Martingale Strategy: A Risky Way to Make Money
The Martingale strategy in Forex trading, a topic often shrouded in controversy, presents a unique blend of risk and reward. This strategy, hinging on the principle of doubling down on losses, holds a peculiar allure for traders seeking to turn the tide of their fortunes.
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In exploring how the Martingale strategy works in the volatile Forex market, we delve into the intricate balance between calculated risk-taking and potential gains.
Such an approach requires not only an understanding of market dynamics but also an ironclad discipline in risk management.
In this article, we will cover the Martingale Strategy, which is my favorite way to trade but is very dangerous. Please understand that if you wish to try this Forex strategy, you are risking a lot.
Table of Contents
Martingale Strategy in Forex Uncovered
The idea of a Martingale Trading Strategy is not a trading logic but a mathematical one. It is derived from the idea that you will eventually be right when flipping a coin if you choose heads over and over.
Though the coin may land on tails two, three, or 10 times in a row, it MUST eventually land on heads. In a Martingale Trading Strategy, you take advantage of this truth by increasing the size of your bet. If you want to learn an easier strategy, feel free to read our risk-to-reward ratio guide.
Let’s compare the results of a long tails streak in traditional betting compared to the Martingale Trading Strategy.
Traditional Betting During a Loss Streak
| Choice | Bet Amount | Result | Net P/L | TOTAL P/L |
| Heads | $10.00 | Tails | -$10.00 | -$10.00 |
| Heads | $10.00 | Tails | -$10.00 | -$20.00 |
| Heads | $10.00 | Tails | -$10.00 | -$30.00 |
| Heads | $10.00 | Tail | -$10.00 | -$40.00 |
| Heads | $10.00 | Tails | -$10.00 | -$50.00 |
| Heads | $10.00 | Tails | -$10.00 | -$60.00 |
| Heads | $10.00 | Tails | -$10.00 | -$70.00 |
| Heads | $10.00 | Tails | -$10.00 | -$80.00 |
| Heads | $10.00 | Tails | -$10.00 | -$90.00 |
| Heads | $10.00 | Heads | $10.00 | -$80.00 |
Martingale Trading Strategy During a Loss Streak
| Choice | Bet Amount | Result | Net P/L | Total P/L |
| Heads | $1.00 | Tails | -$1.00 | -$1.00 |
| Heads | $2.00 | Tails | -$2.00 | -$3.00 |
| Heads | $5.00 | Tails | -$5.00 | -$8.00 |
| Heads | $10.00 | Tail | -$10.00 | -$18.00 |
| Heads | $25.00 | Tails | -$25.00 | -$43.00 |
| Heads | $50.00 | Tails | -$50.00 | -$93.00 |
| Heads | $100.00 | Tails | -$100.00 | -$193.00 |
| Heads | $250.00 | Tails | -$250.00 | -$443.00 |
| Heads | $500.00 | Tails | -$500.00 | -$943.00 |
| Heads | $1,000.00 | Heads | $1,000.00 | $57.00 |
From the table, we see that with the Martingale system, no matter how long the bad streak is, when you finally win, it is profitable overall. The problem with Martingale is, as you probably noticed, that the risk is massive.
You may ask, how could you justify risking $1,000 to make a $60 profit?
Well, that is a fair question, and there are a number of ways to answer it. The first is this: My goal is to make money. If that requires a lot of risks, then I am willing to do it. I would rather handle the risk to win than have a small risk and be virtually sure to lose.
Many people say that Martingaling is foolish, and believe me, I understand where they are coming from. However, I do beg to differ.
In this article, we are told how foolish and dangerous the Martingale Strategy in Forex is, and I don’t blame him for telling us that, but let’s examine what he says:
First, he talks about if you go on a 20-loss streak.
I believe a 20-loss losing streak in Forex is impossible if you are smart about where you enter the market. Before I get into that, let’s just look at the probability of losing 20 times in a row.
To find the probability, we simply take ½ times itself 20 times (assuming, of course, that you have about a 50% chance for the market to go up or down).
The probability of a 50/50 chance going one way 20 times in a row is one in 1,048,576. So, purely mathematically, there is a one-in-a-million chance that you would lose 20 times in a row.
