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Martingale, Anti-martingale, and Compounding

  • #1
  • First Post: Dec 21, 2015 11:47am Dec 21, 2015 11:47am
Hi all traders,
i started this thread to meet others people interested in money management.
We all know that martingale strategies are loser in the long period, so while in short period it can be profitable, in long term it will blow accounts.
I want to take advantage of the martingale strategies through a compounding strategy.
Question are:
How many consecutive negative trades can i get until i 'll blow my account?
Can i take advantage of the consecutive small profit of the martingale before it blow my account?
Should i really care if martingale will blow my account if it can in the meanwhile double it or triple it?
What is compounding?
I want to risk only 100 dollars and i want to earn only 5 dollars.
Compounding the profit after 40 trades i will get 703 dollars == 1.05^40 *100
remember i will risk 100 dollars anytime to get only 5 dollars.
Question is :
Do you think martingale can help me to get that 5 dollars risking 100 dollars?

Before to say what i think about it, i would like to know what you think, your consideration...
I'm sorry for my bad english anyway if somebody didn't understand something i will explain better it.
  • #2
  • Dec 21, 2015 2:47pm Dec 21, 2015 2:47pm
It is interesting, Can you explain it and take example? thanks
  • #3
  • Dec 21, 2015 2:55pm Dec 21, 2015 2:55pm
Quoting Gurudeva
Hi all traders, i started this thread to meet others people interested in money management. We all know that martingale strategies are loser in the long period, so while in short period it can be profitable, in long term it will blow accounts. I want to take advantage of the martingale strategies through a compounding strategy. Question are: How many consecutive negative trades can i get until i 'll blow my account? Can i take advantage of the consecutive small profit of the martingale before it blow my account? Should i really care if martingale...

The formula you stated (1.05^40 *100 ) compounds as long as you increase you risk %5 every time.
If you risk $100 every time and make $5, after 40 trades you make $200. (40 * 5)
On the other hand if you risk 100 and add you winnings to the $100 you started with than you compound as you stated above. But your risk is not $100 anymore, it will increase with every winning trade.
  • #4
  • Dec 21, 2015 3:03pm Dec 21, 2015 3:03pm
Thank you for your answer.
I understand what you said. And you are right but the only money of your deposit you will risk are only 100 dollars, the others will be only profits that you compound and that you risk again and again .
  • #5
  • Dec 21, 2015 3:06pm Dec 21, 2015 3:06pm
Quoting Gurudeva
Hi all traders, i started this thread to meet others people interested in money management. We all know that martingale strategies are loser in the long period, so while in short period it can be profitable, in long term it will blow accounts. I want to take advantage of the martingale strategies through a compounding strategy. Question are: How many consecutive negative trades can i get until i 'll blow my account? Can i take advantage of the consecutive small profit of the martingale before it blow my account? Should i really care if martingale...
Need more details but the simple answer is No.
Solutions ONLY!!!
  • #6
  • Dec 21, 2015 3:08pm Dec 21, 2015 3:08pm
Quoting Gurudeva
Thank you for your answer. I understand what you said. And you are right but the only money of your deposit you will risk are only 100 dollars, the others will be only profits that you compound and that you risk again and again .
Exactly. At first loss, you will lose all though.
If you take random walk principles with 100 risk for 5 profit, your winning percentage is roughly 100/105 = %95.23
So there is a %4.77 chance that you will incur a loss and wipe all out. Thats about 1 out of 20 trades. So if you play it safe and make 10 trades in compounding and put your profits in your pocket (which is approximately $62), than go back to 100 and do it all over again. In 2 successful round you can pocket $124.
  • #7
  • Dec 21, 2015 3:13pm Dec 21, 2015 3:13pm
Quoting GoldTheHun
{quote} Exactly. At first loss, you will lose all though. If you take random walk principles with 100 risk for 5 profit, your winning percentage is roughly 100/105 = %95.23 So there is a %4.77 chance that you will incur a loss and wipe all out.

Great Man, you have only %4.77 that you 'll lose all (that is only 100).
I will ask you the same question of the first post.

Can i take advantage of the consecutive small profit of the martingale before it blow my account?
  • #8
  • Dec 21, 2015 3:13pm Dec 21, 2015 3:13pm
Quoting BillYon
{quote} Need more details but the simple answer is No.
No for what?
  • #9
  • Dec 21, 2015 3:16pm Dec 21, 2015 3:16pm
Quoting Gurudeva
{quote} Great Man, you have only %4.77 that you 'll lose all (that is only 100). I will ask you the same question of the first post. Can i take advantage of the consecutive small profit of the martingale before it blow my account?
What would it matter? Small profit in a blown account. Huh? That's dumb!
Solutions ONLY!!!
  • #10
  • Dec 21, 2015 3:18pm Dec 21, 2015 3:18pm
Quoting Gurudeva
{quote} Great Man, you have only %4.77 that you 'll lose all (that is only 100). I will ask you the same question of the first post. Can i take advantage of the consecutive small profit of the martingale before it blow my account?

