Working Martingale Forex Strategy: A Brief Guide for a Trader
Have you heard of an unusual trading strategy, the martingale strategy? This article focuses on a Forex martingale strategy that works and analyzes its mechanism to help you get the most out of it.
What is the martingale strategy?
Martingale is a specific theory applied primarily to betting and other trading activities such as currency and stock trading. Basically, it is a betting system that involves doubling the bet after each losing operation.
Martingale’s strategy is to “double or nothing,” which is an expression you’ve probably heard at a game table.
Martingale has its origins in the seventeenth century in France, when the upper class and rampant played with surprising sums of money.
With its growing popularity, scientists and mathematicians showed interest in it. Finally, Paul Pierre Levy proposed the large-scale martingale strategy as one of the most popular betting systems.
The goal is to keep losses in the hope that the first win will pay them all off and make a good profit. If you look at the coin toss, there is a 50:50 chance that the coin will fall to the heads. By betting your $ 10 for the queues, but the coin falls on your heads, you lose.
If you double your stake to $ 20, another loss will double to $ 40. If you eventually win, the money you earn would cover all of the above losses and even contribute the profits.
However, to use it effectively and skillfully, it is not enough to master your idea well and test it in a demo account.
You should have more funds or skillfully plan for managing small positions and margin level.
In addition, the very idea of martingale betting systems is derived from game theory. However, its implementation as a foreign exchange trading strategy could be especially profitable.
Implementation in trade
Suppose we have entered a short position in an uptrend. And we expect the price of the instrument to change to the south. However, prices continue to rise and we maintain an increasingly low position.
There are two approaches here as well. We can close a losing trade and return it in the same direction, only twice. If he loses again, we do exactly the same thing, closing another one.
The second approach is not to close the first trade and duplicate it in the same pattern as the previous one.
All traders are aware that a lost streak of 5 or 6 trades does not mean that seven will occur.
However, we can find a bigger disappointment when we calculate how much we can earn by adding to the position. The whole martingale strategy is structured so that our risk-reward is 1: 1.
Is there a forex martingale strategy that works 100%?
The 100% working Forex Martingale strategy only exists in theory. Also, it may sound very disturbing, but the whole Martingale progression system is about doubling your losing position.
The theory behind this strategy is that once a trade is closed, there is a 50% chance that it will “go” in our direction. The likelihood of this movement actually increases with the analysis of trends and feelings. Consequently, we can assess the greater possibility of a given market situation.
Example of a working Forex martingale strategy
The use of the Martingale system in currency trading has become very popular. These are mainly traders with a great appetite for risk. Here is an illustrative example of the Forex martingale strategy that works.
- Imagine speculating with € 5,000 in the trading account previously opened with your forex broker.
- Set a relatively small batch size to limit the risk to 0.02 batches. Your stop-loss is 5 pips, as is your profit. In the worst case, you will lose (€ 5 x € 0.2) the sum of € 1 (0.02% of your trading account).
- You decide to take a long position. Unfortunately, your speculative transaction is losing and you are suffering a loss of € 1. Your trading account then shows € 4,999
- After you have recorded a loss, you decide to fall short, but since Martingale wants you to double the size of your next position with the same stop loss and the same profit, you risk € 2 for a position of about 0 .04 lots.
- It turns out you won the trade. Recover the amount of € 1 lost and get € 1 in additional profit.
- After winning, return to your original 0.02 lot position and repeat the process.
With these risks, you have to lose 13 consecutive trades to end up “ruined” and see that your trading account shows a balance of € 0.
In other words, with a trading strategy with a high probability of winning (for example, above 60% success) and a 1: 1 risk / reward ratio, combining the Martingale, it is very unlikely. which he lost.
If you are looking for a safe and lossless Forex martingale strategy that works, it could be a tricky search.
However, the system guarantees at least one victory in 5 consecutive trades with a stop loss of 20 pips and a profit of 20 pips using the following sequence of batch sizes proportional to L = (1,2,4,8,16 ) can be called “Lossless Martingale Strategy”. Unfortunately, there is no system that works in the long run.
Negotiation with two results
To better understand the issue, imagine that your trade has two equally likely outcomes. Trader X wants to trade a sum of $ 50 and expects result 1 to occur. But result 2 occurs with the loss of trading.
With the implementation of the martingale strategy, the size of the trade increases to $ 100, while we wait for the result to occur 2.
But instead, result 2 occurs and we lost $ 100. Because it is a loss, our trade doubles. It now stands at $ 200. Therefore, the process must continue until the desired result is reached.
Accordingly, the size of the winning trade can exceed all the combined losses of previous transactions. The difference lies in the original size of the trade.
As in the stock market, there is no rigid result in Forex. Still, there are two possible main outcomes, but the trade will usually close with a variable rate of profit or loss.
Disadvantages of martingale trading strategy
Martingale theory is used by traders who trade currencies with high interest rates. This investor will intend to buy or sell to get an interest rate, which means buying a currency with a high interest rate and earning interest, thus selling the currency at a low interest rate.
With a large number of positions, interest can be crucial and can drastically reduce our initial bet and our initial position. Everything looks great in the theoretical description.
Finally, you need to have very deep pockets to change such a system without any hindrance.
You may not have enough capital to complete another transaction after a series of losses. In addition, no one guarantees that this is the maximum we assume and will cover previous losses.
Working Martingale Forex Strategy: Summary of Martingale Strategy
The advantage of using this type of system is a guarantee of 100% efficiency as long as we have an endless cash flow. It is a system based on statistics and probabilities, de facto “rigid”, which always means a 50% chance of winning trades.
Therefore, we do not seek any advantage in the market, even if it guarantees greater efficiency. The main drawbacks of this system are the need for deep pockets.
In addition, the person using it should certainly have a great appetite for high risk and a good dose of discipline. Entries must be accurate and non-random.
It is extremely important to study market sentiment and trend and pay close attention to the analysis of these items. Why is it so important? Martingale trading focuses largely on the size of the trade and the creation of a progression system that is de facto often used in the game.
The post Forex Martingale Strategy That Works: A Brief Guide First Appeared on FinanceBrokerage.
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