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Extended Martingale

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  • First Post: Aug 21, 2011 3:20am Aug 21, 2011 3:20am
Traditional martingale yield only one unit of profit (equivalent to initial bet size) only. This is very frustrating.

NEW APPROACH
Instead of one step recovery, go for 2 steps. Outcome: 50% of potential loss for that level. E.g. If 5 levels deep, loss at this level would be 31 units. If recovered 2 steps out of 5 the total profit would be 17 units.

EXTENTDED MARTINGALE
3 step recovery. Yield is 100% of risked capital! ie account is doubled!
3 steps is possible. Remember some traders average down routinely.

Ofcourse, filters have to be in place:
-only start in overbought/ oversold
-select the most range bound pair your broker offers
-do the actual maths, spread, margin
-etc

King.
man...this is kinda death or alive match :
Quoting in_drag88
man...this is kinda death or alive match :
Not quite. This approach now ensures there is something to show should you go several levels deep. Its far better than the traditional martingale where you can make only one unit profit despite how deep in the hole you went.

Now the reckoning changes. Instead of letting account to blow up, you can now take the loss at a determined level knowing you also can make the same amount when you win.

Also remember you are trading with a certain edge in your favour! If not don't trade.

So martingale is no longer an account blower but a potent tool if you have an edge.

Enjoy

King.
Extended martingales and otherwise amplified martingales are by far the best.

Your account will be gone in a matter of days rather than dragging it out for weeks.
Martingale traders do not have problems with wins. They get a lot of those. The problem has always been how to handle the drawdowns that inevitably come once in a while.

If your analysis tells you chances for one 7 level drawdown is remote (but may happen) then you can trade upto level 7 only. Thereafter take a loss.

Just one level 7 win recovers all the losses or potential losses! Hitherto you would need 128 consecutive wins to recover this loss.

If you have say four level 6 wins prior to all this then you have made more than twice the potential loss should you lose once in level 7.

The black swan is an event that by definition is unlikely to occur (but may occur). If you regard level seven an your black swan then you only need four wins at level 5 to adequate be prepared for this by rare event.

I like the odds to be in my favour. Martingale had been one big challange.

King.
Quoting billbss
Extended martingales and otherwise amplified martingales are by far the best.

Your account will be gone in a matter of days rather than dragging it out for weeks.
Thank You.
I do not see it that way. I have been averaging down in my main account and the results are amazing.

Recently I have been trading this way (extended martingale) in my smaller account and have already trippled the small deposit there.

Instead of scare tactics I wish for constructive criticism. Why do you have this feeling?

King.
Quoting kingsurfer
Thank You.
I do not see it that way. I have been averaging down in my main account and the results are amazing.

Recently I have been trading this way (extended martingale) in my smaller account and have already trippled the small deposit there.

Instead of scare tactics I wish for constructive criticism. Why do you have this feeling?

King.
The thinking is kinda backwards tho because you need to lose a lot of money in order to gain a lot of money

if you start making correct decisions early and often you are rewarded little


bet 1 gain 3 (aiming for 3 levels.. )

but lose 1,2,4,8

bet 16 and win 3 levels double account
Quoting newyear498
The thinking is kinda backwards tho because you need to lose a lot of money in order to gain a lot of money

if you start making correct decisions early and often you are rewarded little


bet 1 gain 3 (aiming for 3 levels.. )

but lose 1,2,4,8

bet 16 and win 3 levels double account
When you martingale you do not delibrately put yourself into a hole. Rather it is a strategy to get you out of a hole should you find your self in one. You still need to do your analysis before taking on the trade.

The discontent with traditional martingale (TM) is that when this recovery is made you have close to nothing to show for it. This is what changes in the approach I'm discussing.

When you compare martingale with averaging up or pyramiding you find a fundamental flaw in the latter. You are making more trades as the trend draws ever closer to an end or reversal against you. With martingale you are making more trades as the trend nears a reversal in your favour.

King.
Quoting newyear498

if you start making correct decisions early and often you are rewarded little
The small wins add up quickly. There will be abundant small wins. The problem has been the inability to take a loss because you then need several small wins to make up. With this new approach you are able to make some handsome profit if you reached say levels 3 or 4 several times in the cause of trading rather than that pitiance(1 unit profit) that has been discouraging traders.

