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Does the martingale system really work?

  • #121
  • Oct 24, 2012 7:32pm Oct 24, 2012 7:32pm
The Martingale system is the most dangerous trading method in my opinion. A trader who uses it is no different from a casino gambler who doubles his bet size each time he loses. Sooner or later he will lose all his money.

The only way it might work is, if you start with a very small lot size (a micro lot) and have a very large trading capital. Even in this case, you have to wait until the price moves a lot (100+ pips) before you place your next trade.

My recommendation is not to use it. I've used it many times before and almost blew my account. It's not worth it.
  • #122
  • Oct 25, 2012 1:51am Oct 25, 2012 1:51am
Quoting hanover
.........
Nice article btw on the myths. The spreadsheet is good to test a mathmatical model, where the goal is to profit the same TP for each repetition.
[i][color=Blue]Agree that the XLS has limitations by covering 1:1 trades only, but the same math principles behind expectancy and MM hold good with other RRs, and also other techniques (trailing stop, scaling in/out etc), although the proofs would be significantly more complex.

All gambling/trading ultimately comes down...
I actually have a spreadsheet that focuses on grid style entries. You have to input the values manually, but you get the idea that you can measure the total amount of trade positions that you average, how much margin level and total range of prices that you can survive, you can also get an idea of the amount of profit depending of the % pullback on prices from the end of the range until the starting point.

Funny how different people can describe the same circumstances. That's part of the reason why i helped create a price action indicator that can measure price movement without any lagging. In this way, we avoid the pitfalls of semantics in describing the price movement, and just focus on the price movement itself (then make a trading decision after a designated amount of movement occurs)
Measure trends automatically with zero lag
  • #123
  • Oct 25, 2012 2:36am Oct 25, 2012 2:36am
The answer is a resounding NO.
There is no reason to answer further because the first answer answers it all.


Quoting ronald_fsm
hello guys , i just want to know is that martingale works?
is that system could be use for long time?
-could anyone who already use this system give comment?
-which pair is the best for trading this system?

thanks for your attention.
  • #124
  • Oct 25, 2012 6:00am Oct 25, 2012 6:00am
Quoting Ivan
I used Martingaling before and came to
conclusion that is is able to burn any account.
Agree. I suppose you must be very experienced trader if you want to use this system. The risks are to high for the newbie to predict.
  • #125
  • Oct 25, 2012 8:48am Oct 25, 2012 8:48am
martingale is very profitable because you don't get stop out easy, u don't takes stop loss easy too.

but, martingale like what jack says, where a point you are so afraid of losing your accumulated profits, you lose your entire account when the market goes against you.

So if you want to trade martingale, maybe you need a bigger pool of back up funds and smaller leverage so your probability of surviving is higher.

just and example,

Assuming you want to make a comfortable $2000 per month. a 10% roi on 20,000USD

Your account size should be $20,000 USD, with the first few lots size at 0.01 - 0.1, and you must not make multiple entries or too near entries, even if you add on grid you must see what's the trend, if its against you a not.

You will take small profits or trail up. If you get negative and keep adding positions and lot size.

Your back up fund must be 3 x of your $20,000 = $60,000. So when your first 20,000 account is going to be stopped out, you have existing back up of $20,000 into a $40,000 to let u survive longer and when the market starts to reverse in your favor.

To use martingale, you really need to back by backup fund, and the trader must not be greedy and must be discipline not to keep adding into emotional trading when trend is against you.

The sad part is trend can kill a martingale account any time, unless you pick a good pair. Just look at recent eur/usd upmove or even gbp/jpy.

You want to short a gbp/jpy until when?

So many rogue traders has been reported losing billions for banks because of martingale probably, what stupid strategy can compound loses? -> Martingale because of stop loss issue.

I can be honest, been there done there, i blow a martingale account before, a 800% account into 0% , that's where i learn you need a better strategy to survive in this market. And market will make you fear of losing your accumulated profits eventually the entire account. I am sure many retailers have blow up accounts using such strategy too.
  • #126
  • Oct 25, 2012 1:00pm Oct 25, 2012 1:00pm
Quoting 5percent
martingale is very profitable because you don't get stop out easy, u don't takes stop loss easy too.


The sad part is trend can kill a martingale account any time, unless you pick a good pair. Just look at recent eur/usd upmove or even gbp/jpy.

