Using Martingale with a proven strategy.

marketsurfer · Nov 7, 2005

Quote from nitro:

Further, even in the cases where there is memory (like trading certain markets, some more than others,) these betting strategies only affect players or traders "in the long run." Many on ET are investors, and are not professional traders who have many many trades per year. Therefore, few will place enough bets in their lifetimes to satisfy statistical criteria for "the long run."

In short, I think it is incredibly hard to know how much to bet in a given situation reliably and you can probably embed any question about trading systems in that question.

nitro
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hello nitro,

please explain what you mean by "memory" in the above context.

thank you,

surfer

surfer

nitro · Nov 7, 2005

Memory just means that from state to state, the probabilites are shifting and explicit and each trial is correlated to previous trials.

nitro

Quote from marketsurfer:

hello nitro,

please explain what you mean by "memory" in the above context.

thank you,

surfer

surfer
More...

Pabst · Nov 7, 2005

Probably your best post ever....

Quote from nitro:

It is very difficlut to discuss these systems that were developed for gaming to trading situations because in gamming the payout is always known. In trading, the payout is unknown unless you always take profit targets and stop losses in a completely static way (say you always take +4 ES PT and always take -1.5 ES SL or any static variation thereof) probably a losing proposition in "the long run".

Martingale Betting Systems (MBS) are also known as negative progression betting. Positive progression (Parlay) is where units are doubled after wins and reduced to single units after loss. Flat progression is obvious. Negative and Positive Progression betting systems assume "games" that are not independent trials, like BlackJack where the game has memory. If a game has no memory (each trial is independent) then no amount of money management will help. It also assumes that the strategy is static as in the case of BJ (the cards in the deck don't shift based on all bets,) a situation that is definitely not true in trading, as anyone that has taken a system live can attest to: The "opponent" is always adjusting to "your" adjustments and markets amazingly count only those that enter them with real positions, i.e., increases or decreases open interest.

Further, even in the cases where there is memory (like trading certain markets, some more than others,) these betting strategies only affect players or traders "in the long run." Many on ET are investors, and are not professional traders who have many many trades per year. Therefore, few will place enough bets in their lifetimes to satisfy statistical criteria for "the long run."

In short, I think it is incredibly hard to know how much to bet in a given situation reliably and you can probably embed any question about trading systems in that question.

nitro
More...

SideShowBob · Nov 7, 2005

This isn't quite the same thing, but I trade a trend following system and when I'm ready to increase position size I wait until 3 or more losing trades in a row. This doesn't preclude more losing trades after that, but often losing periods (whipsaw or consolidation periods) are followed by a breakout.

On another note, using martingale can definitely lead to ruin, but at the same time doubling down when the market is very very oversold can also work -- the odds of a bounce after a 10% drop in the market are higher than after a flat period....

SSB

TickJob · Nov 7, 2005

Your chances of being involved in an aircraft accident are about 1 in 11 million. On the other hand, your chances of being killed in an automobile accident are 1 in 5000.
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Quote from dloomis514:
1/(2^12) is about 1 in 8000, so if you have a 50/50 chance of being right/wrong, you woul dneed to choose the wrong turn about 12 times in a row if you doubled the risk every time.
I think.
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The point is this, 1 in 5000 or 1 in 8000 being killed does not mean everybody drive would sure be killed eventually

Looking from another way, if you compare to "95%" loser in trading game, then using Martingale will only have 0.02% loser

Any wrong in this argument?

psytrade · Nov 7, 2005

those odds are for each individual trade. You can have 6 or 7 overleveraged losses in a row and then you'd blow up. Happens all the time. Like guys who trade futures with $5k accounts. Or daytraders trading 10000 shares of stock XYZ with a $5k account and it gaps down or up 50 cents. Seeya

Mike805 · Nov 7, 2005

I've heard this quote before on this site: "Statistical abberations are the not the exception - they are the norm."

I just cannot get my mind around the fixed ratio approach... every trade is different IMO - there is never the perfect setup with a reliable outcome prediction that will guarantee a 1,2,3% etc gain in a certain amount of time. I am stuck in the idea of letting the trade (after the entry) tell you if it is correct or not - why would you initially bet more size into a statistically based outcome based on pure entry alone rather than just scale into being right on the trade? You are going into the realm of luck and ignoring the regular occurence of streaks (treating this as an excersize in gaming - where one has already mentioned that the outcome is always fixed). I don't believe the outcome in trading should ever be considered as "fixed".

All systems can guarantee a loss amount but why on earth would anyone want to be able to create a system that caps a gain amount? Maybe I'm missing something vital here?

Mike