King.
Quoting kingsurfer
So martingale is no longer an account blower but a potent tool if you have an edge.
Questions:

1. But if you already have an edge, why the need for martingale? Why turn a profitable trading strategy into a lottery?

2. If you want bigger wins, why not simply risk a bigger amount consistently per trade? All you're effectively doing here is varying your pos sizes randomly. If the bigger pos sizes happen to coincide with winning trades, you'll win more; if not, you'll lose more. If the account does manage to survive the test of time, the 'luck' will even itself out, with no tangible advantage.
Quoting kingsurfer
When you compare martingale with averaging up or pyramiding you find a fundamental flaw in the latter. You are making more trades as the trend draws ever closer to an end or reversal against you. With martingale you are making more trades as the trend nears a reversal in your favour.

King.
that's one way to look at it, however, you seem to be looking at things from the opposite direction without one key piece of the puzzle...

when you lose, lose, lose, etc, and then hit a runner that you pyramid, yes you are increasing size and moving your break even point closer to the end of the run and not capturing the meat of a move with a fully loaded position. but you are trying to get in somewhere around the start of a run without having cost yourself too much in the losing trades that came beforehand.

when you lose, lose, lose, etc, and each time increase your size until you bust out or hit a runner you are risking a blowup, and are potentially on the wrong end of the wrong trend. yes you are moving your breakeven point closer to the market for IF it turns around, and yes the size on the trade will be gnarly if it goes in your favor some distance. but it's just poor form.

pyramiding is limiting your losses while trying to capitalize on your wins, whereas averaging down or martingaling is exponentially increasing your losses without necessarily increasing your wins.

if you take a movement in price from point A to point B, traded 2 accounts where one account buys at point A and the other account sells at point A, pyramided whichever account is the profitable one as well as averaged down or martingaled the losing account, it's very possible that you could have made a nice gain on the winning account but have busted out on the losing account that you martingaled. that's the difference. one is risk averse, the other is risk seeking. you can mix and match the averaging down / martingale approach in any which way you like, but the fact is that it's taking on more risk with each step and has less steps to a blown account than trading normally and then pyramiding on the potential runners to increase the gains on the winning positions. you could have 100 losers in a row when trying to pyramid, but with the same account could blow up within 10 trades using a martingale or averaging down strategy.

even if you manage to double, triple, 10x grow an account by martingaling etc, you still only have very few extra layers to martingale before a blowup. if you can only withstand a 5 layer martingale before a blow up on your worst run of losers in the space of tripling your account, you can still probably only withstand something like 6 layers before blowing up this 3x greater account.

how many levels do you get on a million dollar account? not as many as you would think. how would you feel losing a million bucks using a risk taking approach instead of a risk averse approach that would only have cost you a few grand?
Congratulations ScalaFX for coming out of the closet!
Quoting nubcake
that's one way to look at it, however, you seem to be looking at things from the opposite direction without one key piece of the puzzle...

when you lose, lose, lose, etc, and then hit a runner that you pyramid, yes you are increasing size and moving your break even point closer to the end of the run and not capturing the meat of a move with a fully loaded position. but you are trying to get in somewhere around the start of a run without having cost yourself too much in the losing trades that came beforehand.

when you lose, lose, lose, etc,...
Usually Nubcake is the kinda guy who rambles on and poorly explains what he is trying to say and then people fight with him and not many people like him for that..

but I gotta say Nubcake.. this is some of the most well written work you have crafted in your FF history that keep a nice flowing argument/stance


so really.. you been taking writing classes or something aye? a little bit easier to catch up on some sleep when its the weekend? uh? shit you figured out the secret to success in those fancy 1M charts and now your not feeling blue anymore?



Personally I enjoy it more when you just go fucking CRa11zYZiiiy in your posts.. so anymore of this bullshit and your going on my ignore list...
Quoting newyear498
Usually Nubcake is the kinda guy who rambles on and poorly explains what he is trying to say and then people fight with him and not many people like him for that..

but I gotta say Nubcake.. this is some of the most well written work you have crafted in your FF history that keep a nice flowing argument/stance


so really.. you been taking writing classes or something aye? a little bit easier to catch up on some sleep when its the weekend? uh? shit you figured out the secret to success in those fancy 1M charts and now your not feeling blue anymore?...
maybe you have upped your education and are closer to my higher level of thinking? : upyours :

Quote
Personally I enjoy it more when you just go fucking CRa11zYZiiiy in your posts.. so anymore of this bullshit and your going on my ignore list...
check my post history for a post i made earlier today in the rookie section. it's more to your liking.
Congratulations ScalaFX for coming out of the closet!
Quoting nubcake
that's one way to look at it, however, you seem to be looking at things from the opposite direction without one key piece of the puzzle...

when you lose, lose, lose, etc, and then hit a runner that you pyramid, yes you are increasing size and moving your break even point closer to the end of the run and not capturing the meat of a move with a fully loaded position. but you are trying to get in somewhere around the start of a run without having cost yourself too much in the losing trades that came beforehand.

when you lose, lose, lose, etc, and...
That is exactly how to be an agressive trader. It's not how many trades you can make, but understanding the move the market is making and getting the absolute maximum you can get out of it.

