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Double or Nothing Scaling

  • #1
  • First Post: Edited 5:23am Mar 9, 2017 1:53am | Edited 5:23am
Edit: Just realised this is the Martingale Strategy

Hello I am looking for any criticism, and too methods of implementation.

Forex is 2 dimensional, price is 1 dimensional. Price can only go up or down. Suppose the market is random, suppose it's not. We can agree that price has a 50% chance of going X pips either way.

So, the strategy. Suppose you trade a strategy where is price breaks a certain level upwards or downwards there is a 50% chance of success. So if you win you win. If you lose you lose. Now suppose when you lose, you hedge that loss, and trade the following day with twice the leverage, and so on and so forth until a success is achieved. In the end the return is small compared to the leverage used but the losses are hedged. There is 0.0009765625% chance of failing 10 times in a row with a 50% winrate. So if you trade small enough to be able to handle 10 losses, then you will be able to consistently make money without risk of going broke, given that the percentage mentioned above is near 0.

What are your thoughts, I would like to discuss theories on how to implement this strategy avoiding as much risk as possible.

Regards.
HMSR
  • #2
  • Mar 9, 2017 3:04am Mar 9, 2017 3:04am
The best you can do if that's your way ... is to use this martingale on roulette at the casino ... At least you will have some great fun !!!
MT4/MT5 EAs/Indicators/Alerts coder
  • #3
  • Mar 9, 2017 3:16am Mar 9, 2017 3:16am
Quoting FerruFx
The best you can do if that's your way ... is to use this martingale on roulette at the casino ... At least you will have some great fun !!!


Is this really gambling? If you are able to cover your losses on the unlikely scenario that an event of near impossibility will happen? Suppose you have a strategy that performs 60% of the time.
HMSR
  • #4
  • Mar 9, 2017 3:20am Mar 9, 2017 3:20am
Quoting Hmsr
What are your thoughts, I would like to discuss theories on how to implement this strategy avoiding as much risk as possible.
Sounds great in theory....

I think one question is how many pips you would expect to be trading for. If you are trading for small scalps, say 10-20 pips then the spread, slippage, hesitation in entering, broker delays, general human error and such will make that 50-50 more like 40-60 which gives you a losing edge.

However, if you are going for big pips in order to make such margin to be negligible, then you would need MUCH MUCH deeper pockets to survive when several trades all go against you, which some time they inevitably will.

Don't mean to be negative, but it's important to be realistic about how you can trade and you did ask for criticism.
  • #5
  • Mar 9, 2017 3:27am Mar 9, 2017 3:27am
Quoting HeyYou
That's pretty much how I made money in the past. but I was selective and deadly systematic in what I call a "stop and reverse" system.

What happened? Did you stop making money that way?

If you don't mind me asking.
  • #6
  • Mar 9, 2017 3:28am Mar 9, 2017 3:28am
Quoting Hmsr
{quote} Is this really gambling? If you are able to cover your losses on the unlikely scenario that an event of near impossibility will happen? Suppose you have a strategy that performs 60% of the time.
Yes that's definitively gambling. A trade should be opened (and sized) with a reason ... not based on a scenario which might unlikely happen ...

Please don't get me wrong. That's just an opinion ... No disrespect intented here.
MT4/MT5 EAs/Indicators/Alerts coder
  • #7
  • Mar 9, 2017 4:43am Mar 9, 2017 4:43am
Quoting Hmsr
Hello I am looking for any criticism, and too methods of implementation. Forex is 2 dimensional, price is 1 dimensional. Price can only go up or down. .....
Here is your problem. Price is NOT 2 dimensional. Price can go sideways for a lot of the time. If you are in a trade going sideways, you can suffer a lot of emotional pain deciding whether to stay in or exit.
Consider this a many horse race and you may become more successful.
Better still, consider reversing this (martingale) strategy and double your contract size ONLY when you are winning. This way, you are only risking part of your previous gains and not your capital.
Think like a successful trader and you may become successful too.
  • #8
  • Mar 9, 2017 4:53am Mar 9, 2017 4:53am
2 more ideas to ponder.

