Table 3: Losses from previous trades are offset by the final winning trade. Imagine a trading game with a 50:50 chance of winning verses losing. This simple martingale strategy example shows this basic idea. At that point, due to the doubling effect, you can exit with a profit. The idea is that you just go on doubling your trade size until eventually fate throws you up one single winning trade. This results in lowering of your average entry price. It does this by “doubling exposure” on losing trades. In a nutshell: Martingale is a cost-averaging strategy. Under the right conditions, losses can be delayed by so much that it seems a sure thing. What the strategy does do is delay losses. It’s governed by your success in picking winning trades and the right market. Your long-term expected return is still exactly the same. The important thing to know about Martingale is that it doesn’t increase your odds of winning. As with grid trading, that behavior suits this strategy. Though it does have a far better outcome, and less drawdown, the more skillful you are at predicting the market ahead.Īnd thirdly, currencies tend to trade in ranges over long periods – so the same levels are revisited over many times. With deep enough pockets, it can work when your trade picking skills are no better than chance. This is useful given the dynamic and volatile nature of foreign exchange. Secondly it doesn’t rely on an ability to predict absolute market direction. It’s not a sure bet, but it’s about as close as you can get. There are a few reasons why this strategy is attractive to currency traders.įirstly it can, under certain conditions give a predictable outcome in terms of profits.

Pizzicato murray scholls