So many rogue traders has been reported losing billions for banks because of martingale probably, what stupid strategy can compound loses? -> Martingale because of stop loss issue.

I can be honest, been there done there, i blow a martingale account before, a 800% account into 0% , that's where...
are you for real? i am shocked you have vouches!
what do you mean by "backup funds"? if u intend to put them all at risk in the first place when u start a martingale betting system, they are part of your trading capital as a whole?

also, no matter how freakishly low your leverage is, its the same.
example u have 100k trdg capital, and risk $1 for $1 profit in the first trade. all it takes is 17 straight losses and you are done.

u can squeeze blowup risk to the size of an atom and bury it 6 feet down in ur garden and its still there.
  • #127
  • Oct 25, 2012 1:48pm Oct 25, 2012 1:48pm
Quoting spicymonkey
are you for real? i am shocked you have vouches!
what do you mean by "backup funds"? if u intend to put them all at risk in the first place when u start a martingale betting system, they are part of your trading capital as a whole?

also, no matter how freakishly low your leverage is, its the same.
example u have 100k trdg capital, and risk $1 for $1 profit in the first trade. all it takes is 17 straight losses and you are done.

u can squeeze blowup risk to the size of an atom and bury it 6 feet down in ur garden and its still there.
like i said i used to use this strategy " WHEN I started trading " and it's not a complete martingale strategy, its somehow one " since i have no stop loss placed " , that's last time. Anyway i don't believe any beginner with 1-3 months skills in their beginning stage never blow any account before or lose their profits, unless he's very discipline and well -taught, or takes very long time to begin his first live account since he needs to practise on demo for so long to be so pro, or hes really a genius trader or yet blow an account as yet with luck. I am not shy to say that i blow such account before with such gambling attitude. So you mean , majority started out pro? I saw many accounts attached to trader now, they are holding and nursing a trade in red pips, majority of them do that with heavy DD. Any DD more than 10 % is a bad strategy to me.



. Anyway, why cares about vouches? What does it mean anyway. A person can have 10 vouches, but if he even a professional trader? prop firm trader? fund manager ? even if hes professional, whats his return?

well to each of their own. Own money, own settlement.

" back up funds ", it's a mindset thingy. An example, If you have a total saving of $10000.00 ? what will you?

lets say u want to trade a comfortable amount of $2000.00/ 1/5 of ur saving.

then u may want to divide your $2000 into many portion.

perhaps $500.00 to trade on a normal 0.01-0.05 lot, then what happened was your martingale failed so badly, it has many negative trades.

U were reaching $100.00 / $500.00. The back up fund will come in to help temporary give you more breathing room towards margin call/stop out. But it does not says add on to new positions.

Its just making your $400 loss at $600/1000.00 since account is now increased by another 100%.

Get the IDEA? that's one of the few stupid strategy some firm's trader are using hoping they can eventually close positions.
  • #128
  • Oct 26, 2012 1:11pm Oct 26, 2012 1:11pm
My friend, I personally know if several good traders with a whole bunch of backup funds that lost everthing trying to trade martingales. You can not win because the law of averages says you can't although the ride can be a real hairball for thrill seekers.

To all newbies out there, if you're looking to become a statistic in FOREX then martingale is definitely for you. If you instead would like to learn about forex and someday become profitable, absolutely RUN from anything that even sounds like martingale including ANYONE who purports that this particular system can in any remote way make you wealthy. It will only make you broke.

Joe
  • #129
  • Oct 26, 2012 1:36pm Oct 26, 2012 1:36pm
Quoting GoodOlJoe
My friend, I personally know if several good traders with a whole bunch of backup funds that lost everthing trying to trade martingales. You can not win because the law of averages says you can't although the ride can be a real hairball for thrill seekers.

To all newbies out there, if you're looking to become a statistic in FOREX then martingale is definitely for you. If you instead would like to learn about forex and someday become profitable, absolutely RUN from anything that even sounds like martingale including ANYONE who purports that...
Well, I wouldn't call them "good" traders. But yeah..
FXGears.com
  • #130
  • Oct 26, 2012 8:41pm Oct 26, 2012 8:41pm
I trade martingale when price overshoots the 200 MA dramatically. It works great as a contrarian play. I trade very small. You have to stomach the drawdown, but it's well worth it if you have the capital and can hang in there. If everything lines up, the odds are greatly in your favor. If you trade martingale when price is near the 200 MA you will eventually die, so wait for a massive overshoot before even attempting it.
  • #131
  • Oct 26, 2012 8:59pm Oct 26, 2012 8:59pm
I am still a fan of martingale ideas.

