============== Good points, good example. Some did run out of capital near you time frame example; GM......Somesmall & large banks even misfigured; LEH,BSO........
It seems that some are a bit confused as to the ideal conditions for a marti strat. In the martingale, the ideal is for a sideways choppy market. For some reason people seem to keep going back to this idea that the highest profit is obtained when the market runs against you big and then reverses completely. That is best for a dollar cost averaging strat, not a martingale strat.
True, but if you're martingaling efficiently in a choppy market and then it significantly moves against you, you run the risk of blowing your account or catastrophic losses. How is dollar cost averaging different from martingale?
Martingale implies a strict formulation for doubling your bet on each new bet after a loss - averaging down is arbitrarily purchasing more units after a loss, it can be done in any ratio. ...as has been said, many times, this is a losing proposition unless you have positive expectation. If you have that, there's probably better ways to play it.
Ok that's kinda what i was thinking. I just call it martingaling but I think what I mean to say is "averaging down." I would argue that it's not a losing expectation if your range is big enough and the instrument doesn't go to zero, but I've been doing that throughout this entire thread and I'm not convincing anyone.
It has nothing to do with the size of the range it has to do with the returns distribution - it's probability theory. "sjfan" tried to explain this to you at the beginning of the thread and if you had even googled martingale or probability theory at that point, you would've realized how it differed from averaging down and that it is a losing proposition. If you have a bet that pays out 60/40 with a 50/50 chance of winning, that's positive expectation. You can play with the payouts and skew the distributions all you want, the bottom line is most instruments are 'fairly' priced so that you'll not likely be able to achieve this consistently. Who knows though - maybe your method has a way of changing these in your favor, you could be right. I think the general consensus is there are less risky and more capital efficient ways of trying to go about creating positive expectation (if you believe it can be done).
Whoah!. You need to realize that there is a huge difference between dollar cost averaging and martingale. Don't ever confuse the two. Dollar cost averaging has been shown to increase returns time and again for the average ignorant investor. Dollar cost averaging will almost always generate higher than market returns, but is a long term strategy, and should be tightly controlled in terms of money management. This is not an inherently losing strategy, but should really be limited to indexes like SPX where a drop to zero is so unlikely as to make it nearly impossible. Martingale OTOH, is a mathematically losing strategy on any time frame. The two are very distinctly different.
Oh, haha. All of us have many reasons why we need to invest. But, it doesn't matter how much you earn, as long as you were able to achieve profits, right? For the previous posts, those information and answers you have given could be of help. But, as a trader, being profitable is the key.