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!
Hay Nathan
Many traders do similar and as an example can be done on brokers like Oanda for even less risk like starting at 0.02 cents per pips for those with really small accounts.. It does work, because mathematics does not lie.. The problem for many is emotions to many cause bad decisions when in draw down.. Probably because they are risking too much to begin with..
Less risk style, 250 pips spacing like you say-
0.02 cents per pip
0.04 cents per pip
0.08 cents per pip
0.16 cents per pip
( 1250 pips beyond first open price.. )
Also great to do on positive swap pairs..
Sell at weekly highs, buy at weekly lows..
That is more than 1000 pips.. It will not go further than that without one 250 pips retrace, it never has done a move further than that in all pairs in history ever without one retrace of some type and that is including the volatile pairs like GBPNZD..
Regards,
Timon
Firstly, it can easily be demonstrated mathematically that staking systems do not alter expectancy. Secondly, with uncapped doubling, you’re gaining guaranteed recovery (over a series of trades) and a greater rate of income (due to the higher average position size), but at the risk that a ‘black swan’ outcome will cause catastrophic loss. However, the inescapable fact is that if you have a positive expectancy trading system, you’ll recover your losses over time anyway, making the added risk unnecessary; and that recent losses have no greater effect on your eventual return than historical losses, hence ‘recovery’ has no mathematical basis. Since it’s impossible to test, or at least without a vast amount of statistical error, whether a ‘black swan’ outcome is more likely to occur sooner rather than later, martingale comes down to personal choice: whether the trader prioritizes maximization of income, or risk management. Read the Market Wizard books, and you’ll find that the top traders focus on the latter. None of them cite the use of progressive staking as a means of recovering loss, as part of their trading strategy.
Hello Nathan
Thank you for the explanation . I want to say for the people who telling that Forex is same like Gambling . Well it is more worse and so dirty than Gambling because every candle in every Time frame Always move against “Small Trader” positions . It is Just a matter of time and they will suck your account . To be winner who knows where big account locate their TP ans SL location and when they will change trend direction and fortunately this is so hard for small Trader accounts.
You will be winner if you use this strategy for long term as you life investment and use risk management . It will be so great . For example if you have 10,000 with a lot of calculation . Within 10 Years you can get a more than 5000 $ monthly which is not so bad . Some body will say 10 years so long . Believe me if I used this strategy since 2008 I will get 2788 $ per month if I deposit only 10,000 . But I lost more than 30000 $ for nothing and I pay that since that time .
Really I think seriously to go back using this way . By using big Time money ,and Risk Management at this time I will recover my lose .
Did Nathan vanish? Martingaling always takes your entire trading account. There are those who have lost it all, and those who will. No other category. The fact that Nathan is no longer responding proves this point.
Mike,
If you manage your risk, and maximize your entries there are many successful traders that add to trades.
I agree that adding to trades can be a profitable way to trade, and that many traders do that. But I’m referring to a “legal” definition of Martingaling. This is not merely adding to trades, with a defined risk, it is doubling them to infinity. Martingaling will always blow out accounts, whereas adding to trades in a defined way can be successful.
P.S. Any idea what happened to Nathan? It’s possible his vanishing was directly due to his Martingaling.
This article is over 4 years old, he hasn’t worked for me for a while but it was not because of martingaling.
I see yes we agree on that.
Thanks for the article. I however want to point out that much as the martingale strategy can barely lose if the market is ranging or moving in one direction, I have found the strategy to be a problem during consolidation periods. I therefore would request you to give any advice possible if at all you have any on how you manage to use the strategy during consolidation periods.
I will be grateful for your reply