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)
Traders are welcomed to join the discussion.
Wallace Forex Laboratory conducts research on profitable EAs. Our ultimate goal is to create a portfolio of EAs which can provide consistent profit.