Sure you can but don't forget the loss can come in your first trade. %4.77 loss doesn't mean that the loss will come later.
Every trade you take there will be %4.77 chance of losing, not including the spread. The spread will increase this %4.77
  • #11
  • Dec 21, 2015 3:18pm Dec 21, 2015 3:18pm
Maybe you can explain a bit more
Solutions ONLY!!!
  • #12
  • Dec 21, 2015 5:13pm Dec 21, 2015 5:13pm
Martingale vs Anti-Martingale huh? Well I'll say that not using Martingale is by far one of the senseless things one could do in forex. Reason being, only because if you have a system which is based on "entry accuracy" then after every loss, the probability that your tp will hit increases greatly. I personally aim for about 10-15 pips profit per entry, and under no circumstance would I allow ANY position to float for more then the same amount of pips I am willing to hit. In fact, the account which I have uploaded to trade explorer, I will use that as proof that martingale works. My goal is to hit 500% and withdraw before margin call.
If Santa trusts me, why can't you?
  • #13
  • Dec 21, 2015 7:35pm Dec 21, 2015 7:35pm
when market is trending without retrace up to 2000 pips (5 digits broker), it will blow your account
  • #14
  • Dec 21, 2015 11:03pm Dec 21, 2015 11:03pm
Quoting niagara33
when market is trending without retrace up to 2000 pips (5 digits broker), it will blow your account
Which is why it depends on the system you are using. If you simply have a bias, and you keep opening larger orders after every loss, ignoring price action, then of course 2000pips would spell doom for you, but that isn't trading, that is more like what they do in the eur/usd thread; guessing.
If Santa trusts me, why can't you?
  • #15
  • Dec 21, 2015 11:15pm Dec 21, 2015 11:15pm
I have been warned by many here against the use of martingale. The only problem with martingale system is that you risk a lot for a small gain. But this hasn't deterred me from using it. I've been testing it for a while now and it seems quite profitable if applied correctly. For example, I don't trade during important news releases. I tested this system on a $5000 demo account with very good results so far and, admittedly, had a drawdown of over 20% on a couple of occassions because I became greedy. So yes, as long as you're desciplined and don't suffer from FOMO (Fear Of Missing Out) you should be alright.
  • #16
  • Dec 21, 2015 11:22pm Dec 21, 2015 11:22pm
Quoting Scalper507
{quote} If you simply have a bias, and you keep opening larger orders after every loss, ignoring price action, then of course 2000pips would spell doom for you, but that isn't trading.
Totally agree with you there
  • #17
  • Dec 21, 2015 11:36pm Dec 21, 2015 11:36pm
Quoting failedbid
{quote} Totally agree with you there
For the most part, that is why "martingale" has gotten a bad rap. You see over and over again, people who ignore price action, and swing trade using martingale. They try to predict highs/lows and after every loss, they become more and more bias, and before you know it they are over exposed to the market, in one direction and of course the martingale leads to a margin call, but it is due highly impart of their lack of respect of price action.
If Santa trusts me, why can't you?
  • #18
  • Dec 21, 2015 11:48pm Dec 21, 2015 11:48pm
Quoting failedbid
I have been warned by many here against the use of martingale. The only problem with martingale system is that you risk a lot for a small gain. But this hasn't deterred me from using it. I've been testing it for a while now and it seems quite profitable if applied correctly. For example, I don't trade during important news releases. I tested this system on a $5000 demo account with very good results so far and, admittedly, had a drawdown of over 20% on a couple of occassions because I became greedy. So yes, as long as you're desciplined and don't...
What you should be looking to do in demo is gaining a very accurate entry. If you aim for accurate entries + stick to small gains in pips, and a R:R OF 1:1 then martingale should be perfect for you. Take the following trade as an example.

EUR/USD 1.09181 SELL
Your take profit is 1.0908
Your sl is 1.0922

Should you stop out you simply reverse your order to as follows
EUR/USD 1.0922 buy
Your take profit 1.09281
Your sl 1.09181

Using those trades as an example, in which the trader believes he/she has an edge in which they won't experience more then x amount of consecutive losses until their TP is hit, then martingale money management should work great.

Of course, you have the expectancy, before placing the trade that you won't experience more then say 4 straight losses, which of course allows you to come up with a martingale money management order system, based on your max draw-down. So say I don't want to lose more then 17.6% of my account on 4 straight trades, and my avg sl is 8 pips, then you setup your martingale orders up that way.
My account is 1100 eurs, and I don't want to lose more then 176 eurs on 4 straight orders then I would setup my martingale as such.

Order 1 = .1 8 eur loss on 8 pip sl
Order 2 = .3 24 eur loss on 8 pip sl
Order 3 = .6 48 eur loss on 8 pip sl
Order 4 = 1.2 96 eur loss on 8 pip sl
--------------------------------------------------------
4 straight losses 176 eurs loss on 4 straight losses of an avg of 8 pip sl per entry.


That is how I setup my martingale money management system, for every single formation I trade, and I stick to it! Yet others use martingale wildly and trade on tilt after a loss, simply adding to a bias direction after everytime they stop out. It is the same concept, but they are basing their position on bias, and not on an educated guess on what the price will do.
If Santa trusts me, why can't you?
  • #19
  • Dec 22, 2015 6:47am Dec 22, 2015 6:47am
Quoting Scalper507
{quote} What you should be looking to do in demo is gaining a very accurate entry. If you aim for accurate entries + stick to small gains in pips, and a R:R OF 1:1 then martingale should be perfect for you. Take the following trade as an example. EUR/USD 1.09181 SELL Your take profit is 1.0908 Your sl is 1.0922 Should you stop out you simply reverse your order to as follows EUR/USD 1.0922 buy Your take profit 1.09281 Your sl 1.09181 Using those trades as an example, in which the trader believes he/she has an edge in which they won't experience more...
Very nice! i like you way to use martingale.
A very important concept is that we have to know that soon or later martingale will fail !
But if we risk only our drawdrown and in the meanwhile we double or triple it , why should we care about it?
The best way to take advantage of the small profits , earned by also the use of martingale system, is to use the coumpounding as well.
Talking about you example , i have to notice that your earning 8 pips and risking 176 that is only 4,54 % , you should have a really high winning trades % to at least double it.
Anyway maybe it's better to not call it "Martingale" but only a lots increment.
  • #20
  • Dec 22, 2015 7:04am Dec 22, 2015 7:04am
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