Really nice post nubcake, this is how Richard Dennis (Market Wizards) and many other's have started with a small grub stake, and turned it into a fortune.

He was a pure TA trader catching huge market swings, but if a trader was spending his time discovering what makes TA work (when it works) and developing order flow models that reflected market swings and macro trends, then you could pyramid with these moves and do very well.

Pyramiding works so well, because you are already on the right side of the move, so you are simply adding risk based on how far you think the move might go, where as martingale produces too much risk, because you might hit a long period of trades that end up loser's, and are increasing risk with every trade before the trade is a win or loss.

Nice stuff.
Quoting hanover
Questions:

1. But if you already have an edge, why the need for martingale? Why turn a profitable trading strategy into a lottery?

2. If you want bigger wins, why not simply risk a bigger amount consistently per trade? All you're effectively doing here is varying your pos sizes randomly. If the bigger pos sizes happen to coincide with winning trades, you'll win more; if not, you'll lose more. If the account does manage to survive the test of time, the 'luck' will even itself out, with no tangible advantage.
@kingsurfer, I think you should differentiate your trading system from your money management, specifically position sizing. IMHO, various martingaling schemes are appropriate for only very few trading strategies (in which you plan ahead all of your entry and exit conditions). In general, position sizing should not depend on whether you have won or lost your previous trade/s.

It is much better to size your positions according to your account equity, risk for the specific trade you're entering (i.e. distance to stoploss), etc. My goal for each trade is always to make a profit - but never is it to recover a previous trade's loss. Does each "leg" of your "Extended Martingale" satisfy any type of similar criterion?
When analysing pyramiding or other averaging up strategies it is often convenient to forget the multitude of times when the trend was a failure with lossses. These losses mount and admittedly only blows the account slower. Even when one catches a good trend the high no of trades at the end of the pyramid that go into negative compared to at the begining makes nonsense of the final outcome.

The much highlighted drawdown of martingale is its drawback. There is complete unwillingness to appreciate its value once "it can blow an account" is mentioned.

The fact that the account can be doubled several time for every one blow out scenario is completely ignored.

@Hanover
The strategy itself is martingale. Saying apply the strategy without martingale is missing the point.

King.
Quoting kingsurfer
When analysing pyramiding or other averaging up strategies it is often convenient to forget the multitude of times when the trend was a failure with lossses. These losses mount and admittedly only blows the account slower.
so you either blow an account slowly being risk averse and a crap trader, or you blow it quickly being risk seeking and still a crap trader. either way, a bad trader is a bad trader. that's the bottom line that martingale won't fix. instead, it highlights not only the failure to trade well, but the failure to manage risk well, and failure as the risk manager to foresee the inevitable outcome.

Quote
Even when one catches a good trend the high no of trades at the end of the pyramid that go into negative compared to at the begining makes nonsense of the final outcome.
have you taken into account that this works in reverse also? the number of times you martingale that begins to go your way and then reverses and goes negative on you? the door swings both ways! do you even understand that a pyramid never has to be negative once the first level is in profit? you can work the risk any way you like, but of course the idea is to remove all risk and leave only potential profit. again, it comes down to entering in the right positions as a good trader and being rewarded with profits or entering in the wrong positions and being punished for being a crap trader. taking a haphazard uncaring approach and relying on martingaling is not an answer.

Quote
The much highlighted drawdown of martingale is its drawback. There is complete unwillingness to appreciate its value once "it can blow an account" is mentioned.
a blow up is a blow up. the drawdown doesn't matter a damn! i repeat, the drawdown doesn't matter a damn! the drawdown will go from a tiny bit, to a small bit, to a medium bit, to you are blown and the game is over! the problem is not the drawdown because you hardly get any chance to experience it before imploding. the issue is RISK OF RUIN! you can trade in a way that gives you plenty of opportunity to make mistakes and also catch nice runners, or you can trade in a way that gives you no room for error.

