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Does the martingale system really work?

  • #21
  • May 18, 2010 2:00am May 18, 2010 2:00am
Quoting Swamp Owl
Your luck might work for some time, but you'll certainly run out of it.

It's very important to fully undestand how powerful and dangerous martingale is.

Let's take 10 000 account - if you start with just 0.1 lot (1:100 leverage), how many consecutive losses that account can take if you use just 20 pip SL?
Maybe surprise but only 8.
1) 20
2) 40
3) 80
4) 160
5) 320
6) 640
7) 1280
8) 2560
That's it, your account is gone.

Wikipedia will help you more with mathematical side if you are still interested:
http://en.wikipedia.org/wiki/Martingale_(betting_system)...
thanks for your reply. but actually we double the account if we think that the direction will go to our way. don't just take position for the increment number only.
  • #22
  • Jun 24, 2010 11:35am Jun 24, 2010 11:35am
Quoting ronald_fsm
as I said before I deposit for $10000 and start with 0.01 lot (10cent/pips) so it's 100000 pips is your margin. I think it is strong margin available. do you think it's almost unlimited account ?
i still think you will lose, no doubt about that. it has been proven over and over again, that you cannot win in the long term with such a strategy. don't waste your money
Twitter: @forexpokerpro
  • #23
  • Feb 5, 2011 6:41am Feb 5, 2011 6:41am
I'm surprised no one has mentioned mean reversion .

I use 200 pip blocks instead of your ridiculous 10 pips or whatever .

Also ,trading about 30 different pairs at the same time hedges the portfolio while minimising the margin requirement ,thus acting like a shock absorber .
Negative swap is the enemy .
Martingale will only work as a long-term proposition .
  • #24
  • Edited 9:49am Feb 6, 2011 9:47am | Edited 9:49am
From what I can see, in Martingales people only consider the many small wins and ignore the one big waiting loss, a bit like the opposite of lotteries where people think about the big prize and ignore the much more numerous losses. If you think of the ideal situation with a coin with 50:50 probability using a simple double on loss strategy it is easy to see that the net win rate is zero, but all the losses are concentrated in a single loosing streak that will inevitably happen unless you have infinite resources. I don't see how you can make money in the long term using such an approach unless you can somehow avoid your obligation to pay back your eventual loss, by say going bankrupt.

I think you can have a system involving a martingale that would be profitable, but it would rely on some trade entry / exit strategy where the average profit to loss ratio multiplied by the hit ratio was greater than 1. In this case I think you would be better just trading the system direct so you could get a better assessment of the real returns.
  • #25
  • Feb 26, 2011 5:09am Feb 26, 2011 5:09am
Quoting jest1081
martingle fails, averaging works.

martingle works on a model that double drawdowns
averaging works on a model that builds positions overtime to attain a desired limit.

two very similar concept but with very different risk modelling
+1 Martingale is really just a very aggressive form of averaging. It is not necessary, especially with microlot brokers. You can customize your lot size when you average, and exponential sizing is not necessary.

One way to increase the bottom line, is to increase the amount of take-profit for that round of trading. The more lots you average, the bigger total take-profit for the pullback.
Measure trends automatically with zero lag
  • #26
  • Jul 27, 2011 6:11am Jul 27, 2011 6:11am
It is interesting question.

In theory, martingale is just extension of simple positioning strategy.


Think your next lot is doubled after your loss trade. This will grow exponentially and blow your account soon when you have many losses in row.


To be safe, you can multiply 1.5 or 1.2 to your original lot size instead of doubling.

However any martingale is very dangerous in forex market because the forex market has some sort of time varying tendency.

For example, when something happen in forex market, the effect usually last some period of time.

In simple term, once your system start to lose, there is good chance for your system to lose successively.

There is theoretical evidence such as Time varying volatility or time varying correlation and so on.


So don't do that unless you are super confident.
  • #27
  • Jan 10, 2012 4:11pm Jan 10, 2012 4:11pm
it involves a lot, a LOT of backtesting. It works, and it works like charm.
  • #28
  • Jan 10, 2012 5:44pm Jan 10, 2012 5:44pm
martingale heh.... hmmmm it can be done...BUT must make sure you have a VERY VERY good discipline.. (personally i failed here.. greedy arrived at the corner mate.. heheheh) must know ur MM.. always ask ur self 'what if' ... train and learn with EA is the best thing..
  • #29
  • Jan 16, 2012 12:00pm Jan 16, 2012 12:00pm
Take your money to the casino......it'll be a lot more fun.
  • #30
  • Jan 16, 2012 10:24pm Jan 16, 2012 10:24pm
Martingale could work on a short term basis but is as mentioned previously you'll need a lot of discipline to keep the positive trades rolling in and not wiping out your account. It really comes down to your time frame.

