money from trading is some sort of gambler, ALWAYS. Since not even professional trader can be 100% sure about the market direction, this is where martingale comes to its edge. Especially in short term trading, which is purely speculation, you only need to guess correct market direction sometimes(not everytime/every analysis) over the long period, you can make money with martingale.
 

Purple Brain

Experienced member
1,613 179
Martingale assumes unlimited capital, unlimited position size and unlimited liquidity - none of which are possible.
 

Shakone

Senior member
2,458 665
I believe you started a thread some time ago testing a martingale strategy. What were your results?
 

fxgermany

Junior member
21 0
Especially in short term trading, which is purely speculation, you only need to guess correct market direction sometimes(not everytime/every analysis) over the long period, you can make money with martingale.

Every martingale strategy will fail sooner or later. If you are lucky you might get in, withdraw your initial deposit after a few weeks/months and enjoy the free ride for some time, but if you are unlucky the first batch might just wipe out your account.
 

Hoggums

Senior member
2,176 878
Let's say your system has 50% probability of success. So you are going to use martingale to "guarantee" you don't lose.

So let's say you want to be 99% certain that you won't go bust. That works out to 7 losses in a row - there's a 0.8% chance of that happening. But hold on - let's say your system does 3 trades a day - that means after 33 trading days you can expect to go bust.

So that's no good then. So how about a 99.99% chance of going bust... that's 14 losses in a row. you can now run your system for 3300 days approx (or 15 years) before going bust. Sounds good?

Fine - but in order to be able to trade that you have to be able to cope with up to 13 losses in a row - this means you need to be able to lose 1 x bet + 2 x bet + 4 x bet + ... + 4096 x bet

That means your risk per trade must not be more than 1/8191th of your account.

So if your risk reward ratio is 3:1 (which for a 50:50 profit/loss trade would be a remarkable return) - then the most you would make per day is 1/1365th of your account - or 0.07% or 17% a year compounded. And that's only if you get every single trade right for the whole year. If you get on average 50% right then you are looking at a mere 8% return on your money. That's with a 50% chance that you will lose it all in 7.5 years...
 

Jack o'Clubs

Experienced member
1,554 342
And if you add on to Hoggum's calculations the fact that your coin toss expectancy is not 50% because of commissions and spread then effectively you have the same result as trying it on roulette with the house 'zero' - you will always lose. Martingale may postpone the inevitable, but it will be all the more spectacular when it finally arrives. You will only win in the long term with an 'edge' which, returning to your original comments, is precisely how people end up making big money, the edge usually being a function of the additonal information you enjoy from sitting at a prop desk.
 

cointoss

Member
50 5
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cointoss

Member
50 5
Let's say your system has 50% probability of success. So you are going to use martingale to "guarantee" you don't lose.

thats quite a hypothetical, but anyway.. to be honest with you, i dont even know when im gonna go bust, because my entry is entirely depend on random event, add in with my own personal free time, which i only enter market when im not working. even going out.. and it all depends on when i reached home, turn on my pc..then enter as usual. never even care nfp news or whatever lol, my position also float during weekend. i already had 50 tp and sl. everything else dont care
 

Jack o'Clubs

Experienced member
1,554 342
thats quite a hypothetical, but anyway..

It's not hypothetical, it's mathematical. What's interesting is that it can be mathematically proven that Martingale isn't even the optimal staking system, given that if you have a system with a slight edge there are better ways of maximising your gains. I sometimes end up in a casino after a night out with mates and using martingale means that most nights I go home a winner but now and again have a shocker. Personally I prefer that, but I'm under no illusion that the casino wins in the end. That's fine, it's entertainment, not making a living, maybe that's how you think of your trading?
 

cointoss

Member
50 5
It's not hypothetical, it's mathematical. What's interesting is that it can be mathematically proven that Martingale isn't even the optimal staking system, given that if you have a system with a slight edge there are better ways of maximising your gains. I sometimes end up in a casino after a night out with mates and using martingale means that most nights I go home a winner but now and again have a shocker. Personally I prefer that, but I'm under no illusion that the casino wins in the end. That's fine, it's entertainment, not making a living, maybe that's how you think of your trading?

u can look at my trading history the decision to buy or sell in the consecutive trade is random. I don't even know when it will go bust
 

Jack o'Clubs

Experienced member
1,554 342
u can look at my trading history the decision to buy or sell in the consecutive trade is random. I don't even know when it will go bust

So you've done 64 trades? If your entries are truly random and have a 50% probability then you're getting into the realm of six successive losses 1/(0.5^6). How many are you prepared to take before you call it a day?
 

cointoss

Member
50 5
So you've done 64 trades? If your entries are truly random and have a 50% probability then you're getting into the realm of six successive losses 1/(0.5^6). How many are you prepared to take before you call it a day?

so far my capital around 2300, prepare to risk $1540
 
 
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