Martingale Strategy is a betting strategy which increases the stake of a bet (the amount risked in a single round) as the number of rounds without success increases. It's not for anyone and if you're thinking about using it, read this article first!
Introduction to Martingale Strategy
The Martingale Strategy is one of the most well-known betting systems in existence. The system is simple to understand and easy to use, which has made it a popular choice for many gamblers.
The basic premise of the Martingale system is that you double your bet after every loss. This way, when you eventually win, you will recoup all of your previous losses and end up with a small profit.
For example, let’s say you start off by betting $5 on black at the roulette table. If you lose, your next bet would be $10 on black. If you lose again, your next bet would be $20 on black. And so on.
Eventually, you are bound to win, and when you do, you will recoup all of your previous losses plus end up with a small profit equal to your original bet ($5).
While the Martingale system may seem like a surefire way to make money, there are a few drawbacks that you should be aware of before using it.
The Martingale system only works if you have an infinite amount of money to gamble. That’s because there is always the chance that you could lose several bets in a row, which would quickly deplete your bankroll.
Pros and Cons of the Martingale Strategy
There are a few key things to consider before using the Martingale strategy. Here are some of the pros and cons to help you make your decision:
-With the Martingale strategy, you only need to win one unit to cover your losses and make a profit.
-It is a very simple system to follow.
-You can use it on any bet with even odds (red/black, odd/even, 1-18/19-36 in roulette).
-The Martingale strategy can lead to very large losses if you have a long losing streak.
-It requires a large bankroll to be effective.
-The house always has an edge, so you will never have an 'advantage' using this system.
Martingale Strategy in FX Trading
Martingale Strategy can also be employed in FX trading. Rather than doubling the bet amount in FX trading, Martingale Strategy can be used by doubling position sizes in the same direction as your previous position (long or short). This is seen as doubling your bet, hoping the trend reverses and favours your position. By doing this, you also average up or down (depending on whether you are long or short) your 'take profit' point, so it becomes easier to hit.
However, as you can see, there is no surefire way to succeed, and there is no strategy that is 100% foolproof. So you must still be prepared to be wrong and manage your risks properly. This is why we modified our Martingale Strategy with our own takes on what can possibly make the strategy perform better.
Our Modified Martingale Strategy - Advantages
Here are a few key changes that we implement with our Martingale Strategy:
1. Dynamic inputs and signals
We do not blindly open a position doubling up or down whenever we get our initial direction wrong. Instead, we use signals and other inputs to calculate our probability of success and dynamically decide if we should open a new position now or hold off until we have a better signal. For example, an attempt to double up or down during a trending period will be futile as there is a lower probability of trend reversal.
2. Dynamic position sizes
We also size our position dynamically depending on our calculated probability of reversal. The bigger the position, the shorter range the reversal needs to cover to hit our intended 'take profit' point.
3. Dynamic 'difficulties' in opening the next level of position
Not every Martingale's level is created equal, as the latter position assumes more risk than the earlier position. So we are making it more restrictive to open a new Martingale level the longer we hold on to a position.
4. Position direction reversal
We know things happen, and we don't always get it right 100% of the time, so we are giving our robot the ability to reverse its position should the signals support it. Imagine we are stuck in a wrong position of a trending direction. Should we hold on to our initial position and keep doubling down, you can be sure that we will experience huge losses. With the ability to reverse position, we can change the threat to an opportunity and hit our intended profit.
Martingale Strategy is a valid strategy, albeit the high risk required to pull it off. By using our automated trading robot we incorporated features to manage those risks better when using Martingale Strategy to trade FX.