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MM and Martingale system

  • #1
  • First Post: Oct 25, 2008 10:28am Oct 25, 2008 10:28am
There is a question which "torments" me.
Let us suppose that I want to practise a progression on losing trades.
Is it better to increase lots or then TP (in constant lot)?

example :

0,1 lot TP +5 / SL -5....loss
0,2 lot TP +5 / SL -5....loss
0,4 lot TP +5 / SL -5....win


or then :

0,1 lot TP +5 / SL -5....loss
0,1 lot TP +10 / SL -10....loss
0,1 lot TP +20 / SL -20....win

Where is the difference? Which one is more risked?
All notices are welcome.
thx.
  • #2
  • Oct 25, 2008 11:11am Oct 25, 2008 11:11am
WHY do people insist on martingale systems? It is probably the fastest way known to man to blowup your account.
Same Whore .... Different Dress
  • #3
  • Edited 11:30am Oct 25, 2008 11:19am | Edited 11:30am
JD, it's a hypothetical case ("let us suppose...") , not a recommendation.
  • #4
  • Oct 25, 2008 11:30am Oct 25, 2008 11:30am
Why even hypothesize on a losing system.....:nerd:
Same Whore .... Different Dress
  • #5
  • Oct 25, 2008 11:50am Oct 25, 2008 11:50am
Well obviously as you have already seen mathmatically they work out identically. So that answers the question, but if you want to add in some of the gazillion other variables then obviously they are different.

In reality (my perception of said reality, LOL) the second option if traded with the trend and outside of our current volitility theoretically would result in vary different results than the first. This would be due to the stop eventually spreading beyond the average range and the trend mitigating the losses at the mid range. With luck the mid range would save you, luck, luck luck. You miss a mid range profit and you better have an enormous amount of time (and obviousy money) because you might find yourself completely outside of the trading range in your lifetime. Add timing to the strategy, entering at swing extremes then this also could make this a better option. Ahhh its all relative to the starting point and the existence of a trend.

In my perception of reality I see the first option as no different than flipping a coin since with those tight stops none of the higher probability patterns for entry and exit become statistically relevant.


Reality is product of the observer's mind. I wouldn't trade such a strategy so I'm not tormented by such thoughts.
Redefining Reality
  • #6
  • Edited 11:10pm Oct 25, 2008 10:55pm | Edited 11:10pm
Quoting johnedoe
WHY do people insist on martingale systems? It is probably the fastest way known to man to blowup your account.
Becoz martingale could reduce the number of losing trades. But 1 losing trade could take out many winning trade. It will not blow up ur account if u do ur MM and test the winning % of ur system. If u do martingal, there will always be a hard stop and this hard stop is the one u are looking for in martingale system. Usually, martingale ratio can be 1 losing trade to 5 winning trade or up to 1 losing trade to 20 wiining trade.

If u have big account and use martingale, u can end up having zero losing trade. That's why people insist on martingale systems. Becoz market never move in a straight line, if u use proper martingale with gird system, zero losing trade could be possible.

Imagine u have unlimited money in ur account, do u think martingale will work ? Having said that, ur system must be martingale system. U don't just double ur position for nothing
  • #7
  • Oct 25, 2008 11:13pm Oct 25, 2008 11:13pm
Quoting duxis
There is a question which \"torments\" me.
Let us suppose that I want to practise a progression on losing trades.
Is it better to increase lots or then TP (in constant lot)?

example :

0,1 lot TP +5 / SL -5....loss
0,2 lot TP +5 / SL -5....loss
0,4 lot TP +5 / SL -5....win


or then :

0,1 lot TP +5 / SL -5....loss
0,1 lot TP +10 / SL -10....loss
0,1 lot TP +20 / SL -20....win

Where is the difference? Which one is more risked?
All notices are welcome.
thx.

I prefer the first approach, quick in quick out. The second approach eat up ur trading time and u will miss a lot of trades becoz of waiting for the big TP/SL
  • #8
  • Oct 26, 2008 4:16am Oct 26, 2008 4:16am
Quoting j84_2
Becoz martingale could reduce the number of losing trades. But 1 losing trade could take out many winning trade. It will not blow up ur account if u do ur MM and test the winning % of ur system. If u do martingal, there will always be a hard stop and this hard stop is the one u are looking for in martingale system. Usually, martingale ratio can be 1 losing trade to 5 winning trade or up to 1 losing trade to 20 wiining trade.

If u have big account and use martingale, u can end up having zero losing trade. That's why people insist on martingale systems. Becoz market never move in a straight line, if u use proper martingale with gird system, zero losing trade could be possible.

