Is Martingale really dangerous?

I think that the most of you know the Martingale priciple (doubling up whenever you're loosing). Certainly most of you have done it already (I know I have!) And know it's no good.

When using Martingale, you open to much lots in the incorrect position, the longer the position goes wrong, the more lots you are open. In this manner you're overexposed on a single pair that probably will keep going in the wrong direction (mini-trend, correction about the trend) and if it finally turns around, you may already obtained a margin call. I think that it is already proven and established that Martingale does not work!

But here's my view on the subject: If you're a trader who deals 3-4 pairs on different timeframes and reach a winning percentage of over 51%. What if you double up after a lost commerce, presuming you won't add places to a position. You should make the missing pips on a single commerce back or not?

Perhaps just a tiny example will help:

Trader: 60% winning average on trades
Stoploss is 25 TP is 50
by way of example reasons 1 pip=1USD

1 MiniLot LONG @ EURUSD -- Lost 25 pips
2 MiniLot SHORT@ GBPUSD-- Won 50 pips a lot (=100 pips)
1 MiniLot SHORT@ USDCHF-- Won 50 pips
1 MiniLot SHORT@ USDCHF-- Lost 25 pips
2 MiniLot LONG @ NZDJPY-- Lost 25 pips a lot (=50 pips)
4 MiniLot LONG @ EURUSD-- Won 50 pips a lot (=200 pips)

This works out fairly well for your trader! So can we assume that if a trader has a preceding XX% winning average and consistently places stoplosses AND NEVER TRADE THE SAME PAIR OR A CORRELATED PAIR after a former reduction, we can use Martingale as a moneymanagement system?

Only I tought! I'm really curious what you guys think...

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Originally Posted by ;

Even if a trader has a high win rate like 60 percent, the martingale would nevertheless finally wipe out the account. The reason is that for any finite account fairness, there's maximum number of instances you're able to double the transaction amount before you bankrupt the account. And that series of losses isn't as uncommon as people think.

Suppose you have $1000 and you begin with a $1 commerce. How many times can you shed, before running out of funds doubling the amount of the next transaction every time? Let us see...

1, 2, 4, 8, 16, 32, 64, 128, 256, 512, 1024, uh ohhhh!

10 losses in a row and you are done.

But you think, But how likely is it that I will get 10 losses in a row? I've got a 60% win rate after all.

Well, let's see. The likelihood of 10 losses is 0.40 to the tenth power. That is a pretty modest number: 0.0000105. That is roughly 1 time in every 9,500 trades. Or roughly 9-1/2 1KT traders. : So for every 10 1KT traders who use martingales, odds are, one has really gone bankrupt doing it.

Another way to check at is if you are a scalper and perform 100 transactions a week, you are going to go bankrupt about after every 95 weeks, or about once every couple of years.

This isn't accurate of course, but it provides a fantastic idea of the realities involved.

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Some issues on your mathematics:

1. For instance, you assume the loss will come at the conclusion of this 9,500 trade series. In the middle, it will arrive Normally !
2. To have the ability to withstand 9 losses with double-up-and-reverse-style martingale, the expected return on equity will probably be marginal and not worth the risk.

I disagree, Bounty -

As stated, the Martingale egy is created for a fixed parameter environment. It has nothing to do with just reversing and is applied properly, the yield is worth it.

A nearly perfect adjusted parameter surroundings is odd/even or red/black on the roulette wheel.

Your opportunity is almost 50/50 with a continuous risk/reward at 1:2 (if you bet $10 and you lose, you lose your $10 - if you win, you win $20 and so on...)

Sequence example:

-10
-20
-40
-80
-160
-320

. . .after 6 efforts you have lost a total of 630.

Your next bet is 640 and you win. 640 X2 = 1280 less the lost 630 = 650

Therefore, as long as your odds are mended, you only have to Make Sure That Your initial gaming dimensions is such You Could survive a sequence of numerous try's (the more the better because of the law of large amounts )

regards

Apply the martingale at a currency that fundamentals are expected to improve.

Open a position, lets state now with mini lots.
And open another place every 100 poins in drawback using a larger lot.

But beware there is also danger in this method.

Prevent doing it using u/cad, eu. That are currencies who likely to the beginning point aren't likely in the short term.

Better to do it with uj to the long or short side whichever is the intense.
Additionally with shorting gu.

Actually I am in this particular one, short since 1.9831 targeting 1.9700.
This currency is pretty bullish now but shortly boe is expected to cut rates.
And several can see what is the dillema the two days before boe cut rates.

So if keeps going up, another time to short is 1.9990
if goes more up, take a short around 2.0300 with larger lots.
And the maximum stop when items can get to begin turning worrisome is when about 10 percent of the trading margin is being risked.

Then unwind and anticipate the profits.
If something goes wrong, use your rogue trading egies, aplply an extremely wise egy,
then try to beat the market, many times it works.

