Statistically, this strategy, when properly implemented, will theoretically assure that, after doubling and redoubling and redoubling and redoubling...... your losing positions, you will ultimately, eventually, never have a loss. The downside is that it also theoretically requires an infinite amount of reserve capital to implement properly. If you meet BOTH of those conditions, you are all set. In real life, the odds are perhaps not as bad that a market will trend forever against you, but there are certainly times that a market that would stop you out 5 times in a row will develop a trend that will go 10 or 15. Remember, price distributions in the markets do NOT follow a log normal distribution, they are quite kurtotic (fat tails), and it is that deviation from "normal" expected ranges that makes this far more risky than it would be if it were a regular distribution of prices. Jessie
I once tested a martingale type system and it seemed pretty good, it was based on a variation that I do not recall the originator of. Here is how it goes: Start with a number sequence, say 1234. The profit target of the betting sequence is the sum of the digits: 1+2+3+4=10. You may use various sequences, say 123 or 2468, etc. You bet the sum of the two outer numbers in the sequence. EG, seq = 1234, first bet is 1+4=5 If you win, then cross out the 2 outer numbers leaving a sequence of "23". Next bet = 2+3=5 if you lose, add the losing amount to the right end of the sequence: "1235", next bet = 1+5=6 Consider this sequence: WLLWW Bet1 1234, 1+4=5 win 5 cross out 1,4 Bet2 23, 2+3=5 lose 5 add 5 to rt. end of sequence Bet3 235, 2+5=7 lose 7 add 7 to rt. end of sequence Bet4 2357, 2+7=9 win 9 cross off 2,7 Bet5 35, 3+5=8 win 8 You are done. total won=10. Needless to say, the sequences get to be long and drawdowns can be large, though not as extreme as in the double down traditional Martingale sequence. DS
just don't do it. without a way to cut the long streaks short, you will go bust. not to mention once you're into a streak you're betting enormous amounts of money for very small net gain.
I am using a variation of martingale and find it a very powerful way to enhance system performance. I don't double up after every losing trade, however like you said wait till I have 2-3 losses in a row, then I increase the size, I don't double up the contracts but go up by 30% - 50% and wait till either have a good profit or system makes a new equity high. Similarly after 1-2 profits in a row I scale down my position and wait for the next loss. You must have a very good understanding of your 100% mechanical system. I believe a variation of martingale definitely has a place in system trading. However if not used correctly can also be deadly to your financial health.