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
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Martingale assumes unlimited capital, unlimited position size and unlimited liquidity - none of which are possible.
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
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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...
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
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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.
robertofx
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Agree with Giovan here. Martingale won't survive in the long run
http://www.myfxbook.com/members/ahtee84/old-eurusd-fxfund/723895
its going fine so far.. http://www.myfxbook.com/members/ahtee84/eurusd-fxfund/707082
already achieved 100%, but im not planning to withdraw because just small amount. ive talked with some other guy using martingale, that can even make 100% in 4 months.. he has 10k live account lol..
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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
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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
Purple Brain
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Jack o'Clubs
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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
Purple Brain
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It's not that I am inherently evil, but this thread has all the appeal of watching one of those slomo crash-test dummy videos where they slam something relatively flimsy into something horribly solid.
Jason Rogers
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The 1st winner made from 20k to 4mill within 2 month, how is that possible if they are not gamble extremely big lot size? Any thoughts?
http://blog.myfxbook.com
http://blog.myfxbook.com
Jason Rogers
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He most likely was gambling with extremely high leverage, as were the 40% who got margin called. The problem with trading contests that only look at percentage returns without out any consideration for risk management is that the winners end up being people who just happened to have a lucky streak of overleveraged trades that put them over the top. Unfortunately, these traders are unable to repeat their success, when their luck runs out. This was the problem with our own King of the Micro contest, which is why we discontinued it. We tried to do something different with the TopTradr contest by rewarding traders for sound risk management, instead of just returns.
DigitalGeometry
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"Which direction the market will go," is an undefined statement. Will go for "how long," is a better approximation. Will go and with "what magnitude," get you even closer to what's truly important about trading. Will go for how long, to what magnitude and with what degree of probability, is what the truly experienced trader is asking themselves.
The emphasis that most inexperienced traders place on "predictions" is typically misplaced as the sole focus becomes Direction alone. Direction alone is not enough, nor does it constitute the sum total of components that make a predictive analysis worth its weight in salt.
A successful trade by definition is one that strikes a specific target and nets a specific profit established by the trader as being acceptable for their purposes. That is the definition of a successful trade. Therefore, before we even get started we can see that a "successful trade" will have many different definitions. However, all successful trades have the exact same four (4) components:
Timing
Direction
Magnitude
Probability
No successful trade including non-directional derivative options trades can ever fail to have these four (4) components. Trying to trade without them is futile - can't be done on a consistent basis - ever.
Timing + Direction + Magnitude + Probability = Trade Profile
So, the key in trading is not necessarily to make good predictions. The key is to design good Trade Profiles. By definition, that will connect the trader with successful trades.
One can predict the "Direction" with 100% accuracy, yet fail at Timing, Magnitude and Probability. One could predict the "Timing" with 100% accuracy, yet fail at Direction, Magnitude and Probability. One could predict Magnitude at 100% accuracy, yet fail in Timing, Direction and Probability. And, one could even predict Probability with 100% precision and still fail at Timing, Direction and Magnitude. All four (4) must coincide at the same time AND within the same Trade Profile in order to nail down successful trades. This is the highest level of optimization possible.
The so-called "Grail" is within you. It is about how much research you do. How much testing you do. How creative you can be. How much resilience you have. How much commitment you sustain. How persistent you turn out to be. How much you want success as a trader. What price you are willing to pay and how much you are willing to sacrifice before you figure out how to master your market - more importantly - how to think like your market thinks.
The "Grail" does exist. It is called hard work and a labor of love. You've really gotta want it. The market does not give up her secrets to just any passerby. But, when she starts to unveil herself to you, you will then know that her secrets are really no secrets at all - just normal market behavior.
Markets do have and do exhibit repetitive behavioral patterns. That's lesson number one. Failure to understand that lesson is indeed ultimate failure. Markets love repetitive patterns. But, merely because the market loves repetitive patterns, does not mean that markets easily reveal those repetitive patterns. That's where the hard work comes into play in discovering what their probability structures look like.
Risk is redefined after the trader learns about Timing, Direction, Magnitude and Probability. Risk then becomes a mathematical probability. More precisely, a Density Probability Function predicated on the Location of Price within an overall pattern that has historical significance and that is empirically defined (very important).
