Martingaling for a Living

Trading Discussion Trade Journals
1

Hi, I am alm, former “broketrader” but lost my password and e-mail and found no way to recover it, so here I am with a new alias.

This is the journal of my martingale experiment. I know that Martingale is a word that scares at the moment you pronounce it and you, the reader, should know that Martingales don’t work normally, so first things first: Please, understand that I’m not giving any advice to you or anyone else to use it.

I’m also not selling anything, this is just the journal of my trading experiment. You are free to read and comment but please, don’t stop by to convince me about the dangers of martingaling, don’t write something to say nothing and don’t argue with myself or other posters about the dangers or advantages of such trading technique, don’t waste your time I know the dangers already and this place, as stated before, is a journal, not a public place to have that same old discussion about the pros and cons of such trading technique.

Well, that said, this martingale is traded by an EA which cost me great effort and time to write and test and it’s still a work in progress. Normally a martingale is a simple thing you would say, you double when you lose until you win. These are the basics and I think that this is also why so many people has it wrong with it. There is more here and something maybe different as it doesn’t trade blindly (coin toss) but according to specific signal and tries to follow current trend. That’s what maybe makes it a bit different and (I hope) gives it more chances of surviving for the long term, this is what I think.

I have allowed 10K to a live account for this system. This is to say that I’m playing no game here and to remove any doubt you could have about my faith in my work.

My goal is to forward test it live for 60 months, yes, you read well… 5 plain years ! I know that if you are skeptic, you are thinking “man, i give you no more than a year…” which is already a lot but in the same time, you don’t want to be wrong…

Like you, I think that it could crash but above all, I think it can succeed or maybe it could land somewhere in between. Only Time will tell, and if you are interested, being it positively, skeptically or even scientifically, before anything else, I can give you a first thing, the chance to follow it LIVE.

So, let’s begin.

In fact, I have already began, and here is the current status:

All time return at last trading cycle : 4.2 %
Tested Months : 2/60
Maximum Drawdown seen this month (june 2013) : -6%

Here is a snapshot of todays explorer :

june-2013.jpg700×119 18.1 KB

2

Hi m8. What’s the signal you said you use to initiate trades?

3

You start straight with the right question, it’s just an EMA going out of another SMA envelope.

4

good m8. best of luck to you.

5

Thanks, but why m8 ?

6

Not again please.

7

At least there is a strong forex factory name to money management strategy correlation.

8

Gotta ask: why are these stunts always pulled by newbies???
Alm should tell us what his FF alias is before trusting him.

Sorry alm

Grix

9

[QUOTE=“GRIX FX;504878”]Gotta ask: why are these stunts always pulled by newbies???
Alm should tell us what his FF alias is before trusting him.

Sorry alm

Grix[/QUOTE]

Where does he say he is from FF?

10

There is no statistical edge in martingale strategies. This is a fact. Much like a Ponzu scheme, financial success, if any, is temporary and it will inherently collapse in the end.

If given unlimited chances, would you trade such a strategy? The answer is no. Therefore, failure is inevitable and it’s simply a matter if you are LUCKY enough to quit in time before your inevitable financial ruin.

11

[QUOTE=“mastergunner99;504899”]There is no statistical edge in martingale strategies. This is a fact. Much like a Ponzu scheme, financial success, if any, is temporary and it will inherently collapse in the end.

If given unlimited chances, would you trade such a strategy? The answer is no. Therefore, failure is inevitable and it’s simply a matter if you are LUCKY enough to quit in time before your inevitable financial ruin.[/QUOTE]

That is quite a false statement… martingale CAN give a trader an extremely reliable edge… You just have to be smart and use EXTREMELY conservative money management… Given enough money and a small enough starting position… One can be assured of NEVER losing a trade in his lifetime if applied correctly… However the returns would be in the single percentage points annually.

12

Very well said Pizza.

13

The only way martingale can statistically work is if the bankroll had an unlimited amount if funds.

This isn’t a guess, or a misstatement. This is math.

It’s the same false logic for those that think they can create an edge in roulette or a similar game if chance where they edge is in the favor of the house.

One can only get lucky and win. Given enough chances, they will ultimately lose.

Thus the same with martingale. Unless funds are unlimited, given enough chances it always loses in the end. Thus, there is no statistical edge.

14

[QUOTE=“mastergunner99;505171”]The only way martingale can statistically work is if the bankroll had an unlimited amount if funds.

This isn’t a guess, or a misstatement. This is math.

It’s the same false logic for those that think they can create an edge in roulette or a similar game if chance where they edge is in the favor of the house.

One can only get lucky and win. Given enough chances, they will ultimately lose.

