Why are martingale strategies so hated | Forex Factory

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Why are martingale strategies so hated

  • #1
  • First Post: Jun 12, 2017 12:01pm Jun 12, 2017 12:01pm
I have been trading for a couple of years and have developed a strategy which has a martingale element to it with proper money management. For the months i have traded i was able to get my initial investment out and now i am trading only with the profits . My strategy involves regular weekly withdrawals.

This month i was able to get 5x profit(newbie luck?) of my initial deposit as i did a monthly withdrawal, which made me wonder(self doubt) and create this thread since the general consensus is quite negative about martingale based strategies.

So my question to the senior traders is: why martingale is considered as a fail strategy? Can’t a martingale work with regular withdrawals and proper money management? Will such strategy work in a long run?

Reason being i am sure there are many who have tried doing this.
  • #2
  • Jun 12, 2017 10:37pm Jun 12, 2017 10:37pm
The reason why I dislike Martingale systems is because they will fail eventually. And when they do, you lose your whole capital. It's just a matter of time before the fat tail comes.
On a more personal level, I think a lot of people like to trade this way, because they don't like to lose. It hurts too much and they want to be right. A lot of brainpower has gone into Martingale systems - https://www.amazon.com/When-Genius-F.../dp/0375758259 and they still come short when the fat tail comes or if you are in a bad market condition for your strategies.

If you withdraw from your account, aren't you just cutting risk and profits?

You can trade for years without getting hit by your money management, but when it does, you will be paying the price.

Your equity curve will look like this eventually:
Attached Image (click to enlarge)
Click to Enlarge Name: taleb-turkey.png Size: 75 KB
  • #3
  • Jun 13, 2017 12:52am Jun 13, 2017 12:52am
Big risk for small gain.
No way in hell it will ever ever work.
  • #4
  • Jun 13, 2017 5:55am Jun 13, 2017 5:55am
Quoting solecrusader
So my question to the senior traders is: why martingale is considered as a fail strategy? Cant a martingale work with regular withdrawals and proper money management? Will such strategy work in a long run? Reason being i am sure there are many who have tried doing this.
//-----

hey crusader..... martingales, like hedging, are vocally hated by some..... some reserve comment.....

i've written several hundred martingale ea's but personally never have ran one in a real account, or demo for that matter .... they still interest me intensely.....

there is a guy here from jordan that ran nothing but martingales and ran his accounts up into the 100's of thousands..... several years ago a gbpcad string of trades cost him considerably....

the 'flip a coin' type martingales , such as the morgan ea, will have a tough time lasting over a few years...... which might be considerably longer than the average trader..... other more intelligent type martingales could possibly last much longer.....

why don't you create an explorer, even if it's private, and see how it works for you..... let us know.....h
to trade and code, keep both simple... no call to impress....h
  • #5
  • Jun 13, 2017 10:04am Jun 13, 2017 10:04am
I did some backtesting based on martingale, if you do 50/50 buy sell and assume you don't know which direction the market will go, then it will good for a long time, but since you keep doubling your volume to fix your previous loss it will add quickly. My test went very well until I had to pay with a volume of 5.12.

Martingale is very profitable as long you can predict the market very well... and yes you will be able to for a long time, but don't be surprised if you have to have a volume of 5.12 or 10.24 and I'm not sure if you can afford that, if you can there are no issues with this strategy. Wikipedia has also a good article about martingale; the unlucky player hits 10 times black in a row and cannot afford his 11th bet and loses all.
  • #6
  • Jun 13, 2017 12:13pm Jun 13, 2017 12:13pm
I think some martingale must have to SL when we stop adding money to this "circle". Mayby look for martingale from bigger picture : 1 martingale it's for 1 account which is part of all your capital.



When You make money normal better to not use martingale, because "black day" can come no one know when.
"The essence of Discipline is that there are no exceptions" - Jack Schwager
  • #7
  • Jun 14, 2017 9:39pm Jun 14, 2017 9:39pm
Reverse Martingale is better. All or nothing.
  • #8
  • Jun 16, 2017 1:27pm Jun 16, 2017 1:27pm
1) It lowers your profitability as you are forced to be very conservative on your position sizing (0.01 all the time). If you got a true edge, you are wasting it because of this.
2) If you always use the same lot size, it will be hard to equalize your wins and loses because of the changing spread, pip distance (unless you use a grid).
3) Your risk is always "hidden", you got an illusion of security, but as soon as you start getting many losses on a row or your margin starts to dissapear you start to sweat, and it sucks.
4) It's the easiest way to blow up any account, even if the strategy is "perfect", your internet conection, or the broker, or the spread widening, the news, everything else is out to GET YOUR RECOVERY TRADES and sunk you in the deepest DD.
  • #9
  • Edited Jun 18, 2017 2:58pm Jun 17, 2017 3:12pm | Edited Jun 18, 2017 2:58pm
Mathematically, martingale increases risk of ruin exponentially, and without improving overall expectancy. Given enough time, every martingale will eventually fail; it could be in several years' time, or it could be tomorrow, and there's no way of accurately backtesting how soon a highly improbable event will occur.

If you already have an edge from your entries and exits, taking unnecessary risk makes no sense. Withdrawing money from your account reduces the number of steps that your martingale can withstand, or it compels you to start the progression with a lower stake, reducing return in like proportion; and there's no guarantee that you'll make the withdrawal before ruin occurs. Using a more benign progression than doubling impairs your recovery rate, as it requires more than one consecutive win to return to breakeven. Capping the martingale to a specific number of steps likewise impairs recovery; when the number of steps is reached, you must return to your original stake.

