At the mere mention of the martingale strategy professional traders are contemptuous frown and try to change the subject. In expert circles such strategies are not, since they are associated with a high-risk trade that does not require any knowledge and skills. However, if thoughtlessly use the tools, it is possible to lose the Deposit anyway. So below I will try to prove that with the right approach, the individual elements of the martingale in conjunction with the logic of risk management are able to make a profit.
How to use the martingale strategy in Forex for getting profit with minimal risk
The martingale roulette strategy is based on doubling the bet in case of losing and was originally used in casinos. In other words, if the bet is $ 1 has not played, we put $ 2, then in case of loss — of 4, 16, etc. This strategy advise to beginners in binary options where the task is to guess the price will rise or fall. And despite the seeming simplicity of the strategy based on the theory of probability event occurs in 50% of cases), losing the deposit is very simple — there is no guarantee that the same opposite event will not hit multiple times in a row (for example, if the rate of Call in a row will play Put).
How to use the martingale strategy in Forex. Suppose that the price goes up and at some point we assume that the market is being overbought, and therefore need to sell. Sell with lot size of 0.1.
However, the price goes up. We do not close previous trade and open another and again on sale, but already with a lot size of 0.2.
Our task is to wait for the price still will unfold, but so far what we lose. And if the price continues to go up, we again open a short position with lot size of 0.4. On the one hand, it may seem logical to open a long position if the price goes up, but where is the guarantee that it will not unfold? Because we hard going at a loss in anticipation of a price reversal, as there will come a time when the price still will unfold, bringing us the income or return.
This strategy can lead to the illusion that all loss-making trades sooner or later will be closed, but it is a gross error. First, there is the risk of falling into long-term uptrend, which will destroy the entire deposit. Second, even when the price reverses there is no guarantee that it will go down enough to cover the entire loss (i.e. down to the point of opening the penultimate position). Because in this form the martingale strategy in Forex is doomed to failure.
Minimization of risks in Martingale
Before you focus on the elements of the strategy of the martingale, I will warn that the martingale will not bring profits. You need a known profitable strategy that can be used as individual elements. You decide what to choose, but let’s assume that you already have the high leverage. A few basic rules:
- trading is done only with setting stops that limit a big loss;
- check the amount of negative trades in the history of the chosen strategy, consecutive. It is important to find not the maximum, and the average value of this parameter. For example, if we are talking about the M5, the testing time is 1-2 months for D1 — testing 1-2 years.
The strategies can be tested by utilities; – there are plenty of them on the Internet. After the number of consecutive negative trades of the strategy tare calculated in the history, the so-called “knee” is introduced to the strategy— orders with a larger lot, which correspond to this number. For example, if your strategy has 3 unprofitable operations, the number of “knees” will also be equal to 3.
A practical example. Assume that the stop is 10 points, the Take Profit order of 20 points, the average amount of unprofitable operations — 3. The price starts to move up, you decide to open a short position 0.1 of the lot.
The price continued to go up and snagged the stop loss, the loss from operations amounted to 10 points. The price continues to rise, you get the sell signal (that is, you assume that the price is about to reverse back down). And you open a short position, but with a larger lot. And here’s the caveat: it is considered that the lot should be doubled (so provides martingale in Forex), but it’s not. You can increase the lot of at least 10%, at least 3 times. We will increase it only by 50%.
And again we get a loss, because the price is not around and the position was closed by stop-loss. The loss amounted to 10 points again, but on a lot of 0.15. We do not despair and wait for the sell signal. And so it appears. Put a request up for sale again with an increase in the lot on 50%.
And then the third time, fortune smiles upon us and the set take-profit of 20 points works.
Suppose that we have all worked with a lot of 0.1 that it would turn out in the end? In the first position we would have got a loss of $ 10, the second similarly, the third would have received a profit of $ 20, has worked to zero. In our case, we have two positions lost $ 25, and the third received 40, net profit — $ 15.
But what would happen if the third time you lose the position? Remember, above we started from a conditional number “3 losing trades in a row?” This means that we can increase the lot three times. And if the 4th trade after the third will once again be unprofitable — we are facing abnormal market situation and the urgent need to limit the risks. If we continue mindlessly to increase the lot in a precarious situation, there is a risk of losing the Deposit. Because in this case, it makes sense to go back to the lot of 0.1 or 0.15 as long as the strategy will not be back to normal.
One more rule: don’t attach yourself to buying or selling. For example, the price goes up, closes our short position on the foot, and then a signal appears at the confident continuation of the upward trend. So why not use it? Open a long position with lot size of 0.15. And if suddenly the price goes down (false alarm), open a short position with lot size of 0.2.
Strictly adhere to the rules of risk management – the largest lot shall be not more than 10% of the deposit!
This strategy also works well in conjunction with the trading advisors. The main entry point (the first) is opened manually, the trading Advisor will automatically increase the lot size and automatically open additional trades.
To sum up. Not necessary to be skeptical to what at first glance may seem like a losing idea or even a fraud. Remember that on pyramid schemes (HYIPs) smart traders also make money, though these projects are considered to be to some extent fraudulent. So why not get it from things like the best or go to trade wisely? Martingale in Forex sometimes can bring though not great, but the profit, by the way, as in binary options trading.