I was searching some old topics here and came across a mention of Martingale strategy or systems a lot. There were references to it being gambling, and others said they used it to recover losses on losing trades. Anybody using this as part of their trading plan?
From the look of it, it looks like destruction would come easy. But if that’s the case, why does it get some much mention?
Haha, can you elaborate? Every now and then Simon gets it wrong. Every now and then… 
In Martingale you are risking a lot to make that tiny small gain that your first trade should have made. The risk of ruin is too high. It’s fine if you win every other trade. What about ten in a row? If you trade long enough you will hit losing streaks like these.
That’s so weird. Was still researching Martingale and came across another reference to “risk of ruin”.
So the maths scream, don’t do it. But that’s just one person’s feedback. So now, two votes for no.
Thanks!
This is a potentially toxic money / risk management method.
However, it can also be a viable tactic. It depends how you go about it.
Toxic : You enter and the price moves against you. You enter again with more size and the price moves against you. You enter again with more size and the market moves against you some more. The price keeps moving against you but you have dug yourself in to a deep hole. You cant close this trade now because you cant accept such a large loss. If you find yourself entering trades and your risk is proportionally or disproportionately increasing, its toxic. Yes, this is like a ticking time bomb waiting to blow up your account. You will eventually run out of money. you will eventually come across that one trade that doesn’t come back and keeps running against you.
Viable tactic : You have defined your risk per trade, lets say its $100. You see the set up so you enter with a small lot size and set a wide stop. You dont exceed $100 risk. The price moves against you, so you enter again at a better price. Now you have an average price between the two trades. You modify your stop loss on both the trades so you dont risk more than $100. The price moves against you some more, so you open another trade at an even better price. You now have a better average price across all three trades and you are building a position. You modify all three stop losses so you dont risk more than $100 still. This can keep going and your risk remains constant. With this approach, you give yourself allowances for timing and build a position that has a defined stop…
Every tactic has positives and negatives.
I hope this helps.
I used to be really into blackjack. I played 2 deck, hand dealt, the best odds on the river boat. I once lost 17 hands in a row and I was pretty good at “perfect strategy” at the time. The table minimum for the 2 deck game was $25… on a game that was supposed to be close to 50/50 odds I lost 17 in a row. If i had been using martingale I would be betting over 3 million on that last hand just to make my $25 gain I started chasing.
Awesome reply. Thanks for taking the time to write that.
With your viable tactic, I imagine at some point, with losses building, and price not moving the way you want, even when you adjust for your risk, your stop losses get too tiny to actual help you. Does that sound right?
Correct. That is a negative for this tactic.
Another negative is that the price can move in your favor pretty quickly but you are in with a small piece of your position.
Then, you have to average up.
Averaging up is better than averaging down though. In many traders opinion.
Just found quote in another old Martingale thread
It would be better to avoid martingale strategies at any market. The only situation when it is suitable is when stock mid term tradiers have an opportunity to increase their positions during the short stock decreasing together with the broad market (when the stocks are still perfect, but make downside movement during the first hour and then get back). In other cases, martingale will just increase your losses.
I don’t think so, according to me chart analysis is much better option than any other trading strategy.
I would avoid against it as you are doubling up your risk each time to recoup your losses so it really flys in the face of proper money management
However you could demo this off your own traded to just see what does happen ?
I was sharing this in another thread.
I previously wrote about how doing Martingale for forex will likely lead to a margin call.
The example there is quite obvious.
Forex is all about hard work at understanding the market and currency pair. proper money management is critical too.
Yeah I think the best advice is to find high probability setups and just risk a certain percentage of your account on each trade. You win some and lose some but long term you win more and profit. It’s a safer strategy just because your emotions will make you crazy trading martingale.
With that said I can see how what @ProfitPotential said could work trading quality stocks. Forex is another animal IMO. A quality stock isn’t likely to go to zero but if it does all you can lose is that investment (unless your shorting.) In Forex you could get burned badly if you aren’t careful with your risk management.
Demo demo demo
there is more fine lines , thanks for your nice post.
The first time I encountered the notion of Martingale systems was in relation to roulette ie casino gambling , maybe this system is best left to gamblers !
I would still be interested to hear from anyone who has used this system?
If you operate an account using martingale as your strategy that isn’t on the short-term it is likely to do very well for a very long time if you adopt the principle buy low, sell high. The only problem is returns will be limited compared to other more technically demanding strategies. The trick is to make the first position very small and the following positions spread out widely at entry prices.
Martingale is an easy strategy to figure out for beginners. I prefer the grid strategy.
Can you give an example? I’m having a hard time wrapping my brain around this statement.
I would not recommend you to start from the Martingale, unless you are the guru of risk management. So at first it seems like very straightforward strategy which allows you to make money, but as all other strategy it has some pros and cons, and huge risk is one of the biggest cons here