There was a recent thread about position sizing. Made me think about how in my countless hours of education via ET, I have only seen one full-time trader, "40yotrader", who was using a martingale position sizing method. My question is, does anyone out there use martingale successfully? From all of my research, it seems intuitive that the anti-martingale is the only way, probability wise, to: 1) ride out a drawdown before blowing out your account - the very event that could occur with martingale by doubling up every time you lose, and; 2) to protect you from a "fat tail" or "six sigma" event - whether that occurs during a drawdown or not. It seems that "six sigma" events actually occur more often than we say they should. Your input please.............
Doubling up your position size every time you have a losing trade. This has all of the gambling theory behind it: http://en.wikipedia.org/wiki/Martingale_(betting_system)
Sounds great in theory!! That is until you have multiple losses in a row and can no longer double up. For example - let's say you trade counter-trend and get caught many, many times in a strong trend. After a day of consecutive losses like that and doubling up each one, you may not be able to trade the next day.
If you have unlimited capital and tolerance to risk, and like to dig your own grave. Why not go the opposite direction on a losing position? :eek:
lol electric - I cancelled the original reply due to non-response - ended up "doubling" my reply I agree brown - that's why I wanted to know if anyone out there actually bets this way - 40yotrader started this way, but I think he changed his ways.....anyone doubling down every loss????
You will only benefit from this method if using a high % win system, otherwise I would forget about it. Also, if commissions are involved, one has to consider this.
I think that if you want to take a position, why not use scaling to get improvement on Average Trade Price? BUT.... THERE ARE NOT ANY MATHEMATICS that will enable you to "ride the movement" that the market can hand you... don't misunderstand... I use martingale in some of my methods that I trade, but I can take a loss when I am wrong...I believe you should use martingale for the right reasons... Geometric pyramiding of a loser, just is miserable to wait out...Again if you define your entry and want to take the postion...there is always time to get a little scaling in...who can perfectly call tops and bottoms in the "waves of trading"? Michael B.