Safe Martingale. How can I increase the profitability of my strategy with the individual elements of Martingale?

The dangerous Martingale money management method came to the world-famous "Foreign Exchange" with the light hand of gamblers. Some traders, especially beginners, perceive the method as a trading strategy and consider martingale as the only way to achieve 100% profit. Experienced professionals are cautious with the card players' tactics because not only profit awaits the trader at the end of the way, but also a very probable deposit dump.

• What is Martingale?
• What is the essence of the Martingale system?
• How is Martingale applied on ?
• Advantages and disadvantages of the Martingale principle on the
• How do Martingale trading strategies work?
• What do traders need to know when using the martingale strategy?
• Is there a safe Martingale to use?
• What is necessary for safe Martingale?
• Preparing for a safe "Martin"
• Practical example of safe Martingale
• Mathematical justification of the safe Martingale
• Possible problems when using a safe "Martin"
• Recommendations for using safe Martingale
• And again about mani-management

What is Martingale?

Martingale, martingale (French: martingale) - a betting management system discovered by French mathematician Paul Pierre Levy. Initially, the Martingale system was used only in gambling to calculate bets, but later it was actively used and transformed by traders on the stock and foreign exchange markets.

What is the essence of the Martingale system?

For those who are not in the know, let us explain the principle of the classic Martingale system. Initially, the method was focused on the game of roulette. For example, 1 dollar was bet on red. When black falls out, the bet was doubled, that is, the red bet was already 2 dollars. At the next loss the bet was doubled again and was already 4 dollars on red. And so on until the winning color fell out.

How is Martingale applied on ?

With the development of stock trading, the Martingale method began to be used in the foreign exchange market. The general principle of its use is very similar to roulette, but instead of "red" and "black" buy and sell orders are used.

It looks like this:

At some level, a sell position is opened with a volume of 1 lot. If, against expectations, the price continues to rise, the losing position is not closed, but another sell position is opened with double the volume. This sequence continues until the price reverses and allows the trader to close the trades with a profit or, at least, without a loss.

In general, this approach to the Martingale method gives the impression that it is not necessary to close losing trades, and that there is almost 100% probability to "get away with it", having avoided losses, and even getting some profit on top. However, there are several very significant "buts" in such a use of the strategy.

• Firstly, the increase in open transactions and their volumes leads to a load on the deposit and, as a consequence, to the Margin CallWhen there are not enough funds to open new orders, in the best case. In the worst case, the result of such trades will be Stop Out, when the broker will start forcibly closing open trades.
• Secondly, the use of Martingale requires fine calculation and skill in analyzing technical charts, indicators and so on. Positions are opened not just anywhere. Each order is opened in the place of potential reversal, which is not so easy to determine. And if you get caught in a strong trend, you can easily be left without a deposit. Sadly, this is exactly the reason why beginner traders trying this method get caught.

It is worth noting that most trading systems based on the Martingale method, if used incorrectly, lead to almost 100% loss of funds. This also applies to advisors such as ILAN. The reverse side of the coin is that with a competent approach and appropriate skills, such systems and robots allow you to get a pretty good profit.

Advantages and disadvantages of the Martingale principle on the

К достоинствам Мартингейла на относится принцип, при котором трейдер, даже часто получающий убыток, все равно будет оставаться в плюсе. При этом, использование принципа Мартингейла иногда позволяет «вытащить» в безубыток, а то и в плюс, казалось бы уже безнадежную позицию.

Along with the possibility of coming out with tangible profits, the Martingale method has a number of significant disadvantages:

• First, the Maringale principle on , unlike its use in gambling, is a complex mathematical system based not on the usual doubling of the subsequent bet, but depends on the volatility of the currency pair, the volume of the initial position and the size of the trader's deposit.
• Secondly, the Martingale strategy assumes a sufficiently large deposit, which will be able to withstand the drawdown on open positions and will allow opening new positions with increased volume.
• Thirdly, the effectiveness of the Martingale principle directly depends on the trading strategy in which it is applied. If the strategy has low efficiency or is unprofitable at all, no Martingale system can save it.
• Fourth, the Martingale method has a higher level of risk. If classic rules of maneuvering on allow a risk of 3-5% of the deposit, then the riskiness of strategies with Martingale is about 60%.

How do Martingale trading strategies work?

1. Choose any currency pair.

2. Enter a buy or sell position clearly in the direction of the current trend with the minimum lot. To determine the trend, you can use a chart with a large timeframe (for example, D1). Once we have determined the direction of the price (for example, upward), we open a position (in our case, to buy Buy).