1. Wonder if it would it work, if, instead of increasing leverage after a loss, try the same thing but increase the target size. for example the first trade you go for 5 pips the second trade you go for 10 pips, etc.

2. average in exponentially instead of hedging. for example, if you short at 1.0 expecting a target of 0, and it goes to 2.0 you add a hedge, at 4.0 you add a seoncd position, if it goes to 8 you add a third, another at 16 etc. etc. always all you need is a 50% retrace to get out at break even and we all know price always sooner or later retraces at least 50%, so in tehory you will never lose a trade

just musing
  • #9
  • Mar 9, 2017 5:23am Mar 9, 2017 5:23am
Quoting FerruFx
{quote} Yes that's definitively gambling. A trade should be opened (and sized) with a reason ... not based on a scenario which might unlikely happen ... Please don't get me wrong. That's just an opinion ... No disrespect intented here.
Actually thanks for your comment, you were on point
HMSR
  • #10
  • Mar 9, 2017 5:26am Mar 9, 2017 5:26am
Quoting dagoods
2 more ideas to ponder. 1. Wonder if it would it work, if, instead of increasing leverage after a loss, try the same thing but increase the target size. for example the first trade you go for 5 pips the second trade you go for 10 pips, etc. 2. average in exponentially instead of hedging. for example, if you short at 1.0 expecting a target of 0, and it goes to 2.0 you add a hedge, at 4.0 you add a seoncd position, if it goes to 8 you add a third, another at 16 etc. etc. always all you need is a 50% retrace to get out at break even and we all know...


If you extend the range, the 50% probability is altered.
And you are talking about what I believe to be scaling in during a strong trend
HMSR
  • #11
  • Edited 5:53am Mar 9, 2017 5:34am | Edited 5:53am
Quoting FerruFx
{quote} Yes that's definitively gambling. A trade should be opened (and sized) with a reason ... not based on a scenario which might unlikely happen ... Please don't get me wrong. That's just an opinion ... No disrespect intented here.


Though I do have another proposition, and I could just be naive, criticize if you see it failing.
Basically, suppose I have a 60% winning strategy with 1:1 risk, and everyday I risk like 0.5 percent or 1 percent. Within that 1 percent will be a a number of trades.

The failure to Martingale is subject to that one time when too many fails occur in a row. If one were to have many many smaller trades so altogether the risk is like 1 percent, if the smaller trades were to stack up on losses, the strain on drawdown would not be so heavy. The only way this becomes useless though is if all trades taken amount to stacking losses and it would be asif it were never diversified. But, for this to fail with very low risk in diverse trades, in my opinion is approaching impossibility. I hope I was clear.

To sum sum:
-Trade with an average 60% winrate instead of 50% like martingales
-Instead of relying on a singular trade, trade various independent 60% strategies so that when losses stack up on one or more of the trades, you stop trading the other trades so as to maintain a low level of risk until the fails end. In essence giving you a few more lives depending on how many various trades you are taking.
-What if you prepare for the virtually impossible
-What if you set a loss limit like if a trade reaches an unlikely 5 losses in a low, you cease the scaling and accept the loss and move on. So it's like you still accept losses, just in a different way and time. Potentially this is more efficient then simple day to day wins and losses
HMSR
  • #12
  • Mar 9, 2017 5:35am Mar 9, 2017 5:35am
Anyway martingale is very dangerous without a negative balance protection. been there and it's not fun.

