Well, for one thing, one can bet one unit and lose 100 units. One can keep adding to that loser until the 100 units loses 10,000 units at the same pace, etc. In other words, when the oscillating system stops oscillating and the rubber band breaks. My question would be: unless you are trading such huge size relative to market liquidity, why not take the effort to further refine your method(s) to either a) cut your losses and re-enter later on, or b) try to better time your entries so that you are not consistently resorting to averaging down when it's unnecessary? (I can understand buying on the way down if you are Magellan and need to acquire a large block of stock, but I don't think that's the case for most of us here.) I guess the point is, martingale can likely be profitable at times, but ultimately it's just a symptom of poor timing that could be improved. You can trade your way out of the crappiest positions made from the dumbest ideas if you start small enough and have enough firepower to withstand the drawdown -- but why on earth would you want to settle for that? Why not force yourself to keep refining, keep aiming for catching that perfect entry? How am I wrong??
Just wanted to point out here that no one except Mr Double is suggesting or advocating the Martingale. --And he is just throwing it out there to as a joke to whip up discussion.
I've been running a basket of 30+ currencies for past year. Recently cut it down big time and I m sitting on 23% for the year. Only 10 pairs left and Im probably going to close it off soon but it all depends on Japan. I didn't use stops and brought in slowly over 3 months by matching correlations with interest payments. I didn't spend much time on it once it was set up but I probably could have made more if I did. But it ended up becoming a monster headache. It was earning about 13 pips a day in interest. Draw down hit 23% back in Feb due to me neglecting and it came back this month due to me buying u/j and g/j. I was averaged in at such a low price that I could buy in heavily on the breaks and put a BE stop in 100 pips below the market price! So yeah it can be done.
Whether it's martingale or single unit increments, relying on indiscriminately increasing size in response to drawdown as the primary method to ensure a profit is basically an admission that: 1) You have no idea how to time your entries. 2) You don't know how to take a loss. If that's the case, so be it. Like I said before, if you view trading as a losing game like roulette, what you propose is the best way to go for you. Just be sure to ask yourself why managers of retail forex shops who tout this magical system to every newb that walks in their doors still have to work as managers.
B1S2 has the right approach to positional trading, I could not comment on anyone else on ET, I've followed his journal and there is a lot of common sense in his strategy. His system provides a signal, he enters small and averages in until the position generates 2% loss to his trading capital. Where is the fault here? Most day traders use the same principal, but do not scale in on intraday draw downs due to initial position being at max position size maybe? Your argument is applicable to traders who allow unsustainable % draw downs while averaging, now that is different and you would be correct.
No one is taking mr. double seriously, and no one here is saying scaling into positions is inherently flawed. I'm mostly responding to b1s2's contention that reducing bet size can turn a losing strategy into a winning one via continually avging down (remember, only in forex land does this stuff show up, and for good reason). Losing strategies should be discarded in favor of winning strategies, as opposed to throwing up one's hands and just settling for the best way to lose the least at the slowest pace possible.