I've coded many EA based on many different idea surrounding martingale way.

I've tested few ideas, one of my martingale EA works quite fine.
It shows the EA capable of getting 100%+ gain within a year and as normal, drawdown is needed but limiited to half risk of initial deposit.

The EA idea as below:
Martingale not need very huge capital, USD1000 is sufficient.
lot size started with 0.1.
Place takeprofit pips and stoploss pips for each open trades.
YEs, this EA is with takeprofit and stoploss!!
One trade each time.
No indicators, just price actions.
A special trick to minimise the drawdown.
And martingale normally will keep the equity up fast at the beginning.
Risk is only half the equity.

So reward to risk is 2:1 where most potentially u will get return 100% from deposit and risk only half the deposit amount.

Open your mind, think out of box!!
  • #132
  • Oct 27, 2012 2:11am Oct 27, 2012 2:11am
Quoting akukaya
I am still a fan of martingale ideas.

I've coded many EA based on many different idea surrounding martingale way.

I've tested few ideas, one of my martingale EA works quite fine.
It shows the EA capable of getting 100%+ gain within a year and as normal, drawdown is needed but limiited to half risk of initial deposit.

The EA idea as below:
Martingale not need very huge capital, USD1000 is sufficient.
lot size started with 0.1.
Place takeprofit pips and stoploss pips for each open trades.
YEs, this EA is with takeprofit and stoploss!!
One...
Instead of managing each trade with its own separate TP and SL, trade the entire group of trades as one basket, and then close out the basket when a net TP has been reached. You need a closeAll tool like Profitkeeper that allows you to do this based on equity targets. This keeps your focus on one price wave at a time, and makes the process more mechanical.
Measure trends automatically with zero lag
  • #133
  • Oct 27, 2012 6:01am Oct 27, 2012 6:01am
Quoting ybfjax
Instead of managing each trade with its own separate TP and SL, trade the entire group of trades as one basket, and then close out the basket when a net TP has been reached. You need a closeAll tool like Profitkeeper that allows you to do this based on equity targets. This keeps your focus on one price wave at a time, and makes the process more mechanical.
That is the other type of martingale EA.The problem with that version is you need to keep a basket of trades, where death trade do occurs and blow the account.With the tp and sl version, u avoid spikes and EA run with lower DD.
  • #134
  • Oct 27, 2012 6:11am Oct 27, 2012 6:11am
Quoting akukaya
That is the other type of martingale EA.The problem with that version is you need to keep a basket of trades, where death trade do occurs and blow the account.With the tp and sl version, u avoid spikes and EA run with lower DD.
So you're just doubling up your bet size after each failed trade then? (also called Martingale)

You might have a lower drawdown at times, but you're just as susceptible to a 'death sequence' of trades.

A roulette table in Vegas once did 32 black numbers in a row, while the odds are 22,254,817,519-to-1 against this happening, shorter (but just as deadly if you're betting size increases each time) streaks happen all the time. (source)

I've also read stories from Europe about a casino in France who had 30+ reds in a row once.

These are on balanced and checked wheels too.

Just saying, I'm glad you're into the strategy and all but gains mean nothing when the streak that kills you takes them all back and then some.
FXGears.com
  • #135
  • Oct 27, 2012 8:58am Oct 27, 2012 8:58am
Quoting Jack_Larkin
So you're just doubling up your bet size after each failed trade then? (also called Martingale)

You might have a lower drawdown at times, but you're just as susceptible to a 'death sequence' of trades.

A roulette table in Vegas once did 32 black numbers in a row, while the odds are 22,254,817,519-to-1 against this happening, shorter (but just as deadly if you're betting size increases each time) streaks happen all the time. (source)

I've also read stories...
I agree with you most of the marty biggest problem is the sequence of bad trades., However, based on the price action and some trick of MM, u can avoid the death trade. So far, with the trick that I applied, it shows by market movement, selection on entry and proper selection of TP and SL shows no death trades for the version of this martyEA. By comparing the same data, all other marty type prone to face the death trades but not with this strategy yet.
At least the target of reward to risk is 2:1, meaning if u win with the EA, u get the gain 100% of your initial equity. But if it goes to sequence of bad trades, it will risk only half of the initial equity. The EA had hard stop but till now, the hard stop not yet occurs. And I think it is possible to occurs but at very very awkward market condition.