Also the casino is a far better option if you plan to just toss a coin.
  • #13
  • Mar 9, 2017 5:46am Mar 9, 2017 5:46am
Quoting HeyYou
Anyway martingale is very dangerous without a negative balance protection. been there and it's not fun. Also the casino is a far better option if you plan to just toss a coin.
Sorry to hear
HMSR
  • #14
  • Mar 9, 2017 5:49am Mar 9, 2017 5:49am
Quoting Hmsr
{quote} Sorry to hear
I lost just 50 dollars.. but could have easily lost home if I had say 10k on my account.

be careful guys
  • #15
  • Mar 9, 2017 6:34am Mar 9, 2017 6:34am
Quoting Hmsr
{quote} If you extend the range, the 50% probability is altered. And you are talking about what I believe to be scaling in during a strong trend
how is the 50% probability altered ?
  • #16
  • Mar 9, 2017 1:02pm Mar 9, 2017 1:02pm
this strategy is simply doomed. often you will find 15, even 20-25 unfavorable repetitions. no one can handle that much... i wish there were just 10...
Maadik Hugiis. IQ 69.
  • #17
  • Edited 9:01am Mar 10, 2017 8:50am | Edited 9:01am
Quoting Hmsr
{quote} If you extend the range, the 50% probability is altered. And you are talking about what I believe to be scaling in during a strong trend
1. yes extending the range of tp indeed alters the 50% probability, UNLESS you believe in monty hall! lol https://en.wikipedia.org/wiki/Monty_Hall_problem ah if only there were a way to make monty halls logic apply to trading!

2. yes you could label it "scaling". but if you were a bank or market maker with unlimited funds and time to wait to get out of your trades, you could do it and never lose a trade, ever. of course its probably better to just get in at 50% retraces and hope for the continuation of the trend. then you would have 1 to 1 or better RR and rarely, if ever would you lose 10 in a row.... probably never i speculate. its all about the edge of underlying strategy man. you need a strategy that is never fails to go 10 times against you, with at least 1 to 1 rr. strategy>>>> http://www.babypips.com/school/eleme...nacci-who.html get in at the retrace levels, exit at the extension levels. simple, easy, probably not going to lose 10 in a row.

perhaps try that>>>> (see attached)

the thing to consider is this... if your wins are more than 1 to 1 it completely changes the math in your favor. Ultimately martingale is simply a different risk strategy, but does not change the underlying necessity of an edge.

2 cents. but then again who am to say. i don't claim to know anything or be good at trading at all. i could just be another forex factory dreamer trolling your thread for all you know!
Attached Image (click to enlarge)
Click to Enlarge Name: example of better than 1 to 1 entry at 50% retrace of the more than 50% retrace.png Size: 68 KB
  • #18
  • Mar 10, 2017 9:04am Mar 10, 2017 9:04am
one last thought. what if you had two charts of the same currency and on the first chart only took shorts and on the second chart only took longs. what would be the result then? would having two competing martingales going at the same time hedge the inevitable blow up? so if the first account hit the dreaded 10 losses ina row, would you have made enough money in profits, on the second account to be profitable overall? again just musing.
  • #19
  • Mar 10, 2017 11:35am Mar 10, 2017 11:35am
Quoting dagoods
{quote} 1. yes extending the range of tp indeed alters the 50% probability, UNLESS you believe in monty hall! lol https://en.wikipedia.org/wiki/Monty_Hall_problem ah if only there were a way to make monty halls logic apply to trading! 2. yes you could label it "scaling". but if you were a bank or market maker with unlimited funds and time to wait to get out of your trades, you could do it and never lose a trade, ever. of course its probably better to just get in at 50% retraces and hope for the continuation of the trend. then you would...
can you please explain how is the probability altered when the range is extended ?
  • #20
  • Mar 10, 2017 11:43am Mar 10, 2017 11:43am
Quoting dagoods
one last thought. what if you had two charts of the same currency and on the first chart only took shorts and on the second chart only took longs. what would be the result then? would having two competing martingales going at the same time hedge the inevitable blow up? so if the first account hit the dreaded 10 losses ina row, would you have made enough money in profits, on the second account to be profitable overall? again just musing.
10 losses in a row for the 1st account : 1-2-4-8-16-32-64-128-256-512
10 wins in a row in the 2nd account ; 1-1-1-1-1-1-1-1-1-1
two competing martingales going at the same time still fail when encountering such streaks.
Martingale could work if the system you are trading doesnt have to many losses in a row, but if left uncapped ( doubling til infinity ) it will blow.
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