The classical Martingale : what we should exactly NOT do !

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05/30/2016 at 1:21 PM #8378 quote
Doctrading
Participant

Master
The martingale is a money management strategy, where you increase the size of positions every time you lose, in order to make the gains exceed the past looses.

This is a well-known strategy, and very risky. The classic martingale doubles the bet with every loss, the stop loss is equal to the take profit.

So we put successively to progressively losses : n = 1, then 2, then 4, 8, 16, 32, 64.128, 256, 512, 1024, 2048, etc.

Here is a typical example of a capital increase of curve with a strategy that follows a martingale.

There seems to win in the long run, but as you see you have to bet more and more each time you loose (betting n = 1024 !)

Let’s look closer in losing trade. The strategy shows the increase in size of contracts to a nearly fatal level (n = 1024). In the picture I did set 100.000 capital instead of 10.000, or we should have already lost all.

And what would happen if we launched the strategy with a capital x10 times?

We should have passed the first crash. But soon, with the same catastrophic scenario we lose EVERYTHING.

CONCLUSION:

The martingale is good… when you have a INFINITE money ! So it’s mathematically losing over the long term. For 5, 10 or 20 consecutive losing trades, it may be extremely rare… but it finally happens one day.

It can happen tomorrow or in 5, 10, 50 or 500 years. I prefer to lose 10 trades in a row with 1% risk per trade (10% of capital, I am in still in the race !), than attempting a martingale and constantly be very worried because I can loose my capital at any time.

Of course, the strategy that I did use is very bad… but even with a better strategy it is still risky.

I think that if you really have a high winning ratio strategy, it could be useful… still risky, but it is worth using it on a small capital.
```
Defparam cumulateorders = false

Once n = 1

IF time = 090000 THEN

// MARTINGALE
IF PositionPerf(1) <0 THEN
n = n*2
ELSIF PositionPerf(1)>=0THEN
n =1
ENDIF

// ENTREE
buy n shares at market

ENDIF

set stop loss 0.0030
set target profit 0.0030

Graph n   // pour visualiser la taille de "n"
```
05/30/2016 at 2:52 PM #8388 quote

deleted190722
Participant

New

very interesting…

02/04/2018 at 1:34 PM #61420 quote
JohnScher
Participant

Veteran
A little question about that: If programmed in this way, starting with position = 1, the number of positions would be increased by 1 after each closed position. Did I program this correctly?
```
// MARTINGALE
Once n = 1
IF PositionPerf(1) <0 THEN
n = n+1
ELSIF PositionPerf(1)=0 THEN
n = n+1
ELSIF  PositionPerf(1) <0 THEN
n = n+1
ENDIF
 
// maincode with martingale
If mycondition then
buy n contracts at market
Endif
 
```
02/04/2018 at 1:59 PM #61422 quote

robertogozzi
Moderator

Master

Eversione should also be aware that there is a limit in how much money the market accepts! Would DAX accept a regular 1024-contract trade (about 300 milion €)? I don’t think so, thus making doubling impossible, hence making it impossible to win!

02/04/2018 at 2:27 PM #61427 quote
JohnScher
Participant

Veteran
@robertogozzi Well, hi. I don’t care about the sense of Martingale. I know that never ends well. Clear. I was just want to know, Did I program this correctly? starting with position = 1, the number of positions would increase by 1 after each closed position.
```
// MARTINGALE
Once n = 1
IF PositionPerf(1) <0 THEN
n = n+1
ELSIF PositionPerf(1)=0 THEN
n = n+1
ELSIF  PositionPerf(1) <0 THEN
n = n+1
ENDIF
 
// maincode with martingale
If mycondition then
buy n contracts at market
Endif
```
Did I ?
02/04/2018 at 2:39 PM #61428 quote

robertogozzi
Moderator

Master

There’s an error within the IF…ENDIF block, you always check if positionperf is < 0!

02/04/2018 at 2:43 PM #61430 quote

robertogozzi
Moderator

Master

Sorry, not always < 0, but the third IF should probably read > 0. And n=n+1 for the three cases is not logically correct.

02/04/2018 at 2:52 PM #61436 quote
JohnScher
Participant

Veteran
That’s how it should work?
```
// MARTINGALE
Once n = 1
IF PositionPerf(1) <0 THEN
n = n+1
ELSIF PositionPerf(1) =0 THEN // special case, very rare
n = n+1
ELSIF  PositionPerf(1) >0 THEN
n = n+1
ENDIF
 
// maincode with martingale
If mycondition then
buy n contracts at market
Endif
```
02/04/2018 at 4:24 PM #61442 quote

robertogozzi
Moderator

Master

I love the comment in line 5, it still yields n = n + 1!
JohnScher thanked this post

02/04/2018 at 6:20 PM #61466 quote

Nicolas
Keymaster

Master

It’s not working this way since code is read at each bar,your position size will be continuously be calculated even if you are not going to initiate a new order. You should calculate the new size one time before opening your order.
JohnScher thanked this post

02/05/2018 at 12:55 AM #61505 quote

robertogozzi
Moderator

Master

Furthermore that code, JohnScher, wouldn’t double n, just increment it by one (1,2,3,4,5,6,…. not 1,2,4,8,16….). See line 9 of Doctrading‘s code.

02/24/2018 at 3:16 PM #63807 quote

JohnScher
Participant

Veteran

I haven’t had much time over the last few weeks to deal with the Martingale issue, but now it’s back on the table. So first answer: You “love the comment in line 5, it still yields n = n + 1” Answer: This is exactly what I intend to do! After every order with “n”, a new order “n+1” comes in.

02/24/2018 at 3:30 PM #63808 quote
JohnScher
Participant

Veteran
For what I would like to do, increasing the number by 1 after each order, this would be programmed right here? just a small example, I’m more concerned with correct programming
```
// maincode tuesday eleven o`clock on dax


once n = 1

TradingDayLong   = dayofweek = 2
TradingTimeLong  = time = 110000 // gmt+1 !!


c = close>open
c1 = cci[14]>-90
c2 = ExponentialAverage [1] (close) > ExponentialAverage [10] (close) 


IF TradingDayLong and TradingTimeLong Then
IF c and c1 and c2 then 

IF PositionPerf(1) <0 THEN
n = n+1
ELSIF PositionPerf(1) =0 THEN // special case, very rare
n = n+1
ELSIF  PositionPerf(1) >0 THEN
n = n+1
ENDIF

buy n contracts at market
Endif
ENDIF

Set Stop pLoss 40
Set Target pProfit 40
```
Did I program this correctly?
02/24/2018 at 3:35 PM #63809 quote

JohnScher
Participant

Veteran

Yes I know classic Martingale doubled, but n+1 is a variant and there are even more variants… look here … attached or here https://de.wikipedia.org/wiki/Martingalespiel

02/24/2018 at 3:39 PM #63811 quote

JohnScher
Participant

Veteran

and maybe a pro again for the Martingale. you looked at a simple sine wave… here for example http://mathemio.de/trigonometrische-funktionen-zeichnen/ nothing is more suitable for a Martingale
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