I'd prefer to be commenting on a post about adding to winning positions aggresively when markets move in your favour.

If you add to a losing position, what makes you think the next trade is going to be any better?
  • #31
  • Jan 23, 2012 4:27am Jan 23, 2012 4:27am
some easy rules to survive martingale (big) drawdowns

- double your steps after each new position
- after the 4th martingale position, hedge with a counter position with factor 1.2 the sum lots of all origin lots
  • #32
  • Jan 24, 2012 1:37pm Jan 24, 2012 1:37pm
My brother works for a proprietary trading company in New York. Some of the most successful trading systems are based on martingale. He works in the back office there so he does not know the exact inputs just that traders keep bragging about martingale algos.
  • #33
  • Jan 24, 2012 3:30pm Jan 24, 2012 3:30pm
if the big boys use martingale, they mostly use a open version of martingale:
- needs very large account (depends how many pairs you trade)
- have high float (drawdown/drawup)
- interests are less important
- medium/long term

closed version:
- if the next martin order is opend the previous order is closed with sl
- needs less money
- less float (drawdown)
- negativ interests important
- intraday
  • #34
  • Jan 25, 2012 3:21pm Jan 25, 2012 3:21pm
I used to trade at Armada Markets with the martingale algo. They offered me their own money because I was profitable. I agreed and we were supposed to start but then I blew my own account and they decided not to go with me. I think it is always good to realize that good times do not last forever and it makes sense to take profits and invest them in something else.
  • #35
  • Jan 29, 2012 7:47am Jan 29, 2012 7:47am
It 'can' work if you have a LOT of money. You need a HUGE sum of money to cover the losses incurred from the possibility of losing streak of trades. Do the calculation first. For a conservative defensive measure, calculate if your account is enough to withstand 30 straight losses in a row.

It's dumb though to use martingale. If you have a good system, you have a high chance of making money fairly consistently. Martingale system risks too much money, and blows the risk reward ratio out of proportion.

On a funny note, IF you have that LOT of money in the first place, it's on the other hand really stupid to invest your money in such a way (martingale).
'For the market to work, it needs people who think that they can beat it.'
  • #36
  • Jan 30, 2012 2:31am Jan 30, 2012 2:31am
Not sure why there is so much negativity towards martingale. It cannot work (over time) with any betting strategy without an edge. In fact, no betting strategy can survive over time (over a repeated series of trials) if the bettor does not have an edge above 50%. Obviously the greater than 50% the better. I designed a spreadsheet which helps analyze how to set up a grid to take advantage of cost averaging. There is also a video series that shows how to use it.

Inserted Video


It is not limited to martingale, but any cost averaging variation. Most people are attracted to martingale because of the larger returns/shorter timeframe. Obviously risk-of-ruin increases as well, which the spreadsheet helps you to manage.
Attached File(s)
File Type: xls AF Cost Averaging Worksheet.xls   617 KB | 1,366 downloads
Measure trends automatically with zero lag
  • #37
  • Jan 30, 2012 4:18am Jan 30, 2012 4:18am
  •  rayzeel
  • | Joined Nov 2008 | Status: Automated/DiscretionaryTrader/Coder | 37 Posts
For me personally this kind of systems using martingale are worthless... I've tested many approches and found that in a long run it's wiping out an account (as others pointed)... It will be good if you really want to risk big amount of money, but even then you are not able to increase lot size coz the DD are too big, and it is for sure big if you playing martingale. So in conclusion the most robust solution and the direction of searching is to look at possibility of lowering DD and keeping profits steady. This is the best way and it can be done. Focus on lowering DD !

Greets
  • #38
  • Jan 30, 2012 4:29am Jan 30, 2012 4:29am
there is no problem with martingale, as long you do:
- double your steps between the orders
- counter hedge the positions
- trade 10 pairs with 0.01 rather then 1 pair with 0.1

i do not believe in 99% backtests, but i trade martingale since 2004 without any problems....

best regards

IX
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  • #39
  • Jan 30, 2012 8:00am Jan 30, 2012 8:00am
What is ( double your steps between the orders ) ?


Quoting ixbone
there is no problem with martingale, as long you do:
- double your steps between the orders
- counter hedge the positions
- trade 10 pairs with 0.01 rather then 1 pair with 0.1

i do not believe in 99% backtests, but i trade martingale since 2004 without any problems....

best regards

IX
  • #40
  • Jan 30, 2012 9:02am Jan 30, 2012 9:02am
standard example:
1st order 1500
2nd order 1510
3rd order 1520
4th order 1530

my steps
1st order 1500 /10pips
2nd order 1510 /20 pips
3rd order 1530 /40 pips
4th order 1570

this reduces the executed orders and drawdown massive
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