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Martingale Trading System in Forex

March 3, 2008 (Last updated on May 3, 2010) by Andriy Moraru

Martingale system is a popular betting and trading system, which is commonly used in bets with equal or close to equal chances (red-black, odd-even, heads-tails etc.) According to martingale system gambler (trader) should double his bet after every loss and return the bet to initial amount with every winning bet. E.g. gamblers bets $10 on red, if he wins he bets $10 again, if he loses he bets $20 on red, if he loses again he bets $40 etc. If the gambler is has an infinite amount of money he will be always winning, because his next bet will not only return his losses, but will guarantee a win of the initial bet ($10 in the example). Martingale system was very popular in 18th century, but it still remains popular, despite its obvious and very important disadvantage.

Why all martingale systems fail? Because in reality gamblers and traders don’t possess infinite funds. A losing streak of 10 rounds will require a bet of 1,024 initial bets (e.g. $10,240 if your initial bet was $10) to recover from losses, 20 rounds long losing streak will require 1,048,576 initial bets and so on. Your next bet after a losing round should be B × (2 in a power of N), where B is the initial bet, N is the number of round. Another problem is that the chances are usually not equal for gamblers and traders — martingale system can’t be profitable with a chance to win less than 0.5. In roulette red or black has only 18/37 chance to win (because of zero), in Forex trading there is a broker’s spread, which shifts the chances against the trader.

Martingale trading systems are very popular in Forex automated trading, because it’s quite easy to create an expert advisor that would trade using martingale; also the system looks very interesting and profitable to many Forex newbies. Let’s look at the example of the martingale Forex trading. A trader starts his betting with 0.1 lot of EUR/USD on 1:100 leverage with 20 pips target and stop-loss. Every winning trade will bring him $20, first losing one will take $20, second losing — $40 etc. A standard account with $10,000 will be able to handle a longest losing streak of no more than 8 rounds (9th losing position will require $10,240 to recover). If he uses a classical martingale system he will be either always buying or always selling. Strong trends often happens on Forex, so it wouldn’t take long for the EUR/USD to go 162 (180 minus 18 for 2 pips spread on every positions) pips without significant corrections. As the option Forex trader might modify martingale system to use a random direction to enter every next position. This approach adds more randomness to the whole process.

In Forex there are flexible tools to control martingale trading — stop-loss and take-profit. One of the most obvious modifications is to use 22 pips stop-loss in the above example to equate the chances for losing and winning (unfortunately it will also increase the amount of money lost with every losing position, so, the win after 5 losses won’t fully recover them). Forex trader can go even farther and make stop-loss twice bigger than take-profit and quadrupling the position size after every loss (this approach looks like a good idea if the currency pair is volatile enough for the 20 pips movements (for example) in both directions are significantly more common than 40 pips movements); obviously it’s even more dangerous method.

The major problem for martingale systems in gambling is that every next result is completely independent of the previous results, so the streak of any number of losses is totally possible. In Forex the probabilities are not linear, so the streaks can have some inner logic dependent on markets. It makes martingale trading system less predictable and potentially profitable if optimized to the market conditions. But well optimized and modified martingale systems, in my opinion, can’t be called martingale and can’t be discussed as the one.

Despite what I think about this system, I would recommend every Forex trader (especially beginner) to try using martingale trading system on demo account and see the results and then try to modify it to be less dangerous and more stable.

You can also read more about the basic Martingale system in Forex if you want to see how it’s applied in trading.

15 Responses to “Martingale Trading System in Forex”

  1. RomeoMD

    Demo Result is stronger than word.

    I have improve the system myself and fine tune it. Even though it turn profit now, but it will get blow and margin call. So the key is not able margin call, is about how fast you can make double, and then you can wihtdraw your profit become risk FREE while hoping it still give u profit the next few week before it burst into margin call.

    My demo with fully automatic : 5k become 13k in one month plus
    25k become 108k in two month plus

    My demo self manage and increase lot size – 500 become 16k then up and down till blow.

    So you must have big money around 70k then u able genearate about 3-5k per day with Martingale System.

    Reply

    Andrei Reply:

    Heh… that’s a huge mistake, Romeo. That’s a very dangerous way to trade because market will eventually bring you to the margin call if you use Martingale system, no matter how large is your account size.

    Reply

  2. Mark

    $3k-$5k per month on a $70,000 account is a pipe dream no matter what market you’re trying to trade.

    Don’t believe the hype, “Romeo”–you’re better off trying to find a perfect
    “Juliet.”

    Reply

  3. RomeoMD

    There’s fact stronger than word and assumption.

    So the so call near death margin call experience i went through.