Therefore, Risk = PrbabilityDensityFunction().
However, obtaining the density function requires research, study, design, some understanding of statistical analysis and a small amount of creativity. Most importantly, it requires a significant dose of humility and persistence.
Look. Figuring out what happens "next" is just like learning a new language. One needs to first develop the ability to speak and think fluently in the language that describes the pattern being repeated, before one can fashion a density probability that describes what happens "next."
Gambling and Profiting are not co-equals. The question is whether or not one is profitable on a consistent basis, as opposed to the bullish market genius, or the bearish market wiz, or the channeling market top gun.
It is when the market is moving through the transition phases that connect the bull to the channel, or the bear to the channel, or the channel to the bull or the channel to the bear, that one's trading acumen is truly tested and all the "Gamblers" go home. Market Transition Phases are when the real Traders are known by their consistency through such volatile market behavioral periods.
100% sure about Direction says nothing about Timing, Magnitude and Probability of the trade. This is why most newbie traders fail so often. They don't understand the core components that make up a successful trade. They cling to Direction as though it were the only relevant key in the equation: Timing + Direction + Magnitude + Probability = Trade Profile
There are Trade Profiles and then there are Money Management Models. Connecting the two is both an art and a science. More importantly, knowing when to dial-up or dial-down the aggressiveness of the money management model is key to long-term success as a trader. An intelligently designed money management model is geared to the historicity and known accuracy of the trading system (Trade Profiles) in play.
All trading systems fluctuate through phases (patterns) of high accuracy, moderate accuracy, nominal accuracy and low accuracy. Linking the money management model to key-in on the phases or patterns of the trading system is critical to long-term success and maintaining fairly inclined equity curves.
Which is the exact definition of Gambling. You just argued against your own position. You built up an argument against gambling and then closed with an argument for gambling as being the only solution.
Martingale, dynamically linked and applied to the correct Trade Profile is smart. Martingale, unlinked to any empirically derived Trade Profile is the essence of gambling.
Trading -vs- Gambling. There can be a huge difference depending on how you approach the matter, though there certainly does not have to be any difference at all (which is the case for far too many in retail fx).
Trading is a technologically driven and real time data dependent function or process of positioning capital and using leverage to generate returns from the correct analysis of Timing, Direction, Magnitude and Probability. The trader is allowed to interact with market data in ways that are impossible in a Casino, or in the Online Casino Arcade. The trader is allowed to research the data which fuels market behavior responsible for generating historically significant patterns that are repetitive as well as capable of being classified and/or categorized for algorithmic validity testing. The trader can design, build and proof an input/output model with respect to historically accurate market data, which can then be used for probabilistic event modeling in the present and the future.
Gambling can also be systematic in its approach, but the tools and infrastructure available to the gambler are nowhere near as stable or robust as those applicable to the financial markets. One can make a living as a professional poker player - people do. But, that's only slightly different than the professional football player, or the professional baseball player, or the professional soccer player, etc. In all of those endeavors you will also find Strategies, Tactics, Methodologies and Systems, but that's different from trading.
In those endeavors, the participants are forcefully acting upon each other, causing changes in physical behavior that determine outcomes. If I ram a football down your throat on the goal line, running you over in the process, I score 7 points. However, as a trader, I cannot ram my trade down your blotter and force you into a physical position that secures my victory - unless I am a market manipulator of price and volume of some sort and that is supposed to be illegal in most markets.
So, professional gamblers are more like professional athletes in the sense that their direct physical actions on individual participants have impact on behavior, which causes changes in the outcome. Most traders these days are no longer on the Trading Floor having someone kick them in the back or hit them over the head with a monitor, or bite them on the ear to influence the outcome. Most of us are sitting behind a computer in the comfort of our home office, unfettered and unshaped by the physical grind of the Trading Floor.
Therefore, those of us home office traders rely on the tools, infrastructure, research, testing, optimization, historical data, systems, peace and serenity afforded us to make calm, rational, wise and empirically substantiated decisions about the Timing, Direction, Magnitude and Probability of our trades. Or, at least, that's what good traders should be doing.
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