Perhaps every trader, whether a novice or a professional, dreams of a trading strategy that guarantees 100% profit. The financial market offers such an option, which has been in existence since the XVIII century, and its effectiveness is literally 'time-tested.' This is the 'Martingale' strategy, based on the ordinary theory of probability.
To facilitate a quick and easy mastery of this system, we have prepared an interactive guide. By employing the 'Martingale' strategy in your Forex trading, you will be able to determine the direction of price movement, skillfully identify entry and exit points, and minimize risks, ultimately initiating trades with a good profit.
The Martingale strategy is a popular trading methodology among Forex traders, originating from the realm of gambling. In one way or another, almost everyone has applied it, sometimes without even realizing that the simple actions of averaging down and adding to their position have a distinct name.
Profit that was obtained using the Martingale strategy:
At the moment, the proportion of robots utilizing the Martingale method as the foundation of their algorithm is rapidly increasing, as the methodology itself is quite straightforward. The key to optimization lies in signal filtering and identifying optimal entry points. It cannot be definitively stated that applying the Martingale strategy leads to a depletion of the deposit, as with a skillful approach, it is possible to extract a considerable amount of profit. However, when examining the statistics from trader surveys on the circumstances of fund loss, the majority attribute losses to averaging down or the use of high leverage.
Nevertheless, thoughtless position scaling, even if gradual, also leads to unnecessary risks, as there is no difference between a single order fully utilizing the funds and ten orders, each representing a significant portion of the deposit.
Trading bots that use the martingale strategy
Martingale strategy methodology
The Martingale method was originally used in roulette betting. As is well known, one can bet on events with only two possible outcomes, such as black or red, even or odd, and so on. By adding a bit of probability theory into the mix, we get the following scenario: the probability of landing on red is roughly ½ (excluding zero and double zero).
Let's assume we place a $1 bet on red, and in the first spin, black comes up. In the second round, we bet on red again, but this time with $2, as the probability of red now stands at ¾. If black comes up again, we double the bet to $4 in the third round. This doubling of the stake continues with each new spin, and the probability keeps increasing. Regardless of the outcome, be it the second round or the twenty-second, the profit will always be $1.
At its core, the Martingale method originated in roulette betting, where one can bet on events with only two outcomes, such as black or red, even or odd, and so on. Adding a bit of probability theory to the mix, the probability of landing on red is roughly ½, excluding zero and double zero.
The logic of the Martingale strategy in forex is relatively simple: if the price moves negatively by 100 pips, returning to that point requires a retracement of those same 100 pips. Opening another similar order, however, reduces the required retracement to just 50 pips. In this way, the second order yields +50, offsetting the -50 from the first order, resulting in an overall breakeven. If the price continues moving against the trader after the second order, a new entry is made using the Martingale method after 100 more pips. Now, only 100 pips are needed to return to breakeven. However, the accumulated loss at this point is not 200 pips but 300.
As the price continues moving negatively, the loss will rapidly grow, gaining momentum. At some point, opening a new trade becomes practically impossible due to insufficient available funds. This marks the end of the Martingale strategy, leading to a nerve-wracking period of uncertainty, speculation, and reliance on sheer luck.
In forex trading, prolonged trends often occur, providing hints of a reversal but continuing after a minor retracement. While the strategy might work well during periods of wide-ranging fluctuations, it may struggle to withstand extended unidirectional movements. For instance, the GBP/JPY pair is known for its wide swings, but historical analysis reveals that sometimes it embarks on a trend without significant retracements, spanning several hundred pips. Not every deposit can endure such movements with the Martingale strategy. Applying the strategy too conservatively, on the other hand, is often deemed not worthwhile.
For traders aiming to delay inevitable losses, Martingale-based algorithms typically use either very small order sizes with substantial distances between them or a mandatory overall stop, usually tied to the remaining funds on the deposit—essentially linked to a percentage of the remaining total deposit. In such cases, the efficiency and profitability of the trading algorithm often suffer. The reason is that the take profit of the first order is typically very small, relying on the assumption that the market constantly fluctuates, and sooner or later, the trades will break even.
On account statements, the balance growth line usually appears nearly straight, indicating confident and stable growth. However, the conclusion is often quite dramatic—almost vertical decline and zeroing out. Nevertheless, there are examples of well-thought-out and justified applications of the Martingale strategy.
About the Advantages of the Martingale System
The market is alive, constantly moving, and frequently changing its direction. Predicting or calculating its future movements is a challenging task for traders. In Martingale trading, the number of open trades for a trader can be limited only by the size of their 'non-elastic' deposit. At the same time, if, while opening trades, the trader misjudged the market direction, a price retracement can bring them profit, compensating for all those losses. This is the main advantage of the Martingale strategy. While the concept of total 'currency devaluation' is absent in the financial market, prolonged use of this system is not recommended.