Quote
The fact that the account can be doubled several time for every one blow out scenario is completely ignored.
lol. no it's not! your RISK OF RUIN barely changes from trade to trade EVEN WHEN you manage to catch some runners with deeply martingaled trades.

you spend some time getting small winners. then you get some losses and progressively load-up your position sizing. let's say you are 10 levels deep in a progression... suddenly BOOM you catch yourself a winning trade. it goes +1R and you are back to your previous equity high. GREAT! AWESOME! then it keeps going and you are +2R. OH YEAH BABY! then it gets to +3R, +5R. HOLY CRAP IT'S A RUNNER!!!! hell, maybe you are super lucky and hit yourself a +10R runner. since you were 10 levels deep in your progression you just blasted your previous equity high and made a new peak. SWEET!!!! all is right with the world, right? wrong!

just because you caught yourself a +10R runner at a 10 level deep progression, or whatever the R and level happens to be, doesn't change your RISK OF RUIN much, and not enough to make you sleep any better at night. what happens when you get yourself in a bind and find you are at another 10th level progression, and THIS one loses too? you now have to go to your 11th level.... and then maybe even your 12th level!!!!???

e.g.

1 0.01
2 0.02
3 0.04
4 0.08
5 0.16
6 0.32
7 0.64
8 1.28
9 2.56
10 --- 5.12
11 --- 10.24
12 --- 20.48

suddenly that 10R winner @ 5.12 lots doesn't seem to have earned you much of a buffer when you find yourself requiring a 20.48 lot trade just to break even with your previous equity high, and how many more levels can you literally afford with your account before the account is blown. do you really have the capital for this? only you can tell.

if you have the deepest of pockets then you can martingale or average down or let your losers run or whatever you want to do. but for the average human being with an average amount of funds you simply can not keep progressing, despite whatever big wins you might luck-out on catching with a high progression. you either trade so well that you never get yourself a string of long losers that puts you deep into the progression and nudging against your risk of ruin point, or you have extremely deep pockets and lots of margin and can afford to trade huge lot sizes compared to the initial level of the progression, or you hit yourself a string of losers that pushes you past your ability to open a trade of the required size... risk of ruin hit, and account virtually blown up as expected!

if you want to go balls to the wall with a piece of pocket change and try your luck at rolling it into something significant then awesome. go for it and have a blast. if the initial stake is meaningless to you then it's certainly worth it since the potential is there to make some size from it. but it's a gamble, and not a long term approach that will keep you in the game for long.

risk of ruin. risk of ruin. risk of ruin.
Congratulations ScalaFX for coming out of the closet!
@ NUBCAKE my responses are in Blue
that's one way to look at it, however, you seem to be looking at things from the opposite direction without one key piece of the puzzle...

pyramiding is limiting your losses while trying to capitalize on your wins, whereas averaging down or martingaling is exponentially increasing your losses without necessarily increasing your wins.

My modification attempts to take care of this anomaly. Now your win increases exponentially too.

you could have 100 losers in a row when trying to pyramid, but with the same account could blow up within 10 trades using a martingale or averaging down strategy.

You are only concerned about the one rare possibility that the trade goes ten straight losses in a row. Yes it can happen. But you know statistically it is rare. That is why it is called a black swan. Also before 10 straight losses can we assume that there must be several orders of wins that did not reach level 10?

even if you manage to double, triple, 10x grow an account by martingaling etc, you still only have very few extra layers to martingale before a blowup. if you can only withstand a 5 layer martingale before a blow up on your worst run of losers in the space of tripling your account, you can still probably only withstand something like 6 layers before blowing up this 3x greater account.

You are not implying I will leave all my profit and original deposit in the account waiting for one black swan to come and take them all? Be real

how many levels do you get on a million dollar account? not as many as you would think. how would you feel losing a million bucks using a risk taking approach instead of a risk averse approach that would only have cost you a few grand?

I have already explained that you no longer need too many levels. You cut your losses at predetermined level because you now know that when next time you win at this level you also make the same amount you lost. In the reference I made to my small live account it only had a couple of hundred dollars in the original deposit.

King.
Kingsurfer , can you please elaborate using an example and numbers , i am really interested and want to understand more , thanks
Quoting kingsurfer
@ NUBCAKE my responses are in Blue
that's one way to look at it, however, you seem to be looking at things from the opposite direction without one key piece of the puzzle...

pyramiding is limiting your losses while trying to capitalize on your wins, whereas averaging down or martingaling is exponentially increasing your losses without necessarily increasing your wins.

My modification attempts to take care of this anomaly. Now your win increases exponentially too.

you could...

The statistics of 10 time is not rare.. and not a black swan... but common stats

Also I wrote a program to test this as well.. I thought at one point to try a grid system and my edge would be that the market is not simple 50/50 stats (overbought should kick in right!?! ) so it could defy those silly mathematics people

turned out the data alone did not hold true and it typically had 12 fails in a row..

not trying to be another dude putting a rain on your parade.. but its just my experience and historical data.
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