To most of the traders, martingale strategy is attractive but also terrible. It can give you decent profit in a short period of time but can also blow up your account in one day. When talking about martingale, some traders take a very rejective view on it and will never consider of trading with such kind of strategy.
My view on martingale strategy
I agree that martingale system can be risky and tend to believe that ALL martingale systems will blow up a trading account on some days (it is just a matter of time). However, it doesn’t mean that we should 100% stay away from this strategy. I think martingale system is an essential strategy that a diversified portfolio should include. The most important question is “How frequent does the system blows up the account?”
Appropriate use of martingale system
In my opinion, there are several issues that people must be considered with when using a martingale system:
1. Accept the fact that martingale system will blow up your account on some days but also accept the fact that it doesn’t conclude that martingale system can not be profitable in the long run.
2. Profit must be transferred out or withdraw from trading account periodically (either daily, weekly or monthly). This is to avoid from losing all the capital in the account (capital plus profit) when the account got blew up.
3. Make sure that you not only have the minimum capital on hand when start trading with a martingale system. You should have more than that! For example, if the suggested minimum capital of a martingale system is USD3K. Then, you should not trade with it unless you have more minimum capital on hand. Nobody knows when the system will receive a margin call. May be it is on the day after you start trading it live (unforunate things happen around us everyday). You should have extra reserve capital so that when the account blows up, you can restart the system again. Of course, a good martingale system should not blow up an account frequently. Some of them can provide decent return under most of the market situation and is able to recover all trading capital before it blows up the account again. It is still possible for the system to generate positive return in the long run (after deducting the lost capital)
I agree with Wallace view above. It is true that Martingale strategies are profitable provided that you manage the risk efficiently. For example, wiring out your risk capital on a reducing balance basis will protect your capital investment without sacrificing your lots size trading.
My personal view of Martingale strategies are of a retirement investment account. In which i withdraw profits on a weekly basis, either by diversifying into equities or endowment plans. In this way, even if FX account gets wipe clean, i still have some cash to fall back on.
Advice: playing small lots in Martingale is the only way to study how the market movement on your currency pair. Good pairs to play are eur,jpy,usd,gbp
Well you can get lucky with most anything as far as that goes does it mean it's a good strategy? Here's a example with this kind of thinking. I myself am a pretty good scalper not the best but good enough to stay in profit most of the time. Now lets say I open up a 50 lot trade with my TP 20 pips well that is a $10,000 trade. On most days I can get those 20 pips without much problem and make a quick 10k in just a few mins does that mean I should do it ,it's a good strategy?
Traders that been around Forex for a while will tell you it's like someone behind the curtains pulling the strings. It's uncanny the way things happen in Forex and for that reason alone it's not a good strategy to use any system that has the potential to blow your account.
I personally have used a form of martingale strategy for years on my intraday trading. However it is not a doubling-up strategy. If I lose on Trade 1, I base my next trade lots on stop and price proj/limit.
IE: If loss trade was, say 10 pips for $100, and I expect to profit 50 pips on next trade, I need to increase my lots to make up the $100 loss. Roughly $2/pip. So my next trade would be 1.2 lots for a total profit of $600 and net profit of $500 on the day. This way I do not give up ground and the risk is still not as great as a double-up strategy. A few more steps to it but hope it makes sense.
It comes down to money management. I also don't use it on longer term trades. And of course if I am just not on in a day I will stop after 3 or 4 trades. It's a bit more of a hit but if you are a winning trader your winning days will blow away losing days doing this.
I trade 3 currency pair on a 1k account trading on 1 nano lot with FXOpen. 5% per month is great I believe with a potential risk of losing 250 bucks. which is 25% risk. Takes 4 months to recover. Once it reaches 25% equity... all is stopped. Isn't this like scalping? 5 pip profit, 40 pip stop? But I guess it is in the approach. Oh... lovely megan is a live account.
Now this is overkill... 2k demo 6 currency pair... and some bummer tweaking... lead me to a 25% equity loss. I guess we see how it will pan out. It's a demo... So I go for overkill to see to what extreme it goes.
Having said all that... either $hit can happen... or lady luck will stay by me... 😎
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