If your holding a small position size you can allow more slack for the trade to develop. If you are sitting in profits by incrementally scaling up your position size don't let it reverse and go negative. You don't want a large leveraged position going negative. It's neither Noise nor Trend but a function of Risk and Money management.
there are probably others wondering so here it goes...what in the world does it mean to "Martingale your way to profits?"...who or what is Martingale?
Martingale is a system of betting where you double your bet after each loss and then the eventual win will get you back to what you originally had +1 unit. It's used to be red/black in Roulette. It has three problems in roulette: 1) The ball can land on green 2) You can experience a long string of losers and therefore conceptually need an infinitely large account 3) Roulette tables set limits on the maximum amount you can bet per spin (usually $1,000 - $2,000 depending on the casino) specifically to prevent people from coming to the table with like $1M and martingaling all day. So what this means is, you keep losing, keep doubling, and eventually you reach the table's limit where you aren't allowed to double any more. Another house advantage. "Martingaling" in trading is used colloquially to refer to continuing to add to a position as it goes against you so that when it eventually goes in your direction, you win. The obvious drawback is you can run out of money from doubling up your position again and again during a long trend against you before price actually reverses, and you blow your account.
A variation of Martingaling is to exit the position at a predetermined loss and then double up on your next favorable set up.
I've heard of that before. But I would imagine you can run into issues if your target profit of futures trades is less than previous trades. Probably works better where risk/reward is the same on every trade. It bets on the fact that you won't have a string of x number of losers in a row.
OP, You need to consider carefully what Maverick is saying. Is there an acct value where annual profit is almost a certainty. YES! But the return is comparable to that of the risk free rate. Quick math says that you'll make 2-3.5% annual on the money if your probability of blowup is 0.05% which would make a blowup event during your lifetime unlikely. You'd get a better return on US fixed income securities. You could shoot for 20% annual which would take your risk up for sure. Targeting those returns with a marti strat would statistically put you in a blowup situation once every 5 years or so. Obviously this depends on the instrument.
Can you share how you arrived at those numbers? How are you coming up with these %s and profit targets?
If you have no edge then all entries are random anyway. Doesn't matter if you split the entries or string them back-to-back, the math works out the same. In fact, some would argue that if no edge exists it is better to string them back-to-back, because the after a string of positive prints and negative print becomes increasingly likely. That creates a sort of small edge in your favor.