3. To the open transaction necessarily establish equidistant orders stop loss and take profit (50 points for each from the entrance to the market).

4. If the price beats our take profit, at the same level we open a new position, also to buy and with the same orders.

5. If, on the other hand, the price, struck out stop loss, at its same level open a new trade in Buy with the same orders, but the lot for the position should be twice as large as the previous (already closed) position.

That is, if the first transaction was with lot 0.1 and knocked out a stop loss, then for a new open trade (in the same direction as the first one) the lot should be 0.2 (this is the main principle of martingale on ). And so on.

In order not to wait until the price reaches take profit or stop loss, you can set appropriate pending orders at their levels for the automatic opening of new trades in the right direction.

The martingale method in the market is not "liked" by stock speculatorsThe stock market speculators usually create an average model similar to the famous "bubble" formula: they operate with large amounts of money and use marting. Exchange speculators, as a rule, create an average model similar to the well-known "bubble" formula: they operate with large sums and, using martingale in trading, increase losses in the hope of a proportional increase in profits.

Nevertheless, despite the high risks of deposit loss, trading strategies based on the principle of Martingale are very popular among traders, because they allow you to get tangible profit in a short period of time, up to increase your deposit several times.

What do traders need to know when using the martingale strategy?

In practice, the martingale is an effective tool in the hands of one who adopts the principles of the strategy. The term, by the way, was first used to refer to a clamp that prevented the horse from tilting its neck, and was also referred to as a piece of ship's rigging to strengthen the jib and bowsprit against the force of the staffs... in general, the principle is to apply increased force to a negative result.

What a trader needs to know for the correct application of the martingale system on ? - making profitable trades can be increased up to 87% (vs. 50%) even if the trader works with minimal deposit (4 financial margins). Given the doubling principle, it is necessary to calculate your forces, limit yourself to small volumes of transactions and provide, even before the experiments, a large deposit.

Jokingly, experienced pros recommend trying the card player strategy to those to whom a broker is ready to open a limitless line of credit. However, the fact remains: Martingale is a strategy with an excessive level of risk - 62% vs. 2% accepted in the exchange. The classic version of the gambler's system is the entry at random (vs. trend) is highly discouraged. If you do use the method, it should be in modified versions, adapted to "Foreign Exchange":

• A simple method

Increase the lot value and double the trading positions after each loss, but enter the market only on the trend. The disadvantage of the method is a high level of risk, since trading involves the investment of significant amounts of money.

• Complicated method

Increasing the denomination after each successive losing trade within 40% (by a factor of 1.3-1.6 compared to doubling). This method significantly reduces the range of losses and the probability of losing the deposit, but provides less profit. When choosing this method it is necessary to limit the use of take profit and strictly control the stop loss, increasing the level when the dynamics are positive.

However, it is worth considering that martingale will not be able to correct a bad trading strategy (up to 40% profitable trades). Another condition of profit when using the method is to start trading with a minimum lot. Profit in this case will be insignificant, regardless of the chosen option (simple, complex), but thanks to the averaging of the position, the probability of deposit drain is also minimal.

Is there a safe Martingale to use?

As a rule, Martingale method is associated by most traders with something dangerous. And for beginners, it is one of the most popular "scare stories". There is no doubt that using the Martingale method in trading carries increased risks. Is there a safe Martingale?

You won't believe it, it exists! Using some elements of "Martin" can increase the profitability of trading and even reduce the psychological load on the trader. How? Very simple!

Let's look at a number of elements of the method that can be used in a trading strategy, increasing its profitability.

What is necessary for safe Martingale?

First of all, we will need a profitable trading strategy. The Internet offers a huge selection of systems for every taste, so it will not be difficult to choose a profitable one from those already available. Remember, the use of safe "Martin" will give us an increase in income and reduce the psychological burden, but if the strategy is known to be unprofitable, you are unlikely to get anything.

In addition to a profitable trading strategy, you need a trading account with high leverage. Adequately using the rules of mani-management, leverage 1:100 will suffice.

Preparing for a safe "Martin"

So, the trading strategy is selected, a trading account with the necessary leverage is available. Let's continue preparing our safe Martingale. Let's focus on the following key elements:

• Use of stop-loss orders in trading

Most traders for some reason believe that trading using the Martingale method is done without stop losses. Do I need to say that stop-loss is an insurance against a big loss and it is stupid and dangerous to trade without them? It is possible and even necessary to use stop-loss orders in the Martingale system.

