It's gambling. If you trade martingale you are gambling not trading. Full stop!
- | Joined Aug 2009 | Status: Member | 1,074 Posts
I am no fan of martingale, but I think there is a chance how he can work for some people (sort of)
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So if someone is betting this strategy with martingale, he will see increased performance, because he is risking an amount far from optimal in first place.
Conclusion: if martingale works for you double your lots and forget the martingale
- | Commercial Member | Joined Dec 2009 | 32 Posts
Hello Everyone,
Well in my mind the problem of the Martingale is a very significant one in trading. I think that a very good argument that can be put forward here is that there has yet not been a single long term profitable martingale which has been shown to work in trading.
Let me explain myself better, there have been thousands of martingale systems that have been tried and failed with time (some even showing profits for a few years) but there has been no martingale that has ever been able to trade without total loss of funds through a significant period of change in long term volatility (more than 10 years) with profitable results, at least to the best of my knowledge this system doesn't exist.
So the facts here are quite simple to interpret :
Well in my mind the problem of the Martingale is a very significant one in trading. I think that a very good argument that can be put forward here is that there has yet not been a single long term profitable martingale which has been shown to work in trading.
Let me explain myself better, there have been thousands of martingale systems that have been tried and failed with time (some even showing profits for a few years) but there has been no martingale that has ever been able to trade without total loss of funds through a significant period of change in long term volatility (more than 10 years) with profitable results, at least to the best of my knowledge this system doesn't exist.
So the facts here are quite simple to interpret :
- Countless martingales have lost accounts and large amounts of funds
- There is no martingale that has been profitable for at least ten years (or such a system is not made public or published anywhere)
- For a martingale to succeed a system is needed where the probability to have a favorable outcome on the next trade increases with the number of losses.
Now the facts here tell us that we would need to have a system which would have an implicit increase in its statistical probability to win after every negative outcome, something which cannot be proved to not exist (which means it might be possible).
However there are countless systems that have been proved to work for more than 10 years that are used by traders all over the world which have shown to resist changes in market conditions and use sound money management principles. Donchian channel systems are a good example of this.
So the question becomes : would you rather pursue an extremely risky venture that no one has publicly been able to succeed at or would you rather use trusted systems that have shown to work through a myriad of market conditions ? The answer for most professional traders here is obvious.
As always remember the saying :
"there are old and bold traders but there are no old bold traders" 
I hope this helps the discussion
Best Regards,
Daniel
- Joined Sep 2006 | Status: ... | 8,092 Posts
There enters the martingale. If you can master it and if your entries are high probability entries martingale gives you a second, third ... chance.
You still get a second or third chance, no matter how you size your positions.
However, if, as you say, the probability of reversion to a mean increases the further price moves away from the mean, then an increase in position size is sound. But, to be mathematically justifiable, it would need to be commensurate with the improvement in the probability being offered by the market, as opposed being based on the size needed to recover the trader's open losses. And you would need to prove the mean reversion statistically, though; I suspect the "don't add to losses" mantra that's bandied around by veteran traders is the result of hard experience.
Increasing position size merely to recover recent losses is nothing more than an emotional response, and will inevitably end in disaster, because emotions will increase the deeper the account spirals into drawdown.
Most martingales are sized around what the worst seen adverse move. Like you say, just because 1500 pips hasn't occurred, doesn't mean that it won't in the future, even if it is highly unlikely. Nonetheless, IMO that is gambling rather than trading; because just one 'black swan' event is all that's needed to cause ruin. If I simply size at (for example) 1% per trade, then I guess I'm likewise gambling that my losses will never exceed my wins by 100, which would likewise cause ruin. But if my entries/exits provide a decent edge, that's unlikely to happen; and even if it does, I have plenty of time to suspend my trading and re-evaluate (and if necessary, overhaul) my strategy before the drawdown gets seriously out of hand. For me, that's the important difference.
To each their own; everybody must proceed with whatever they feel most comfortable. I am conservative by nature, hence risk management is my #1 priority. But it's not for me to tell anybody else what they should or shouldn't do.
Thanks for the discussion. I wish you every success.
David
- | Joined Jan 2010 | Status: Member | 50 Posts
As I said I am not using it either but I am not also saying 100% it will fail. I guess it will always be in my mind when constructing new ways of trade.
What we discuss here is mainly philosophy and it never ends with a certain decision. Aim of discussion is only to open new horizons to our thinking
I certainly enjoyed our discussion.
Thank you.
What we discuss here is mainly philosophy and it never ends with a certain decision. Aim of discussion is only to open new horizons to our thinking
I certainly enjoyed our discussion.
Thank you.
