Low Risk Martingale

A bit of mathematics :).

Nice article.

Originally posted by Sasha

A bit of mathematics :)." />

Nice article.

 

Good forex strategies require knowledge of mathematics. You have to calculate many things when trading manually on indicators. Moreover we can get many different strategies in martingale. This one is also a good strategy with controlled risk.

What if we loose 5 trades? Then we have to restart this procedure? It means each set of 5 continuous loosing trades will cost us $20.

In my opinion it will not be an effective martingale strategy. For example if we loose $20 and now we r going to start again from minimum lot again. The profit from that trade will not be able to offset loss from previous trades. Main objective of martingale strategy is that even one trade is enough to cover previous losses and make profit.

So this controlled risk strategy may become high risk. We may make small profits using this technique but at a risk of more losses.

Originally posted by ironical

What if we loose 5 trades? Then we have to restart this procedure? It means each set of 5 continuous loosing trades will cost us $20.

In my opinion it will not be an effective martingale strategy. For example if we loose $20 and now we r going to start again from minimum lot again. The profit from that trade will not be able to offset loss from previous trades. Main objective of martingale strategy is that even one trade is enough to cover previous losses and make profit.

So this controlled risk strategy may become high risk. We may make small profits using this technique but at a risk of more losses.

hmm. I agree but there r other points to consider.

You r assuming that :
a trader will loose more than 50% of trades.
profit of 1 trade = loss of 1 trade. It means that SL and TP are same pips away from entry point.

But this will not be the case.

If a trader is loosing more than 50% trades, martingle is not for him. Either he needs to practice more in order to increase his winning ratio or adopt some other strategy with less risk.
TP and SL r not fixed. In this controlled martingale scenario, traders will be using tight SL. But there is no limit for TP. We can set TP according to our trading style. So it is possible that 1 profitable trade is able to offset 2 or more loosing trades.

Originally posted by ironical

What if we loose 5 trades? Then we have to restart this procedure? It means each set of 5 continuous loosing trades will cost us $20.

In my opinion it will not be an effective martingale strategy. For example if we loose $20 and now we r going to start again from minimum lot again. The profit from that trade will not be able to offset loss from previous trades. Main objective of martingale strategy is that even one trade is enough to cover previous losses and make profit.

So this controlled risk strategy may become high risk. We may make small profits using this technique but at a risk of more losses.

as i said, it is only for experienced traders. Even an intermediate trader shouldnt use martingale. Martingale can be used for learning purpose by risking low amount of cash.

as i said, it is only for experienced traders. Even an intermediate trader shouldnt use martingale. Martingale can be used for learning purpose by risking low amount of cash.

Yup. we can have a small proportion of equity if we want to test our martingale skills.

Originally posted by Jogi

Martingale is always considered as high-risk strategy which can blow ur account in short time. It is true.

But risk and money management can control loss arising from martingale. Let me explain it with an example.

Assuming that :

Your investment = $1000
Amount you want to risk = 2% = $20
Past trading results show an average loss streak of around 4 trades. (If you dont have past trading experience of at least 1 year, do not use martingale).

Now manage your trades in a way that if you loose 5 trades, you loose $20. You can have different strategies for each trade or same strategy for all trades. You can have fixed SL.

So if you loose 5 trades (which is not very common if we look at your past data), you loose 2% of your capital. But if you win, you will have high return.

If your average loosing streak is bigger, then this method will not be much effective. Because you cannot manage $20 for higher number of trades effectively. You will have to use tighter SL.

It is advised that you practice it on demo before using on real.

 

Nice explanation.

There r many EAs claiming to be mixed martingle EAs. Maybe some of them can work but usually they do not implement good risk and money management strategies.

hmm. I agree but there r other points to consider.

You r assuming that :
a trader will loose more than 50% of trades.
profit of 1 trade = loss of 1 trade. It means that SL and TP are same pips away from entry point.

But this will not be the case.

If a trader is loosing more than 50% trades, martingle is not for him. Either he needs to practice more in order to increase his winning ratio or adopt some other strategy with less risk.
TP and SL r not fixed. In this controlled martingale scenario, traders will be using tight SL. But there is no limit for TP. We can set TP according to our trading style. So it is possible that 1 profitable trade is able to offset 2 or more loosing trades.

I dont think success rate matters in case of martingale. No one knows when a trader will be having worst time. So it is a big mistake to assume that if a trader has high winning percentage, he can use martingale. One loosing streak is enough to blow account.

Controlled risk martingale may work. But we can only know it after we have tested it.

my issue with controlled martingale is the emotion factor.

when a trader is used to see normal sized losses, and then sees something that is x2-3 times bigger, it will take a heavy toll.

Not many people can handle that