Extended Martingale

This is a screen shot of Eur Usd. As I have already mentioned it is not even remotely one of my favourite pairs. I am only putting it up to make a point- That my system is capable of atleast breaking even even in most hostile environments.

A few of our entry criteria
1. The 21 SMA is used as a direction finder- if price is above the sma we sell. If below the sma we buy.

2.Grid size- Depends on risk tolerance and size of account. For a pair as volatile as EurUsd I would use 2000 pips (5 digit broker). However, here I used only 1000pips for the grid. Too small if I was live.

3. Buffer zone- depending on the volatility of the pair. Quiet pairs I start at the first level. Medium volatility pairs I start at the second level to make my first entry. For high volatility pairs like this one I would start at the 3rd grid level to make the first trade. Again, just to make my point, I'm starting at the 2nd level.

4. Max level- If you are bold enough to go for a volative, trendy pair like EurUsd, then you should have more means (account balance) than just 7 levels. Say 8 or 9. Here again I still limited it to 7 levels only.

Results.
Account at risk: 128
All trades (11) won. Only the last is still in progress.
Total profit: 265
% profit 207%. And the year is not over yet.

Controversies
The trade marked out in the screen L7 is arguably contestable. If it is judged as a loss then we only just broke even.(137-128)
If judged as a win then it alone doubled the size of our account.

Another issue is that the moving average moves over time and may not be exactly where it is at the time of the trade. There's nothing I can do about that in back test but in live trading it has not proven to be very different in real terms.

And this is supposed to be one of my worst pairs!

King.

Really? Take the following simple system:

At any point, enter long with x% of your capital.
If the quote drops by 10%, invest 10% of your remaining capital adding to the long position.
If the quote rises by 10%, sell 10% of your stock.

You can vary the step size and the amounts invested/sold...

It's not quite Martingale but a kind of hedging - and it will never go broke, and in an endlessly ranging market it's for sure a winner. of course, in a strong updtrend it will be outperformed by b&h easily, but in a strong downtrend losses will be nicely limited - and eventually recovered as long as the quote doesn't hit zero!

at Nubcake, FX- Petra and so on: Do you know the reason why Mathematicans loose money on stock/forex market by martingaling ? Because they don't practise, they do it just theoretically. - that's the error.
Mathematicans are not an artist/practise people and you need that to be profitable by martingaling the market..

Martingale works...and there lots of variations you can use. The essence at the end is: You have to gain more than 100% before the bust comes in... that's it. And that's really easy. You can gain conservative 30% / year.
@Hanover: I know you are frustrated cause the maths won't tell you the edge. Guess what: I'm able to eliminate the house advantage by playing roulette... (at least on European Roulette).

Now What ??? Yes, it's possible and of course you have to vary your position size. There are players who get banned by casinos and guess why... math won't tell you but you definetly need it !

Always remember: The trick ist to invest more if you are right and less if you are wrong...

I personally trade lots of different styles and go with and against the market as it shows up in the right place...

I can understand every 10th vouches people here who say it'S not possible cause they earn money by going WITH THE TREND - and yes you are right: it's more profitable BUT: The huge Problem is the news time (if you go with the market)...and the huge advantage by going against the trend...is the news time... just ONE little practise against theoretical example how you can change the odds...(this goes especially to hanover...)

greets Jack

Hello Kingsurfer,

Thank you for posting, and, I want to thank others for providing thoughtful replies. King, I don't understand your system, even when you showed several charts.

Martingale has it where you double-up whenever the market moves against you X amount.

What is your system? Please give a written example with numbers. I would greatly appreciate it. It looks to me, via looking at one of your charts, that you do the standard doubling down, but, once the trade moves in your favor, you wait X amount (of profit to accrue) before you get out. I don't understand this. How can you project a profit target, there is no way of knowing of the underlying will ever reach this, and the underlying could reverse on you again. But, do explain!

Also, how do you know when to martingale, once in the trade? I see the grid lines you have on your charts, but, are they some incremental X% from the trade initiation point? I like this disciplined approach; if only I could understand where/how you mark these spots for the adding of contracts/shares.

What I have found is that the Martingale strategy works nicely for range-bound, tight ATR underlyings. A perfect example is the use of this method on the NQ E-mini during after-hours. I have a $50 price target, and I just keep turning the crank...

Also, could you simply place Bolinger Bands at X standard deviation, and, potentially throw a Fibonacci grid on top of this as your selection levels to add to your Martingale shares? I struggle with when/where to add to my position. There must be some logical points...


Thank you for your help! You may be further refining how I Martingale.

John

The problem on the forums is most dont understand what martingale is,

many are infact using one form or other of martingale,they just dont realise it.

one way of using martingale for positive result is understanding submartingale,which requires the point you stop,the stop point being the edge,havnt read the whole thread but i think that the op is submartingaling,

now having said this ,most who use martingale technique dont understand the theory,hence they always blow out or can only practice this on penny accounts,

Hello John.

Thank you for your post and apologies for the delay in reply. I had a major life issue to sort out and forex was interfering in no small way. I had to suspend forum activities and even trading while it lasted. Sorted out now.

Extended martingale (EM) is only a variation of the traditional martingale. I stumbled into a finding that if I do not take the profit immediately at the first level of retracement and instead waited for it to go into profit to the 3rd rung of the grid- that I will recover what I would potentially have lost had it gone south. This was a shock to me because the traditional martingale only wins one unit when it takes profit no matter how deep into drawdown it had gone. With this method the win will equal the potential drawdown had we lost! Nice to know.


Traditional Martingale
If one goes 5 entries deep he stakes 16 units: at this point of entry, one has already lost 15 units (1+2+4+8). If it ends a win then he only makes 1 unit (16-15=1). If loss then total loss is 31 units. This one unit win persists no matter how deep into draw down one goes. This is not very palatable to many traders (this author inclusive).


Extended Martingale
In this case the first rung of the grid in profit yield one unit (as above). Using the example above, the next grid in profit will yield 16 units and the third level profit will yield another 16 units making 33 units at take profit. So you get 31 units of loss if this was your thoretical limit and you were forced to go this far; but instead of recovering only one unit if you had won, you now get 33 units. 1:1. Nice.

So now when trade sequence start stretching and drawdowns start mounting, its not only the trader that is getting worried, everybody is worried!!!

This extended wait carries its demerits of course. The trade could reverse on you while waiting. But then it was not a free lunch.

Extended martingale and its variations are for those (like me) who do not like to do the dancing while others are pulling the strings.

Please tweak the system as you need. Only post. We need to refine until we can sleep soundly at nite.

King.