No serious professional -- money manager, institutional or prop trader -- subjects their firms', or their clients', money to the risks inherent in martingale. But if you're fooling around with a small account, whose loss would be inconsequential, then risk arguably becomes irrelevant, and you might decide that martingale is a fun way to grow the account. Your money, your choice.

[EDIT] A couple of good posts by nubcake on martingales here and here.
  • #10
  • Jun 18, 2017 12:14pm Jun 18, 2017 12:14pm
Quoting hanover
Mathematically, martingale increases risk of ruin exponentially, and without improving overall expectancy.

Exactly.

And this also explains why Martingale position sizing isn't universally hated.

It's hated only by people who are numerate enough to understand that it exponentially increases the risk of ruin without improving expectancy.

That group includes all professionals and all successful traders, but it doesn't include all home-based amateur traders, some of whom are trading, some even with real funded accounts, with little mathematical understanding, as a sort of triumph of hope over reality otherwise known as naivet.


Quoting hanover
No serious professional -- money manager, institutional or prop trader -- subjects their firms', or their clients', money to the risks inherent in martingale.

Exactly.

And they wouldn't last long in their job, if they did.

Essentially, it's crazy to allow the size for a given position to be determined by the outcome of the previous trade.

Either the way you're trading has a positive expectancy, in which case you don't need a Martingale, or it doesn't, in which case you shouldn't be trading that way and no amount of Martingale position-sizing will make it safe to trade, even if it possibly makes its demise take longer.

Martingale = rearranging the deckchairs on the Titanic.


Quote
Why are Martingale strategies so hated


Martingales aren't actually "strategies" at all. They're position-sizing methods based only on innumeracy and lack of mathematical appreciation of reality.
  • #11
  • Edited 12:01pm Jul 12, 2017 6:56am | Edited 12:01pm
Quoting hanover
Mathematically, martingale increases risk of ruin exponentially, and without improving overall expectancy. Given enough time, every martingale will eventually fail; it could be in several years' time, or it could be tomorrow, and there's no way of accurately backtesting how soon a highly improbable event will occur. If you already have an edge from your entries and exits, taking unnecessary risk makes no sense. Withdrawing money from your account reduces the number of steps that your martingale can withstand, or it compels you to start the progression...
Obviously you don't improve the overall expectancy as no mm can do that, but what you forgot to mention is that risking 100% of your equity instead of say 4% improves compounding power.. so you can start small.
  • #12
  • Jul 12, 2017 9:21am Jul 12, 2017 9:21am
The problem with martingale is that eventually it will fail and you don't know when. So yes you can make some money for a while but eventually it will fail it is inevitable. Martingale is not hated it is just that every novice trader thinks he found the holy grale strategy that will make him rich. It can make you some money for some time, but it will not make you rich unless you bet big and risk it all and have a lot of luck on top of it, which is basically the same as if you would put all your money on red in a casino.

My advice is, start with a small amount and withdraw all your profits weekly.
  • #13
  • Jul 12, 2017 10:15am Jul 12, 2017 10:15am
Quoting solecrusader
I have been trading for a couple of years and have developed a strategy which has a martingale element to it with proper money management. For the months i have traded i was able to get my initial investment out and now i am trading only with the profits . My strategy involves regular weekly withdrawals. This month i was able to get 5x profit(newbie luck?) of my initial deposit as i did a monthly withdrawal, which made me wonder(self doubt) and create this thread since the general consensus is quite negative about martingale based strategies. So...

You have been lucky. Stop now. The gods of standard deviation have turned a blind eye

If you have an edge, then what value does Martingale add?, if you don't have and edge, stop trading until you have found one.

Do you know any basic probability theory? What is the expected value from your trades? is it positive or negative?
I live entirely from the growth of my personal trading account
  • #14
  • Jul 12, 2017 2:36pm Jul 12, 2017 2:36pm
Quoting HeyYou
risking 100% of your equity instead of say 4% improves compounding power
That doesn't make sense to me. With martingale, you're only ever risking more equity to recover losses and return to breakeven; while you're winning, and the account is growing larger, you're merely betting the starting stake. Moreover, the starting stake needs to be lower than with a non-martingale if you want the account to survive a large number of doubles (and even more so, if you're withdrawing money), therefore the growth is slower, and exponentially so because of the compounding (for example, 0.1% will compound more than 10x slower than 1%).
  • #15
  • Jul 12, 2017 3:41pm Jul 12, 2017 3:41pm
Quoting hanover
{quote} That doesn't make sense to me. With martingale, you're only ever risking more equity to recover losses and return to breakeven; while you're winning, and the account is growing larger, you're merely betting the starting stake. Moreover, the starting stake needs to be lower than with a non-martingale if you want the account to survive a large number of doubles (and even more so, if you're withdrawing money), therefore the growth is slower, and exponentially so because of the compounding (for example, 0.1% will compound more than 10x slower...
who said 0.1% ? my original mg: taking no more than 8 consecutive losses, RR of 1:4, multiplier of 1.34.. starting risk 2% IF I remember well.. it was 6-7 years ago.. it worked like a charm

and I never talked about getting rich quick, but it may take less time, why not ? maybe with a good dose of luck ? in any case the point is that it allows you to start small. !
  • #16
  • Last Post: Jul 12, 2017 4:08pm Jul 12, 2017 4:08pm
Too many strategies we the traders always use in order to our trading understanding, but I have never found is a good trader who always like use martingale approach. Actually this trading approach always contains huge risk but not ensure the better result. so traders lost interest about this techniques.
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