Imagine u have unlimited money in ur account, do u think martingale will work ? Having said that, ur system must be martingale system. U don't just double ur position for nothing

You're getting losing trades and profit mixed up. Which is quite worrying.
The market reveals who we really are...
  • #9
  • Oct 26, 2008 5:44am Oct 26, 2008 5:44am
Quoting duxis
There is a question which \\\"torments\\\" me.
Let us suppose that I want to practise a progression on losing trades.
Is it better to increase lots or then TP (in constant lot)?

example :

0,1 lot TP +5 / SL -5....loss
0,2 lot TP +5 / SL -5....loss
0,4 lot TP +5 / SL -5....win


or then :

0,1 lot TP +5 / SL -5....loss
0,1 lot TP +10 / SL -10....loss
0,1 lot TP +20 / SL -20....win

Where is the difference? Which one is more risked?
All notices are welcome.
thx.
Both of these will blow your account.
They fail the cardinal MM rule by increasing the amount risked without a proportional increase in the likelihood of winning.

The first method will break you faster than the second one, because your win expectation is less and you will trade at a much faster rate.

Let's say this is a coin toss entry with a 2 pip spread.

At the moment of entry you are at -2 pips.

With a 5 SL and a 5 TP, price only has to move 3 pips, against you, to stop you out. It has to move 7 pips, in your favor to hit TP.

You have a 70% chance of losing and a 30% chance of winning.
This will be true on every trade, with method one.

With the second method, your first trade will also have a 30% win rate.
Your second progression will have a 40% win rate, since
price must move 12 pips to TP and 8 pips to SL.
The third progression will be a 45% win rate...etc.
It will approach 50%, with each losing trade, but never quite reach it.

You will trade at a faster rate with the first method, because it takes less time for price to move 3 or 7 pips than it does with increased SLs and TPs.

Both methods will zero your account.

If your looking to tap out quickly, use method one.

If you want to hang around a little longer before going bust, use method two.
  • #10
  • Oct 26, 2008 6:01am Oct 26, 2008 6:01am
Quoting piptechnician
Well obviously as you have already seen mathmatically they work out identically. So that answers the question, but if you want to add in some of the gazillion other variables then obviously they are different.

In reality (my perception of said reality, LOL) the second option if traded with the trend and outside of our current volitility theoretically would result in vary different results than the first. This would be due to the stop eventually spreading beyond the average range and the trend mitigating the losses at the mid range. With luck the mid range would save you, luck, luck luck. You miss a mid range profit and you better have an enormous amount of time (and obviousy money) because you might find yourself completely outside of the trading range in your lifetime. Add timing to the strategy, entering at swing extremes then this also could make this a better option. Ahhh its all relative to the starting point and the existence of a trend.

In my perception of reality I see the first option as no different than flipping a coin since with those tight stops none of the higher probability patterns for entry and exit become statistically relevant.


Reality is product of the observer's mind. I wouldn't trade such a strategy so I'm not tormented by such thoughts.
Agreed, intrisincally it is just like a derivative of leverage. They are just like how the big banks package the CDOs.
  • #11
  • Last Post: Oct 26, 2008 4:47pm Oct 26, 2008 4:47pm
Quoting billbss
Both of these will blow your account.
They fail the cardinal MM rule by increasing the amount risked without a proportional increase in the likelihood of winning.

The first method will break you faster than the second one, because your win expectation is less and you will trade at a much faster rate.

Let's say this is a coin toss entry with a 2 pip spread.

At the moment of entry you are at -2 pips.

With a 5 SL and a 5 TP, price only has to move 3 pips, against you, to stop you out. It has to move 7 pips, in your favor to hit TP.

You have a 70% chance of losing and a 30% chance of winning.
This will be true on every trade, with method one.

With the second method, your first trade will also have a 30% win rate.
Your second progression will have a 40% win rate, since
price must move 12 pips to TP and 8 pips to SL.
The third progression will be a 45% win rate...etc.
It will approach 50%, with each losing trade, but never quite reach it.

You will trade at a faster rate with the first method, because it takes less time for price to move 3 or 7 pips than it does with increased SLs and TPs.

Both methods will zero your account.

If your looking to tap out quickly, use method one.

If you want to hang around a little longer before going bust, use method two.
Brilliant post, Bill. Spot on!

The part I highlighted is understood by very few traders, including 'professionals'.
Same applies to the impact of spread, it is underestimated by many folk.

David
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