• Determining a series of losing trades of a trading strategy

Everyone knows that there is no Grail, and even the most profitable trading strategy "sins" with losing trades. The task before us is to determine the average series of losing trades. Please note - not the maximum value, but the average number of consecutive losing trades for the test period.

The test period needs an individual approach. If the trading strategy is intended for trading on the M5 interval, the test period should be at least 1-2 months. If trading is meant for trading on the daily timeframe, the testing period is already several years.

To optimize the testing of a trading strategy, you can use one of the utilities, of which there are a great number on the resources.

Practical example of safe Martingale

Let's assume that the average series of losing trades in the tested strategy equals 3. Our trading strategy assumes fixed stop loss and take profit of 10 points and 20 points, respectively.

According to the rules of tactics there is a sell signal. We open a sell transaction with the volume of 1 lot. The price continues its upward movement - we get a loss of 10 pips.

The price continues to grow, the sell signal appears again. We open a SELL trade, but with an increased lot.

Here we should pay attention to an extremely important point. For some reason, it is commonly believed that when using "Martin" the lot must be doubled. In fact, there is no strict dependence. The multiplier depends only on the trader's desires and his risk appetite and can be arbitrary. We will increase the volume of our trades by 50%.

Let's return to our example - a sell signal is received. We open SELL with the volume of 1.5 lots. The price goes up again, the deal is closed by stop-loss with a loss of 10 points.

We observe further. The situation repeats: a sell signal appears. We open a position in the volume increased by 50% from the previous one, i.e. 2 lots. The price finally goes in the direction we need, and the deal is closed at Take Profit of 20 pips.

A minute of fun arithmetic

Money likes counting, it's time to practice arithmetic.

What would happen if we opened a trade not with an enlarged, but with a normal one? 1 lot? For convenience, the calculations will be carried out on the euro/dollar pair (with a standard lot the cost of 1 point is 10 dollars).

• The first trade gave us a loss of 10 pips = $100.
• The second trade would have given us another $100 loss.
• The third trade would have closed with a profit of 20 pips = $200.

The result of our trades would be zero profit. Considering that the loss is also zero, this is quite good.

Now let's calculate our trading results using the increased lot.

• The first trade gave us a loss of 10 pips = 100 dollars.
• The second deal brought us another 150 dollars of loss (let's remind that the volume of the second deal was 1.5 lots).
• The third trade, with a volume of 2 lots, closed with a profit of 20 pips = 400 dollars.

Thus, increasing the lot gave us 400 - 150 - 100 = 150 dollars of profit, as opposed to zero result in the variant with a constant lot.

What do you do if things aren't going so smoothly?

What if the third trade, opened with the volume of 2 lots, would be closed at stop-loss with a loss, the price would continue to grow, and a sell signal would appear again? We should open a sell position again, but with what volume?

Classic Martingale implies further increase in the volume of positions, however, this approach is not suitable for us because of the very high risk.

In the process of testing we found out that the average series of losing trades is equal to 3. Accordingly, we can open only 3 trades. The fourth time does not correspond to the standard situation, so it is better not to risk. In this case, you can open a sell trade with a reduced volume of 1.5 lots or go straight back to the original volume of 1 lot and trade with it until the trading strategy returns to the usual ratio of profitable and losing trades.

Don't cling to one direction

The use of the Martingale method in trading is based on the fact that the price will sooner or later turn around and go in the desired direction. This is the reason why many traders stubbornly continue to open trades against the price, draining their deposit without waiting for the reversal. But we are smart traders, we will not do that.

Let's assume that our open sell trade closed at the stop loss, bringing us a loss. After that, the trading strategy gives us a buy signal. So why should we ignore it, continuing losing sales only because "that's how the Martingale method works"?

We open a buy position, but with an increased volume of 1.5 lots. Closed at take profit - good, take profit. Closed at stop loss - do not ignore the next signal, but open in the specified direction with a volume of 2 lots.

At the same time, do not forget about the average series of losing trades, which we determined when testing the strategy. If it is, as in our example, 3 - it is not recommended to increase the volume more than three trades.

And again about mani-management

Fortrader magazine has probably written 100,500 times about compliance mani-pedi rulesand will write as much more, because it makes no sense to talk about any stable profitable trading without their observance.

Of course, our trading risks are slightly increased. But adhering to strict rules and not giving free rein to emotions, the above described safe Martingale will not drain your deposit, but will bring additional profit, increasing the efficiency of the used trade.

So, be prudent, follow the rules of mani-management. Take care of yourself, wear hats 🙂 🙂

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