Now, that is if you are flipping a coin; in my opinion, the chances in Forex would be even more ridiculous.
Here is why: YOU have an advantage in the Martingale forex system. First of all, you can pick your entry. If you choose to begin a Martingale, you will buy low and sell high.
However, if you chose to wait until the market goes 250 pips away from you before you double the position and re-target 250, the market would have to go 5,000 pips against you with 0 bounces of 250 pips AFTER you already bought low or sold high for you to lose 20 times in a row like the gentleman in that article suggests.
Let me give you a little fact: The circumstance I mentioned above has never happened in the HISTORY of Forex.
The reason I pointed that out was simply to help you understand that when people say that a Martingale system is always doomed to failure, they are wrong. I know that it is risky, and it is EASY to blow your account. Still, it is DEFINITELY not impossible to win over the long term in Forex using a Martingale Trading Strategy.
The examples I was giving suggested that you would be able to double your position 20 times. However, that is VERY unlikely. To be more reasonable, let us say that you can double the trade nine times using this array (The reason for nine is that it is easily achievable with a 10 thousand dollar account): .01, .02, .04, .08, .16, .32, .64, 1.2, 2.5
Notice that even with a 10k account, we start at one micro-lot trade. Starting with a small size is ESSENTIAL to successful Martingale strategies.
Assuming we are making good entries, not buying too high or selling too low, this array should leave VERY little room for failure. Purely mathematically, the odds are about one in 500 that you would lose nine in a row. Nevertheless, with good entries and a large grid, I think the chances of losing go WAY down.
For instance, using the 250 pip grid and doubling nine times, the pair would have to travel about 2,000 pips in the opposite direction without a 250 pip bounce AFTER we bought low or sold high. In my opinion, the chances of that are EXTREMELY low.
The tricky thing about the Martingale trading strategy is patience and the ability to handle risk. You need to understand that you are aiming for a profit of $25 on each trade (if you are using the system I showed above), and yet you are risking hundreds.
This, for some people, will be too difficult to handle. If you do not think that you would be able to manage it, PLEASE do not attempt a Martingale strategy in Forex.
I hope you learned something about the Martingale System today. Make sure to follow me on Twitter to get all my trading and Forex strategy thoughts!
Nathan
Conclusion
The Martingale strategy in Forex trading stands as a testament to high-risk, high-reward methodologies in financial markets. While it’s very risky and not for everyone, the Martingale strategy works, and if used correctly, anyone can make a lot of money.
This strategy, with its potential for significant returns, also carries the risk of substantial losses. Ultimately, the successful application of the Martingale strategy requires not only a deep understanding of market dynamics but also a robust risk management framework.
It requires readiness to face the unpredictable nature of Forex markets.
About the Author
Nathan Tucci is a young trader. His trading techniques are based on Mathematics above all else. Though he understands technical analysis and fundamentals, his personal belief is that all trading success comes down to the Mathematical principles integrated into all trading.
He loves to develop and improve strategies and is constantly looking for ways to take advantage of the Forex Markets. Trained by Casey Stubbs, Nathan shares Casey’s belief that price is the truest of indicators, and a firm understanding of price action is vital to trading success.
Nathan loves to share his latest ideas, successes, failures, and thoughts so that other people can benefit from his scientific approach to the market. Follow his latest thoughts on Twitter.
Thank you for reading!
Please leave a comment below if you have any questions about the Martingale Trading Strategy!
Nathan is not just young; he’s a kid. He won’ t stay with this Martingale stuff, and he
doesn’ t even need it. Sounds to me like he already knows quite a bit about trading.
Doubling-up will work in a hypothetical example ( like the one he showed us ), but
not in the REAL world. The financial and PSYCHOLOGICAL strain is just too great.
Back in the days when I went to the race track, I fooled around with progressive
betting ( increasing bets after losers ). Now I am not an expert on progressive
betting — nor am I an expert on ANYTHING — but you don’ t have to double-up !!
