Bullet-proof martingale!?!

Discussion in 'Trading' started by Xtrader59, Dec 14, 2007.

  1. Martingale would be the perfect strategy if it didn't blow up the account in the long run. But... is that always the end? Maybe not necessarily.

    I have been trying this "strategy" (may it be called so?) and I think there is a safe way to use it.

    If there is anybody interested I will disclose it all here. Then somebody could help me solve a few open questions about it.

    No need to worry telling me I am crazy, I am a noobie, a clown or anything alse, that this doesn't work and never will and so on. I know all that and all opinions and questions are welcome. But profit is coming at a decent and reallistic rate and risk seems extremely low (one of my doubts about the "system" is exactly a safe way to increase the risk. Where is the reasonable limit?)

    Just for reference and to start discussion if there are people interested: I am estimating expected average return in something around 2 to 5% monthly with near zero risk. Obviously there will be negative weeks, but tend to compensate in the following ones.

    It is all very discretionary, very trend bound, no blind entries ...

    Well, let me see if this old theme still gathers interest.

    Good trading to you all.
  2. Loading flame curtain ....

    Good luck!
  3. piezoe


    OK, I'm a certified fool, so I'll bite. Give us the details please. But one thing bothers me already, and that is the use of the phrase "... a safe way to increase the risk." I have always thought that safety and risk were inversely correlated. That is to say, if you increased risk you decreased safety. So I am a bit baffled from the beginning. But please have at it, oh wondrous one. (My blowtorch is primed and ready.)
  4. Martingale and no risk don't go together. If you have an unlimited amount of dollars, then fine. But you need to have balls of steel and a willingness to lose everything when using a strategy such as this.
    I can already tell you it won't work.
  5. There is no such thing as a "no risk" or "nearly no risk" or "zero risk" strategy. Besides you haven't divulged any particulars regarding your strategy really.

    The base formula of any investment breaks down to risk = reward.
    Ratchet up the risk side and the reward potential side should rise proportionately.

    You're basic logic is flawed. Now let's look at a real world scenario, um, I don't know........ CURRENT MORTGAGE CRISIS, SIV/CDO situation.

    My point is that these investment vehicles were supposed to be low risk and look what happened there with these "secure" investments. Now think a martingale system is any better?

    Besides, I'm not even going to get into the whole statistical approach to the markets, mean reversion and Black Swan Events. Just keep it simple and say that a "no risk" profitable system is IMPOSSIBLE. Everyone has to take on some level of risk in order to make a profit, if not - why the hell would anyone give you a premium for your money over time?

    Hell even treasuries assume risks.

    Martingale systems do the exact opposite, in that they ratchet up risked capital over time. The only thing that the martingale can do is get you "all in". That moves works everytime except once! You see that fact that you are having to resort to martingaling in the first place indicates that your current indicators or items you are watching in the markets are not accurate.

    Good Luck!
  6. I use it very successfully. I posted something to this effect a while back and the ET parade nearly ran me over, lol. Expect some slack on this topic. If you have an edge without using a Martingale approach you will have a razor sharp edge with it. If you don't have an edge you will blow up your account.
  7. Edge or not, there will always be some sort of event that can take you out, no matter what.

    Like it's been stated, in order to reap reward some level of risk is mandatory. All that you are stating is that your risk aversion is very low and your risk appetite is very high. With this it necessarily means that your level of risk on a trade by trade basis will be higher. From that we can conclude that your per trade profit should be higher due to the higher level of risk appetite.

    Notice there is no mention of number of winning trades, only profits per winning trades. I don't care if you even have a strategy that can yield 95% winners, you're level of risk appetite per trade would make it necessarily true that you would lose more per trade than a more risk adverse trader. Martingale only raises risk appetite on the money management side of overall trade management. Hell the fact that "pyramiding" is touted by most seasoned traders serves as an inverse indicator that the martingale ratchets risk.

    Exponential growth my friend, check it out.

    Hell the show Deal or No Deal is a very lesson in this concept.

    Good Luck!
  8. Let me clarify. I forgot to mention. All I will say is related to FOREX. I think it can be easily adapted to stocks, but at present I only trade currencies.

    My account balance now is 3.3K - standard. I opened first position with 0.01 lots. Just EURUSD (tighter spread). In the first try I doubled at 305 pips distance from the first entry.:eek: I was long the euro. With that lot size, margin call was more than 11000 pips down. This is why I say risk is excessively small. There is no such movement of 11000 pips.

    If you never bet against the trend, martingale will be used only to correct your timing errors and scale up in the direction of the trend. Of course, on a reversal you will lose but since you are operating very small there is no hurry in closing position or stopping out. You may sleep very well, take oposite trades and wait for ideal moments to take losses.

    To sum up, to find a safe way to increase risk is to determine the maximum lot size you may use in an account of a certain size still keeping very far from a margin call. With good discretionary entries you will probably never go further than the 3rd layer. Market will retrace and you will come back to positive territory.
  9. Decrease size when losing. Trading without leverage is investing.
  10. You are right, even with an edge you can blow up. You have to have a circuit breaker that will cut you off when you reach a certain point and hope they don't kill Bin Laden just after your put on your fourth short.

    #10     Dec 14, 2007