Thus the same with martingale. Unless funds are unlimited, given enough chances it always loses in the end. Thus, there is no statistical edge.[/QUOTE]

It’s your opinion… Which is absolutely wrong. It doesn’t take unlimited funds… It does take very conservative money management and the returns will be small but it is a valid way to gain an edge.

15

No need to be sorry, my FF alias is broketrader as was my alias here in babypips. The fact, is that I didn’t post since a long time here and I forgot my password and I was also using an old e-mail address that I don’t even remember. I asked admin to send it to my new e-mail address but no way. So here I am with a new alias.

You think, you are talking to a newbie ? But you seem not even capable of understanding plain English, go back to post 1 and read again but in case you are lazy to do so, I will remind you :

a) This thread is under the journal sections which means that’s a JOURNAL. Not a BS trading system, there are enough of those out there just waiting for you to utilize them.

b) Like said in post 1, I’m not giving any advice and even less selling anything here so why you talk about trusting anyone ?

I don’t want you or anybody else to trust me and I hope that I have been clear.

16

Mastergunner and ILovePizza,

Well, you are both right… and wrong ?!

Let me explain,

Mastergunner, you are right because you are talking about the classical way of trading a martingale.
Let’s imagine that I want a system to earn 20 pips for sure. So in the first system, I open a trade with let’s say 20 pips Sl and 20 pips TP, If I win, I’m happy, if I lose, I double. So, you are right, after 10 losses in a row, I’m out.

Now, I give you a simple alternative, same trade: 20 pips SL BUT 40 pips TP, now, every time I lose I don’t need to double to have my initial 20 pips. So you are wrong and this is just one way of circumventing the doubling nature of martingale and avoid ruin in a string of losses and there are others more efficient.

…

ILovePizza, I must admit that you are (not so) wrong. Conservative money management is needed, yes, but not so EXTREME as you think. If you have a trading system that gives you some edge to be right at the 3rd, 6th or even 12th attempt, that’s no more playing roulette and enough to relax your money management.

About the single digit annual return, you could be right but It seems that my actual growth shows double digit return but that needs to be confirmed, if I survive a year of course. Anyway, my point is that as long as you add constantly to your balance your initial trade becomes larger and at one point the absolute cash could (maybe) be enough to make a living out of it but yes…

… that will take time.

17

[QUOTE=“alm;505275”]Mastergunner and ILovePizza,

Well, you are both right… and wrong ?!

Let me explain,

Mastergunner, you are right because you are talking about the classical way of trading a martingale.
Let’s imagine that I want a system to earn 20 pips for sure. So in the first system, I open a trade with let’s say 20 pips Sl and 20 pips TP, If I win, I’m happy, if I lose, I double. So, you are right, after 10 losses in a row, I’m out.

Now, I give you a simple alternative, same trade: 20 pips SL BUT 40 pips TP, now, every time I lose I don’t need to double to have my initial 20 pips. So you are wrong and this is just one way of circumventing the doubling nature of martingale and avoid ruin in a string of losses and there are others more efficient.

…

ILovePizza, I must admit that you are (not so) wrong. Conservative money management is needed, yes, but not so EXTREME as you think. If you have a trading system that gives you some edge to be right at the 3rd, 6th or even 12th attempt, that’s no more playing roulette and enough to relax your money management.

About the single digit annual return, you could be right but It seems that my actual growth shows double digit return but that needs to be confirmed, if I survive a year of course. Anyway, my point is that as long as you add constantly to your balance your initial trade becomes larger and at one point the absolute cash could (maybe) be enough to make a living out of it but yes…

… that will take time.[/QUOTE]

Your outcome is not a 50/50 chance of winning or losing. Furthermore, you are also discounting the spread.

There have been countless studies and mathematical models run disproving the edge that individuals falsely believe martingale systems provide.

This isn’t an argument against me, or against an opinion I have. This is mathematics.

Even if you wagered a single penny in a million dollar account, it would ultimately end in financial ruin. Simply because there is no positive edge, and when you lack a positive edge you will never come out ahead unless you happen to quit while you were lucky and got ahead.

18

I guess most of us have looked at these kinds of idea at some point in time, and I agree that mathematically there’s no edge, and there’s a high likelihood of failure etc. changing stops and targets just changes the win loss ratio etc, all basuc stuff really.

If we leave that to one side for a second, it is of course possible to apply martingale position sizing to a method that actually does have an edge ! Maybe its a TA based edge, or a discretionary trader, or some clever high frequency arbitrage based system. You could theoretically apply martingale… But would you want too ?

I periodically look at historical results, and determine what might have happened with various MM scenarios, and I have to say, for a very long time I was extremely tempted to give some form of martingale a go. Sure the equity curve gets a bit more volatile, but the returns even in the biggest drawdowns where double that of most other methods.