Sticking to the race track, let’s say you bet $2 on a race and lose. You could
increase your bet on the next race by ONE UNIT ( in our example here, a unit is
$2 ). Bet $4. If this race loses, on the next race, increase by one more unit. Bet
$6. Go up one unit after a loss and down one unit after a win. Larry Williams
mentions this kind of tactic in one of his books. He’ s trading contracts in the
futures market. After three straight losers ( or maybe three losing days ), increase
trades from one contract to two. He’ s not talking about doubling-up; he’ s talking
about increasing trades by ONE unit. Note: Williams didn’ t say he actually did
this; he just TALKED about it. Please don’ t bother telling me that my ‘ up one
after a loss — down one after a win ‘ example is NOT mathematically balanced; I
already know that. But if you can get 50% winners ( or close to it ) and break even
by making the same size trades, ‘ my ‘ strategy will MAKE MONEY. Check it out
for yourself. The reason it’ ll make money is because more money is placed on the
winners than is placed on the losers.
By the way, Casey, when I grow up, I want to be like you. I want six monitors in
front of me.
Wayne Roberts
Hello Wayne, thanks for the comment. I certainly understand where you are coming from.. And I believe that your unit method could work; however, Martingaling is one of the oldest strategies in trading history, so there is a reason it has withstood the test of time. I believe that I will stick to the Martingale system because it has proven to be successful for a long time. Perhaps I will adjust it over time, but I do believe–mathematically speaking–that it has complete capability to retain profits in all market conditions. But we will see 😉 .. Thanks again for the comment!
WOW. Jack, that is insane!! Very impressive!
Thats like the playing a round of golf story were you double the bet every hole, by the time your at the 18th you could owe $262,144.00 from an initial $1 bet even if your a good plyer when the presure is on theres plenty that can go wrong
I beg to differ. For that to happen, you would have to lose all 18 holes in a row. If you have ever watched match play: NEVER HAPPENS. Not to mention, trading is nothing like golf 😉
Hi Nathan,
So basically, taking eurusd as a current example, you would short, with a 250 pip stop and target,
then if this is stopped out you then short double with 250/250 again, etc unyil you catch a winner?
LOL Fair Enough!
A few big moves and you are wiped out
Thanks for the article Nathan. I have been trying forex trading for about 2 years now. The only time I made consistent money was martingaling. I went from $400 and somehting to about 3k in around 10-11 weeks. My strategy was somewhat different. I did know the risks of blowing the account and knew I had to maintain strict disclipline. One day the perfect storm occurred chartwise and I was in a bad mood that day and took on too much risk and boom. I have not tried it since but beleive it could have cntinued to work had I tweeked it some and maintained discipline. Your strategy is a much safer and conservative strategy. The mathmatical odds are on your side. Believe me, if the casinos banned martingaling or made adjustsments to negate it, then you know good and well there is something to it.
Thanks for the comment, James. I am sorry to hear what happened with you…. But yes, if you keep it safe, it can definitely produce profit over the long term.
so this martingale system will require a stoploss, right ?
otherwise, the earlier losing trades will accumulate more losses and even if the last trade is a big winner, overall it’s still a loss.
That depends on how you structure your Martingale. The most profitable way to Martingale is actually to keep two positions open at once.. In other words, when the first position goes down -250 you keep it open and add the next position, and when it goes down-250; you cut the first position and add your 3rd.. This way, you get the second to last position at break-even instead of a 250 pip loss
Excellent idea to control the risk but don’t you think that this will greatly affect the winning ratio? I mean once we got the direction wrong, we will only manage to break even instead of coming out at the end with a WIN.
Hi , im programing the martingale, works nice with trailing stop. and is more beter a lite profits, and not consecutives loses , i have a two robots with this system and work nice.. is a danger. but works..
http://www.myfxbook.com/members/ALEXPAILOT444 ..
Hi , i have 2 robots with martingale, and work nice. pipstrider. 1.15 and 2.21 ..
you see the test in http://www.myfxbook.com/members/ALEXPAILOT444
Great reading Nathan. There is certainly method in the Martingale ‘madness’. I for one believe in mathematical trading instead of predicting currency movements. Could you also throw light on the system of doubling in the opposite direction after the 250 pip stop loss. (semi martingale theory). Which method do you think is more logical in the realm of forex movements.