Using Martingale with a proven strategy.

Discussion in 'Strategy Development' started by ssigma, Oct 21, 2005.

  1. ssigma

    ssigma

    Does anybody have any input or experience using a martingale money management for an already proven strategy?


    Say you've determined from backtesting (5 years) that your particular strategy does not incur more than 5 consec. losers. Can you use this with martingale money management to increase total returns for your system.

    Winners are aprox three times as big as losers with a 40% success rate.

    How risky do people think this is?

    Thanks for you help and comments.:D
     
  2. well that depends, how risky do you think russian roulette is?

    If you are going to play a Martingale system you better have balls the size of Texas and a bigger bank balance than Warren Buffet.
     
  3. maxpi

    maxpi

    You can double your bets until you reach an account stop loss amount for sure. I'm thinking that really is a viable strategy in some systems, you just have to be willing to really eat the big one every so often and it better not happen 2,3,4, times etc. in a row!!

    :D
     
  4. Pabst

    Pabst

    For starters there's no mechanical strategy in the history of trading that generates 3-1 plays 40% of the time. At least none that can be used on short (i.e. daytrading) time frames. Secondly if one possessed such a system, WhyTF would they risk blowing out because of poor money management? If your backtesting shows results that good (and I'd go back a bit further) you have the proverbial license to print money. What products and what time frames? I don't mean to sound dismissive but I've been around this track, oh....several thousand times before.
     
  5. The only thing you can be certain about is past performance statistics. Going forward, historical results serve only as a rough approximation of what may follow, assuming that your testing is valid. I think that getting too comfortable with past performance numbers and thinking you will not incur more than 5 (or 6, or 7, or 8...) losses in a row based on historic testing is a setup for pain.

    In any event, isn't the Martingale method equivalent to driving faster when you're lost?
     
  6. Shhh.. don't discourage him guys, more money for the rest of us. :p
     
  7. ssigma

    ssigma

    Thunderdog: Yes I agree with you. Relying too much on past performance can get you into big trouble.

    More on the system:

    Trades the Emini S&P
    Roughly 30-35 trades per year.
    Been forward testing for last 9 months with success.
    Backtested for about 5 years (when volume started picking up).

    Max consecutive losses of 5 (happened only twice in the first 2 years)

    Proposed money management strategy: add contracts in the following ratio after each loss: 1,2,3,4,5,6


    -------------------------------------------------------------------------------


    Now, the reason I am considering adding contracts after losses is to limit my total exposure for each trade.

    I've found that if I initially start with 1 contract and add 1 after each loss, my total perfomance per year is roughly the same as trading 6 contracts all the time.

    If this is the case, doesn't it make sense to use this martingale type money management method so I am not fully exposed everytime I'm in a trade?

    Thoughts, comments?

    Thanks

    P.S. Not to toot my own horn, but my wife tells me I have balls the size of Texas...
     
  8. HAHAHAHAHA what a thread , gotta love it

    Go shoot some martingales

    I bet you own a gun, thats funny.
     
  9. Whatever the strategy you find, using a martingale will ruin you one day...especially if it would have never happened in the backtesting of your strategy...
     
  10. If your success rate is only 40%, you can expect a much higher consecutive losers in the not so distant future.
     
    #10     Oct 22, 2005