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Analysis of Martingale

  • #1
  • First Post: Feb 11, 2010 8:12am Feb 11, 2010 8:12am
When are you profitable,using martingale.

My analysis:


only in nontrending conditions.

The ironi is that the market is generally trending, and thus it is counter productive. Since martingale try to profit from the fact that price will will retrace, or go back.

However, interesting conclusion. If you have a very big pocket, you could martingale 20-40 times. That would guarantee a profit. Who, knows how much. It would be really boring to trade micro lots. I guess you could get maybe 8% doing this, and working full time.
  • #2
  • Feb 11, 2010 8:22am Feb 11, 2010 8:22am
Actually the market only trends 20-30 percent of the time. Other time the market is in a range of about 100-200 pips (of course that depends on the pair). If you can develop a system consisting of trending and ranging situations then you have a better chance of profiting off both conditions.
  • #3
  • Feb 11, 2010 12:28pm Feb 11, 2010 12:28pm
Quoting woo
When are you profitable,using martingale.
Martingale in itself neither provides an edge, nor does it improve an existing edge. All it guarantees, is that one day - maybe tomorrow, maybe not for several years, but you never know when - you'll experience a losing sequence that's long enough to blow your account.

I posted more info here.
  • #4
  • Feb 11, 2010 12:41pm Feb 11, 2010 12:41pm
Quoting woo
However, interesting conclusion. If you have a very big pocket, you could martingale 20-40 times. That would guarantee a profit.
"Guarantee a profit" is a phrase that shouldn't exist in any trader's vocab.
  • #5
  • Feb 11, 2010 12:48pm Feb 11, 2010 12:48pm
Quoting hanover
Martingale in itself neither provides an edge, nor does it improve an existing edge. All it guarantees, is that one day - maybe tomorrow, maybe not for several years, but you never know when - you'll experience a losing sequence that's long enough to blow your account.

I posted more info here.

I appreciate what you are saying. But if you use a system that has >65% win rate, I would say that it would give an extra edge. Risky ok as it would involve a lot of money. With roulette you have a win expectancy <50% (zero) + table limit hence it would make you loose on the long term. This is not the same in forex. Though maybe wiser to use a less aggresive progression system.
  • #6
  • Feb 11, 2010 1:05pm Feb 11, 2010 1:05pm
Quoting hanover
Martingale in itself neither provides an edge, nor does it improve an existing edge. All it guarantees, is that one day - maybe tomorrow, maybe not for several years, but you never know when - you'll experience a losing sequence that's long enough to blow your account.

I posted more info here.

This is not true. if one of these truths are applied:

1 you can identify non trending markets
.
2 infinite pocket


number 2, i dont think it has to be infinite. I think there is an enough number that the market cant accomodate for.


also, perfect strategy for martingale:

trying to trade breakouts, for instance a channel.


Sometime, it has to break. I dont i rarely, see 10 losing attempts. Thus, u use double up 13 times.
  • #7
  • Feb 11, 2010 1:09pm Feb 11, 2010 1:09pm
I post this link one more time in the vain hope that somebody may read it...
http://epchan.blogspot.com/2010/01/d...g-in-work.html
The breaking of a wave cannot explain the whole sea.
  • #8
  • Feb 11, 2010 1:14pm Feb 11, 2010 1:14pm
i read it. It is flawed....the theory is too inflexible. Not taking into account market charecteristics.
  • #9
  • Feb 11, 2010 1:15pm Feb 11, 2010 1:15pm
Quoting Craig
I post this link one more time in the vain hope that somebody may read it...
http://epchan.blogspot.com/2010/01/d...g-in-work.html
Lol. I read it last time Craig. Thank you for posting again.

Interesting blog with some good reading material.
  • #10
  • Feb 11, 2010 1:22pm Feb 11, 2010 1:22pm
While I'm here, here is a friend of mines blog...
http://intelligenttradingtech.blogspot.com/
Go visit, he's a nice guy (shameless plug).
The breaking of a wave cannot explain the whole sea.
  • #11
  • Feb 11, 2010 1:24pm Feb 11, 2010 1:24pm
Quoting Craig
I post this link one more time in the vain hope that somebody may read it...
http://epchan.blogspot.com/2010/01/d...g-in-work.html

My point has nothing to do with price and averaging in. I am talking about the win/loose percentage of a complete system. If a system has a win/loose percentage of 65% and I double up every time I loose the odds are in my favour.
  • #12
  • Feb 11, 2010 1:31pm Feb 11, 2010 1:31pm
ok, gonna explain how it is flawed;

if p = 90%


Using A: gives more trading oppurtinities, and thus more pips, than using C


if: both entry points, have higher probability than 50%.