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Originally Posted by ;

Some problems on your mathematics:

1. In your example, you assume the reduction will come at the end of the 9,500 trade string. Normally, it will arrive in the center !
2. To be able to withstand 9 losses with double-up-and-reverse-style martingale, the anticipated return on equity will be marginal and not worth the risk.

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1. Not whatsoever. It might come anywhere. It might be the very first trade, the sixth trade, the middle trade or the last trade. But on average, there will be approximately one enormous loss in every 9,500 trades. Of course they'll be clustered. If they actually came exactly at the end of each string of 9500 trades that would be an extremely non-random event. I would not assume such a strange thing, at least not while sober.

2. The advantage at the end of any successful martingale cycle is only one unit because:

2^x (1 2 4 ... 2^(x-1)) 1

Quote:

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Originally Posted by ;

I disagree, Bounty -

According to the Martingale egy is created for a fixed parameter environment. It has nothing to do with just reversing and is used correctly, the return is worth it.

An almost perfect adjusted parameter surroundings is odd/even or even red/black on the roulette wheel.

Your chance is almost 50/50 with a constant risk/reward at 1:2 (if you bet $10 and you lose, you lose your $10 - - if you win, you win $20 and so on...)

Sequence example:

-10
-20
-40
-80
-160
-320

. . .after 6 attempts you've dropped a total of 630.

Your next wager is 640 and you win. 640 X2 = 1280 less the missing 630 = 650

Therefore, as long as your odds are mended, you only have to ensure that your initial betting size is such that you could survive a sequence of multiple try's (the longer the better because of the law of big numbers)

regards
daytrading

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Ummm, you forgot to put down your $640 bet.

Your true cash flow looks like this:

Bet $10, lose it, total reduction = $10
Bet $20, lose it, total reduction = $30
Bet $40, lose it, total reduction = $70
Bet $80, lose it, total reduction = $150
Bet $160, lose it, total reduction = $310
Bet $320, lose it, total reduction = $630

At this point your pocket is lighter by $630. Now you decide to double again and wager $640. So you put down this wager. Your wallet is now lighter by $1270.

Now in the event that you win, you get your original $640 back plus an additional $640 in winnings. The dealer hands you $1280.

You're now ahead by just $10, or exactly 1 unit. To see the equation for this is always so, visit my post right before this one.

Is Martingale dangerous?

Yes, it is in fact.

Here is what it ultimately comes down to: Does your system have an advantage?
If it doesn't, then there's absolutely no position sizing algorithm which will make it profitable over the long haul.

I think its dangerous for the individuals that are greedy and lose touch with reality.
dont wach stocks, equities and all that stuff.

Just today close my uj pyramid since long positions from 109.
Took the winner and the losses.
Winners made 3x the loosers.

Probably uj can keep going up but I was completed at 107.
waiting for uj hit 110 or 105 and start taking positions.
These 500 pips are not trading zone.

Another fantastic martingale example may be gu following next week fed decition and gu probably go up like mad. Take it down and uk issues spread. And rate cuts.

Martingale is cool wit a strong mm egy

I Believe Jerome Kerviel out of Soc Generale and Nic Leeson out of Barings Bank has Given a Wonderful example of what is truly possible with a Martingale Strategy

Martingle or anti-martingle - Risk Management is essential. That determines a egy's achievement. This monster can be tamed. This is a 4 pair evaluation with max -5% open position!
https://forexintuitive.com/attachmen...2027842604.png

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Originally Posted by ;

1. Not at all. It could come anywhere. It could be the very first trade, the sixth trade, the middle trade or the last trade. But normally, there will be approximately one enormous loss in every 9,500 trades. Of course they will be clustered. If they really came just at the end of each series of 9500 transactions that would be a really non-random event. I wouldn't assume such a strange thing, at least not while sober.

2. Right, the gain at the conclusion of any successful martingale cycle is simply one unit because:

2^x = (1 2 4 ... 2^(x-1)) one

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You're right, I didn't read your post correctly!

Is the sky blue? Is grass green?

Buddy: not much of a sample size there.... Let's see it more than 5 decades....

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Originally Posted by ;

Martingle or anti-martingle - Risk Management is key. That determines the achievement of a egy. Having a restricted maxloss cutoff, this monster can be tamed. This can be a 4 pair test with max -5% open position!

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Quote:

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Originally Posted by ;

: not a great deal of sample size there.... Let's see it over 5 decades....

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You're correct. My plan would be to rake in 10% a month. So even with a few -5% cease outs - it will not be too bad!

Thank you men. All of you made some interesting points. I am gonna research the topic deeper, particularly on a intraday/volatility basis...

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Originally Posted by ;

Ummm, you forgot to lay down your $640 bet.

Your actual cash flow looks like this:

Bet $10, shed it, complete loss = $10
Bet $20, lose it, complete loss = $30
Bet $40, lose it, total loss = $70
Bet $80, lose it, total loss = $150
Bet $160, lose it, total loss = $310
Bet $320, lose it, total loss = $630

At this point your wallet is lighter by $630. Now wager $640 and you decide to double. So you lay down this wager. Your wallet is currently lighter by $1270.