    Start with 99k… margin call… become 50k… then rising… till 195k… as the robot cut all trade on Fri, turn 170k… rising again.. 200k.
    ( Total days take 29 Days)

    Then i reopen new account as we would keep safe after getting 100$ ROI.
    27May09 start with 100k again… now 5Jun09 140k.

    Journal record at : http://ahmoi.com/action/blog/one.php?id=49ddcd7a7be6a

    2nd demo with 10k. Journal : http://ahmoi.com/action/blog/one.php?id=49e7079038d3a

    13 May 09 till 29 May 09 : Total 16 Days to gain 100% ROI.
    This demo will try run 4 month to achieve 100k. 1000% ROI.

    In my journal got the mt4stat update. You able to see my demo transaction. Of coz it might get margin call sometimes, but the point is how fast you can climb up again after margin call. And how much your raw down after margin call.

    Reply

  4. RomeoMD

    Alpari with 5 digit enable more trade happened using non stop martigale system. My demo show that 300% return in a month : 10k become 40k.
    http://alparidrive.mt4stats.com

    Reply

    Andrei Reply:

    That’s not Martingale system. In Martingale your next win/loss should be proportional to the previous one. Also, if you don’t use stop-loss, why there are trades with closed loss? How do you determine that it’s time to close position with the loss and how is it different from using stop-loss?

    Reply

  5. RomeoMD

    Martingale have many style of doing it. My one is open position at double size when loss, when the trend come back to your way, it will close all position, so the last position will win with the Profit to cover all the loss of previous position. My EA no have stop loss, it stop out by margin call only, so is like martingale gambling, u always double up when you lose, till you win back. Or get margin call to close all your trade and start over again.

    PS : I don’t close position when loss, I only double up. I close all position when the profit basket is positive. The last position profit have to cover all the loss of previous position.

    Does this stratergy work ? Already 2 month tested in Demo with 100% Return.

    Reply

    Andrei Reply:

    I don’t see what has it to do with Martingale if you just double the position size without closing the previous trade.

    Have you encountered margin call already?

    Reply

  6. RomeoMD

    Martingale mean double up. Why you want to close position when lose ? Forex is not like gambling that if you bet for Up and turn out Down you money will be forfeited. So instead putting stop loss, you put pending order to open a double position and take profit by at the 1st trade opening price and close all other trade, then your first trade will have zero profit instead of negative profit.

    On 5 May 09, the trend is very strong and my 100k account get margin call become 50k. After that the trend become bouncing and stable and able earn average 10k per day. Total take 29 Days to reach 200k. Detail can view at my journal log http://ahmoi.com/action/blog/one.php?id=49ddcd7a7be6a

    Margin call experience happened more at my 10k demo, which cause by open too many position. http://ahmoi.com/action/blog/one.php?id=49e7079038d3a

    Reply

  7. Ruud

    sound like ‘grid trading’ .
    you can wait out a 9 losing streak on a demosystem though and then start the Martingale. I checked 11 or 12 losing trades in a row does occur, but rarely. this way you ‘only’ have to search for golden opportunities where 9 losing streak just occured on a random-like system and then start.

    Reply

  8. RomeoMD

    You can said is a “Martingale Grid”. It really depend on the market to have reversal to get out of the hole you dig. On Jul 09, the 100k Acc do very fast get 70% ROI in just 2 weeks, but later the trend seem have weak reversal and the account stop out many times and at end of month only left 30% of initial deposit.

    On the other hand, I start testing with a very low account of 250 USD using random assault Martingale under no hedging rules and it able to get 100% ROI in Jul 09.

    http://ahmoi.com/action/blog/one.php?id=4a711e878c340

    Reply

  9. Jaime Toscano

    I use a martingale strategy and start with 0.01 lots for every 50K invested. And of course I hedge. TP is 20% larger than SL. Profit is not too high but system works wonderfuly with a max DD of 25% so far. And of course, since hedging is implemented, profits are generated every day. Happy trading to all.

    Reply

  10. RomeoMD

    If use 50k only generated not too high ROI per month, that’s sound very risky as Martingale no have stop loss. All EA might have a chance to blow account left only 10-30% of initial deposit.

    If your Martingale able generate very high ROI per month for you to safe keep, then blow account once a while is acceptable as you already earn back your capital at the first few month.

    How long you use your 50k Martingale EA? And how many ROI generate every month so far?

    The Martingale EA i knew is Goblin, Blessing, FithElement, HollyGrail, Terminator, Autobot, CharlesHedging…

    Reply

  11. almaksyuri

    martingale is high risk high profit, i like it.

    Reply

    Andriy Moraru Reply:

    Do you currently use Martingale in Forex? Could you please share more detail?

    Reply

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