Conclusion: martingale gives edge, for an already profitable system during certain conditions.
  • #13
  • Feb 11, 2010 1:42pm Feb 11, 2010 1:42pm
Martingale does not mean to double up untill your acc blows up!

This strategy WORKS perfectly when you double up within limits. If you start adding or doubling up after an oscillator reaches overbought or oversold, and decides to double up maybe only five or six times according to your acc size and money management it WORKS!

Everybody always shoots martingale down without considering that you do not have to double up untill ones acc blows up.

Just do some backtesting on the stochastic ( any timeframe) for example and applying martingale with money management and you will see what i am trying to say.

"Long live Martingale"

Ps. Doubling up to infinity is suicide
Doubling up with money management = success.
Martingale can be an edge if you know how to apply it.
Never Ever Give Up!
  • #14
  • Feb 11, 2010 2:19pm Feb 11, 2010 2:19pm
In the past 3 months, EUR/USD action both in December and January/February has provided a extreme downtrend which has blown apart many martingale and grid traders. It happened in December and many were saying "wow, this is the longest down trend without significant pullback I've seen...", then here in January/February again. I watch alot of martingale and grid traders' systems on FXBook, they've had some enviable results for about 3 months prior to December, then "boom".

Not all have been margined called but those still alive are at a net -20% to -60% drawdown for the last six months.
  • #15
  • Feb 11, 2010 2:27pm Feb 11, 2010 2:27pm
This is the third wave of grid traders I've seen blow out since I started, the second time was that big up trend in the EUR/USD a couple of years ago, of course, nobody learns from history and everybody is right, it will happen again.
The breaking of a wave cannot explain the whole sea.
  • #16
  • Feb 11, 2010 2:33pm Feb 11, 2010 2:33pm
Quoting Craig
This is the third wave of grid traders I've seen blow out since I started, the second time was that big up trend in the EUR/USD a couple of years ago, of course, nobody learns from history and everybody is right, it will happen again.
I remember when that happened! It was summer of 2008 when E/U sky rocketed upwards with no ceiling in sight. At that time it seems like "every" trader knew how the market worked. I rememeber all types of traders coming out of the woodworks. When all was said and done, the trend fell and was over and many traders swear with was just a retracement. Many traders lost a lot because they didn't understand the market and other traders lost listening to the inexperienced.
  • #17
  • Feb 11, 2010 2:49pm Feb 11, 2010 2:49pm
The only way to protect yourself from a strong trend against your positions with a martingale or grid system is to use zero leverage.
  • #18
  • Feb 11, 2010 3:05pm Feb 11, 2010 3:05pm
I personally don't think martingaling is a suitable strategy for the forex market. But commodities are a different story.
  • #19
  • Feb 11, 2010 3:21pm Feb 11, 2010 3:21pm
Quoting deuce
The only way to protect yourself from a strong trend against your positions with a martingale or grid system is to use zero leverage.

Why not use a progressive system (martingale) with a trending system? It seems that people think you have to martin gale on the price.
  • #20
  • Feb 11, 2010 3:34pm Feb 11, 2010 3:34pm
Woo, Spekkiefx, Cobra, Deuce, ......

All of the points you raised (apart from Spekkiefx's) are addressed somewhere in the link that I provided (back in post #3). Sorry, but I'm too lazy to re-type the relevant parts here. There's a spreadsheet attached to that link that illustrates the math. If you can't see how the same MM concepts relate to forex, then I'm afraid I can't help you.

Spekkiefx, if you experiment with the spreadsheet, you should find that Martingale offers no improvement in expectancy over simply increasing your average bet (position) size.

Folks, the bottom line is that you either believe in the infallibility of math and probability theory, or you don't.

If you want to trade using Martingale, or some watered-down variant of it, then all I can say is good luck to you. If it's the Holy Grail that ensures long term success, you have to wonder why all of the big banks and institutions, with their very deep pockets, don't likewise employ it.
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