Now if you win, you get your original $640 back plus an additional $640 in winnings. The dealer hands you $1280.

You are now ahead by only $10, or just one unit. To observe the equation for why this can be obviously so, see my post right before this one.

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Cap,

Not correct.

I didn't neglect to lay down the 640 wager and my wallet is not milder by 1270.

It is only POTENTIALLY lighter, (see floating P/L) until the wager has concluded.

Although I've made bets in some sequence, Martingale has the purpose to observe the whole previous sequence as a single wager versus the current wager.

I.e.: I'm down 630 (regardless of the number of previous bets) and the potential profit of my current wager (640 X2 = 1280) will erase all of the prior losses and place me profit by: complete profit of current wager devided by 2 plus ten. (650)

The potential loss is only 640 which I add to the lost 630 and the next bet size will take care of the combined loss. The outcome is always the exact same relative to wager size.

It isn't important how long the sequence is, whether two bets or 100 bets.

Should I wager 10 and I shed, I'm down 10. I win the next wager at 20, I receive 40 less the 10 I dropped on the initial wager, I'm better off by 30 and not 10 as you say.

Should I bet and lose 3 occasions, I'm down 70 (-10, -20, -40). I make the next wager with 80 and triumph, I'm up 160 not as what I dropped in the prev. Sequence (-70) and that I leave with 90 better off (not 10)

I think no one would even consider talking about Martingale if one had to install 640 to win 10....and please, where down the line has the risk/reward ratio shifted from 1:2??

The entire idea about Martingale would be to maintain the r/r steady throughout the match, however many losing bets in a sequence.

regards

...I should mention since you statet Cap,

on a winning wager the result is always 1 unit - but not the very first unit (10)that you state, but the current wager unit - in - instance 640....or whatever the (unit)size of the winning wager.

regards

Capitalist88,

.. .actually, please take my apologies - you're correct. I employed a rew. /risk ratio of 3:1 rather than the given 2:1 that is the underlying standard.

Nevertheless, the appliion of this egy in the right environment (i.e. a game with 50% likelihood and sufficient capital, chips, etc.) can allow you to come out on top.

Of course, casinos have taken care of that by putting an ever so slight margin in their favour (green ) in addition to limiting the bet size.

In trading, however, the trader has some more influence in putting their particular parameters in place according to his/her research of chances, r/r pos. Size, limits and stops.

So, if for example R1 (your risk per trade) is constant, your odds of winning is 50% along with your trade frequency is high (in order to capitalize on initially compact bet sizes) and a constant R-multiple of 3 percent winning trade, employing Martingale will have a beneficial impact on your bottom line.

regards

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Originally Posted by ;

Capitalist88,

.. .actually, please accept my apologies - you are correct. I always applied a rew. /risk ratio of 3:1 instead of the given 2:1 that is the underlying norm.

Nevertheless, the appliion of the egy in the ideal environment (i.e. a game with 50% probability and sufficient funds, chips, etc.) can let you come out on top.

Obviously, casinos have taken care of that by putting an ever so slight margin in their favor (green zero) in addition to restricting the bet size.

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They do limit the bet size for that reason, but they would still win in spite of an unlimited bet size provided that they maintain a little edge (the 0,00 as you said). No finite account size on the player's part will probably be sufficient to beat it. You are likely to find a hundred different mathematical proofs of the round the web, but I think they're all based on the comparitive probabilities that the player will double the account size vs. going broke. For any restricted account value, the probability of decreasing the account size is equal to the probability of losing it all (at a fair game with no edge to side).

Quote:

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Originally Posted by ;

In trading, however, the trader has some more sway in putting his/her own parameters in place based on his/her research of opportunities, r/r pos. Size, stops and limits.

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I concur; this really is the secret. In case you've got a positive edge then it is possible to come out ahead. But that isn't due to the martingale, it's due to the edge.

I concur, Cap88 -

The border is the nearest thing to a grail, provided all other elements such as capitalisation and money-management are managed apprpriately.

There's a range of new talks within this one....

I go for a math lesson now, haha

regards

Quote:

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Originally Posted by ;

I concur, Cap88 -

The edge is the nearest thing to a grail, provided all other elements such as capitalisation and money-management are managed apprpriately.

There is an array of new talks within this one....

I better go for a mathematics lesson now, haha

regards
daytrading

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as you're doing that, I will go take a trading lesson. You would probably laugh in the event that you saw a few of common things I mess up. On the martingale, I actually learned about the mathematics behind it . . .you guessed it! I dropped a bunch of money years ago trying to use it. I eventually got so frued once I couldn't know why it didn't work I sat down and worked it out for myself.

On a more general note regarding this thread, I would encourage anybody who's interested in egies like this, and is not convinced by (or interested in) the mathematics, to try out the egies on a demo account. That way they could learn the drawbacks and hard lessons without losing real money like I did.