You have to test the EA to understand what I really mean.

I do understand on normal martingale style, especially the one that keep open on the wrong sides of market till blow up the account. This type is better explained by hanover explaination on marty. Not need to repeat.
  • #136
  • Oct 27, 2012 9:08am Oct 27, 2012 9:08am
Quoting Jack_Larkin
So you're just doubling up your bet size after each failed trade then? (also called Martingale)

You might have a lower drawdown at times, but you're just as susceptible to a 'death sequence' of trades.

A roulette table in Vegas once did 32 black numbers in a row, while the odds are 22,254,817,519-to-1 against this happening, shorter (but just as deadly if you're betting size increases each time) streaks happen all the time. (source)

I've also read stories...
I agree with you most of the marty biggest problem is the sequence of bad trades., However, based on the price action and some trick of MM, u can avoid the death trade. So far, with the trick that I applied, it shows by market movement, selection on entry and proper selection of TP and SL shows no death trades for the version of this martyEA. By comparing the same data, all other marty type prone to face the death trades but not with this strategy yet.
At least the target of reward to risk is 2:1, meaning if u win with the EA, u get the gain 100% of your initial equity. But if it goes to sequence of bad trades, it will risk only half of the initial equity. The EA had hard stop but till now, the hard stop not yet occurs. And I think it is possible to occurs but at very very awkward market condition.

You have to test the EA to understand what I really mean.

I do understand on normal martingale style, especially the one that keep open on the wrong sides of market till blow up the account. This type is better explained by hanover explaination on marty. Not need to repeat.
  • #137
  • Oct 27, 2012 9:11am Oct 27, 2012 9:11am
Quoting akukaya
I agree with you most of the marty biggest problem is the sequence of bad trades., However, based on the price action and some trick of MM, u can avoid the death trade. So far, with the trick that I applied, it shows by market movement, selection on entry and proper selection of TP and SL shows no death trades for the version of this martyEA. By comparing the same data, all other marty type prone to face the death trades but not with this strategy yet.
At least the target of reward to risk is 2:1, meaning if u win with the EA, u get the gain 100%...
That's the thing, "price action", "strategy" etc.. the market can ultimately do anything it wants. There's nothing stopping it from defying your analysis, no matter how confident you believe in your system. You can back test it, forward test it, etc... but in the end, if you have a system that will one day get into an "all or nothing" trade, even if that's not in a single basket but instead a series of bad trades leading up to additional risk, then it's really just a matter of time before that trade happens.

"tricks" are just ways of deferring the eventual blow up, usually doing so by reducing potential profit in the short term.

Or, put another way, if a system has a real edge, there'd be no need to martingale it, and instead you could get a much better risk profile by setting your bet size as it relates to your account balance (not your trade history.)

That's the one thing people get caught up with when using martingale betting strategies, they think the betting pattern will correct for a negative expectancy system.. when it doesn't.
FXGears.com
  • #138
  • Oct 28, 2012 7:33am Oct 28, 2012 7:33am
Quoting Jack_Larkin
.....
Or, put another way, if a system has a real edge, there'd be no need to martingale it, and instead you could get a much better risk profile by setting your bet size as it relates to your account balance (not your trade history.)

That's the one thing people get caught up with when using martingale betting strategies, they think the betting pattern will correct for a negative expectancy system.. when it doesn't.
You are correct. Hanover covered this and there is also a good article on the Wizard of Odds that covers this.

The flip side to what you say is that if your entry method has an edge (positive expectancy), then martingale or piling on the aggression will greatly increase profits quickly as well

A casino, when playing heads up against the dealer, will ALWAYS ensure you have a negative expectancy. Thankfully forex is quite a bit easier to have a positive expectancy. And with small lot sizes, it is practical for traders with a either a small or large account to take advantage of this.

