Martingale trading system is based on the popular betting (gambling) system of the 18th century's France. The main principle of this system is to double the bet each time you lose, so that if you win (considering a 100% bet win/loss each time), you recover the previous loss and will also gain the first bet amount. If one had an infinite amount of money, this strategy would be a sure-fire thing as with an infinite number of bets, the necessary result will eventually come with probability of 100%. The problem is that no trader possesses an infinite wealth and thus utilizing this strategy eventually leads to a wiped account. Although it is a very popular Forex trading system and is used in many paid Forex expert advisors, it would be foolish to use it on a live account.
Martingale system is a popular betting and trading system, which is commonly used in bets with equal or close to equal chances (
According to a martingale system, a gambler (trader) should double their bet after every loss and return the bet to the initial amount with every winning bet.
For example, a gambler bets $10 on red; if they win, they bet $10 again; if they lose, they bet $20 on red; if they lose again, they bet $40, and so on. If the gambler has an infinite amount of money, they will be perpetually profitable because their next bet will not only recover the losses but will also guarantee a win of the initial bet ($10 in the example).
A martingale system was very popular in the 18th century, but it still remains popular, despite its obvious and very important disadvantage.
Martingale traders fail because in reality they don't possess infinite funds. A losing streak of 10 rounds will require a bet of the size of 1,024 initial bets (e.g., $10,240 if your initial bet was $10) to recover from losses. A losing streak of 20 rounds will require 1,048,576 initial bets, and so on. Your next bet after a losing round should be B × 2N, where B is the initial bet, N is the round's number.
Another problem is that the chances are usually not equal for gamblers and traders — a martingale system cannot be profitable with a chance to win less than 0.5. In roulette, red or black has only a 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 is 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.
In Forex, there are flexible tools to control martingale trading —
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 aren't linear, so the streaks can have some inner logic dependent on the market. It makes martingale trading system less predictable and potentially profitable if optimized to the market conditions. But a well-optimized and modified martingale system ceases to be a martingale and shouldn't be discussed as one.
Despite its intrinsic flaw, it is actually recommended that every Forex trader (especially beginner) try using a martingale trading system on a demo account and see the results.
No example chart is present for this trading system as there is nothing important to be shown on the chart. Let's view the following example.
Use this strategy at your own risk. EarnForex.com cannot be held responsible for any losses associated with using any strategy presented on the site. It is not recommended to use this strategy on a real account without testing it on demo first.