I sat and watched this stuff play out for 6 or 7 years, before actually experiencing that particular distribution in trade returns that would have killed me. Since that time I’ve done a lot more work on simulating these kind of events, and for me personally, martingale is a non starter.

I suppose if the plan is to take 10k and trade using martingale, or Kelly or any other method that’s going to give you a lot of volatility in returns, in the hope of making a nice return, and treat it like a lottery ticket, then I can maybe see the appeal. I suspect if you allocated 10k a year for 5 years a traded each account separately you might have a fighting chance of coming out ahead, but as you point out, you have to have some sort of point where you cut and run, because long term, there’s only ever going to be one outcome. I guess most people couldn’t really deal with seeing 95% of a 1 million dollar account lost in a series of losing trades, but that’s the sort of volatility that you might need to deal with, and the 2 or 3 people I know who’ve been in that position bottled it. Everyone says they’ll stick to the plan, but very few can.

19

[QUOTE=“simbafx;505285”]

I guess most of us have looked at these kinds of idea at some point in time, and I agree that mathematically there’s no edge, and there’s a high likelihood of failure etc. changing stops and targets just changes the win loss ratio etc, all basuc stuff really.

If we leave that to one side for a second, it is of course possible to apply martingale position sizing to a method that actually does have an edge ! Maybe its a TA based edge, or a discretionary trader, or some clever high frequency arbitrage based system. You could theoretically apply martingale… But would you want too ?

I periodically look at historical results, and determine what might have happened with various MM scenarios, and I have to say, for a very long time I was extremely tempted to give some form of martingale a go. Sure the equity curve gets a bit more volatile, but the returns even in the biggest drawdowns where double that of most other methods.

I sat and watched this stuff play out for 6 or 7 years, before actually experiencing that particular distribution in trade returns that would have killed me. Since that time I’ve done a lot more work on simulating these kind of events, and for me personally, martingale is a non starter.

I suppose if the plan is to take 10k and trade using martingale, or Kelly or any other method that’s going to give you a lot of volatility in returns, in the hope of making a nice return, and treat it like a lottery ticket, then I can maybe see the appeal. I suspect if you allocated 10k a year for 5 years a traded each account separately you might have a fighting chance of coming out ahead, but as you point out, you have to have some sort of point where you cut and run, because long term, there’s only ever going to be one outcome. I guess most people couldn’t really deal with seeing 95% of a 1 million dollar account lost in a series of losing trades, but that’s the sort of volatility that you might need to deal with, and the 2 or 3 people I know who’ve been in that position bottled it. Everyone says they’ll stick to the plan, but very few can.[/QUOTE]

Part of the edge an existing strategy encompasses the money management behind it. In fact, I would venture to say that’s over half if not more of the formula that determines failure or success.

It’s mathematically illogical to apply a statistical failure such as martingale and expect a positive outcome.

It just doesn’t work that way.

I’m not saying you can’t make money. My point is simple, you are relying on luck as what you are developing will inherently result in financial ruin.

20

I’m not sure i agree entirely about the MM forming part of the edge, its probably just semantics. Without doubt the MM has a major impact, to to the extent that you can destroy a perfectly great strategy through inappropriate MM. I suppose that you could argue that trading systems operate as a synergistic whole, but as a systems trader, I tend to be a bit more reductionist in the way I look at things.

I’m in complete agreement with you. I suppose the points that I was trying to make (rather badly) was this. Even though I understand the mathematical principles of martingale, its still so easy to fool yourself and not do the necessary research, you end up trying to justify the risk on the basis of reward, which isn’t perhaps so different to lots of other aspects of trading. In my case, I’d see returns a factor of 3 or 4 greater, for maybe double the drawdown, and that’s tempting. Of course I should know better, and all it would have took is a little more work to uncover the real issues, but I was almost tempted, and that’s a frightening thought.

The other issue of course, is the whole objective of making money. The longer I’m involved in this game, the more I realize that the optimum strategy really is to capitalize when you can. The longer your market exposure, the more likely you are playing Russian roulette with a loaded gun.

Just look at the number of people trading martingale type strategies on Zulu trade, some with tens of millions of their followers capital behind them, presumably making fairly nice monthly income from commissions and rebates. Is that any different to 1001 other more professional firms who adopt similar strategies picking pennies up from in front on a steamroller ?

The whole business model is based on getting something that works for a while, and capitalizing when they can, usually by persuading others to fund them, until the probabilities revert back to their long term mean. Of course at some point martingales going to result in a run of losses that will put you out of the game, but the point is, there’s a reasonable probability that won’t happen over say 500 or 1000 trades, and that might just give you a winning lottery ticket

I wouldn’t do it myself, but I can see the attraction