The only disadvantage to using large amounts of small lot sizes is the way that mt4 is designed as a ticket based order system. So when a very large basket needs to be closed, there is 'slippage' between the the TP trigger and when all of the basket is closed out. If you have a vps within 50 milliseconds of the brokers servers, mt4 avgs 3-5 trades per second. As long as your TP is high enough, you walk out with profits, but the slippage can be positive or negative. Mt5 is in line with ECN/exchange based product ordering, so they track net positions per instrument. So only one order to offset your position is necessary.
Measure trends automatically with zero lag
  • #139
  • Oct 28, 2012 8:51am Oct 28, 2012 8:51am
Quoting ybfjax
A casino, when playing heads up against the dealer, will ALWAYS ensure you have a negative expectancy. Thankfully forex is quite a bit easier to have a positive expectancy. And with small lot sizes, it is practical for traders with a either a small or large account to take advantage of this.

The only disadvantage to using large amounts of small lot sizes is the way that mt4 is designed as a ticket based order system. So when a very large basket needs to be closed, there is 'slippage' between the the TP trigger and when all of the basket is...
Ah, but then you run into two distinct problems:

(and I know you're talking about baskets of trades, but follow me here)

1) If we only focus on the edge/signal bet itself (which includes a stop level that identifies the trade needs to be cut to maintain the edge,) and double up the trade size after each losing trade takes place (a la martingale)... then we're stuck hoping we don't run into a string of losers that increase our bet size beyond what our account can handle.

This is important since a system's edge can often be dependent on some criteria where the trade is cut when not working out, preserving capital for when the edge/signal works out well.

So while the edge stays the same on a per trade basis, the rick profile of the system shifts dramatically as it relates to the account size. And we run into the same problem as detailed before: starting small to survive a longer streak of losses, which only serves to delay the eventual blowup by reducing profits in the short term.

2) If we instead go the basket route and use martingale at each entry within the basket, well, forget about any edge at all. If we employ martingale to average into a losing trade hoping it reverses far enough to take us out at a profit, we effectively toss any edge we might have had when we opened the first trade out of the window.

If we had an edge when we opened a 1 unit of risk trade, do you think that edge still exists when we're 200+ pips away and putting down 32+ units of risk hoping to make back that 1 unit? (Example numbers, but could be 100 pips away, 500 pips.. matters not.)

The basket method ends up scrubbing out the edge and instead shifts the expected outcome to the market's will to retrace... and the market can do whatever it wants, not needing to retrace for your basket if it so feels like running further than your account can handle.

Now, that's not suggesting that averaging into a trade is bad, sometimes you can work out a system that grabs multiple entries (without doubling up, still with stops, and planned out in advance to take the trades if the market moved against them or not), but it's the combination of increasing your bet each trade within your basket (martingale) and relying on averaging to turn a failing trade into a winner that will kill any edge you have and leave you at the mercy of the market.
FXGears.com
  • #140
  • Oct 29, 2012 2:07am Oct 29, 2012 2:07am
Quoting Jack_Larkin
Ah, but then you run into two distinct problems:

(and I know you're talking about baskets of trades, but follow me here)

1) If we only focus on the edge/signal bet itself (which includes a stop level that identifies the trade needs to be cut to maintain the edge,) and double up the trade size after each losing trade takes place (a la martingale)... then we're stuck hoping we don't run into a string of losers that increase our bet size beyond what our account can handle.

This is important since a system's edge can often be dependent on some...
You can adjust the TP so that you take off more than 1 unit. Say you want to net 15-20 units in the basket, but only if the range exceeds a certain amount (and you have added x number of positions). It makes a lot more sense this way, especially considering that the market moves up and down in waves.

You can still have fixed TP and do well, but it will take longer, and you get much less use out of your total position sizing.

Quote
Now, that's not suggesting that averaging into a trade is bad, sometimes you can work out a system that grabs multiple entries (without doubling up, still with stops, and planned out in advance to take the trades if the market moved against them or not), but it's the combination of increasing your bet each trade within your basket (martingale) and relying on averaging to turn a failing trade into a winner that will kill any edge you have and leave you at the mercy of the market.

Action-reaction of buyers and sellers pose practical limitations on how far a price will go without some type of pullback (from my calculations, at least 23% from initial entry, but usually 50-78%), even if the overall trend ends up being 5000 pips. Riding the waves is the fun part. The fear of the unknown variable (tsunami range) should not take your attention from the known parts (position sizing, average ranges, etc)

We never think about these things when we go for a swim, or fly on an airplane. Do you really care how deep the ocean is, or how high the plane is up in the air? As long as I can maintain afloat and stay alift, I could care less. What is so different about prices in a financial market? I say you focus on the 1/2 that you have control over.
Measure trends automatically with zero lag
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