its martingale again

[tolujana]

hi steve
being following you for years but never posted anything till now
i saw an ea martigale lunancy at forex factory http://www.forexfactory.com/showthread.php?t=297316
it obviously blows every accout
and thats because its always doubling the lot size
so i want that same ea with most of the filters included but we can set the lot size
for example
first the tp and sl have to be different with tp>sl eg 40, 30
so if the first trade is a loss at one lot
the second trade wont be doubled its would stil be one lot
so instead of 1,2,4,8,16,32 and blow out
we 1,1,2,3,6,10,18,24, etc which would prevent an account blow out
have tested this (backtest) works perfectly except in non volatile market and thats where we need those filters
the lot size is just and example; which should be set. as well as the lot multipliers and the filters
if there is already an ea like this i would appreciate it if you could refer it to me
bt if not.then all i could say i WE NEED YOU STEVE

[SteveHopwood]

Hehe. Face it. M blows accounts unless you have a huge account and start with a tiny lot size.

Ok, so you have a $100,000 account. I am fairly sure (although without doing the maths) that this will withstand M starting at 0.01 lots. Anybody with this kind of account size is much better off learning to trade properly.

Just forget M is the only advice I can offer. I don't know whom Martingale is/was but I do know this; if I had a time-travelling machine, I would go back in time and make sure his great-grandpa never met his great-grandma.

Ask yourself this; if M actually worked, why are all Forex traders not filthy, stinking rich?

[garyfritz]

I agree with Steve. If Martingales actually worked, every trader in the world would use them, and every trader would be a scadzillionaire.

I haven't tried proving this but I think it may be possible for a M to *improve* a system's results. E.g. it may be possible to turn a slight loser into a slight winner -- but at the cost of dramatically increased risk and a terrifying equity curve.

If you have infinite funds, so you NEVER EVER blow out of the M, then you could produce a closed-trade equity curve that looks like a straight line. But your open equity -- the actual day-to-day current value of your account -- is going to have frequent huge drawdowns. Since you have infinite funds, so you can survive any possible sequence of recovery trades, you don't care. You accept a tiny but guaranteed return on your infinite account.

But for those of us with finite funds -- which I suspect is most of us!! -- you can't guarantee you will NEVER blow out of the M. So you have to take enormous risks for small gains, and that's a very dangerous way to trade.

The exact progression of recovery levels -- 1.2.4.8.16, or 1.1.2.3.5.8.13, or whatever -- will change the results, but it will not change the M from "disaster waiting to happen" into "guaranteed money machine." It might reduce the chances of an inevitable blowup, but the blowup is still inevitable. The only question is whether you can survive the blowup, and whether the resulting profits (if any) after the blowup are worth the risk. I strongly suspect they aren't.

Martingales are "perpetual motion machines" that claim to create something from nothing. Unless you're Rumplestiltskin and can spin gold from straw, that doesn't work in the real world. Steve is right -- you're better off to learn how to trade, instead of relying on hocus-pocus to do the work for you.

[garyfritz]

I decided I needed some numbers to back up my intuition.

I threw together a spreadsheet that does a crude simulation of a Martingale system. It simulates 1000 random trades, then trades it as you specify: win%, win size, loss size, M bailout point, M progression. It shows the results of trading those random trades without any Martingale, and trading them with your specified Martingale parameters.

BTW I should point out that while I was working with this, simulating a system with 50% wins, I saw one case where I got TWENTY-ONE CONSECUTIVE LOSSES. That's a freakishly uncommon result, a chance of 1 in 2 million, but it's the kind if thing that CAN happen. That's the kind of event that can kill you, no matter how well-capitalized you think you are for Martingale blowups.

So, what did I see in my simulations?

With a random coin-flip system -- 50% wins, win size = loss size -- the Martingale is also a coin-flip. Sometimes it helps, sometimes it hurts. No benefit that I can see. If the system result is random, the M results are random. This was true for all progressions I tried.

With a winning system, it gets more interesting. With 50% wins, a 2:1 W/L ratio, and bailout at level 5, the Martingale consistently made about 2.0-2.5x more profit. HOWEVER you could get very similar results without a Martingale, just by increasing your fixed position size by about 2.5x.

There are a zillion ways you could play the numbers, and I've attached the spreadsheet for your own experimentation. Let us know if you find a miracle Martingale. From my experiments, my conclusions are:

• A Martingale will not turn a losing system into a winner. Usually the Martingale loses worse.
• If the system is a random coin-flip, the Martingale results will also be random. Sometimes better, sometimes worse.
• If the system is a winner, a Martingale will increase the profits, but you have all the Martingale problems. You can achieve similar returns just by increasing your position size, and you will have fixed known risks, a more consistent and sane equity curve, and no worry of a Martingale blowup.
• If you have a high-win% system, your chances of long strings of losses are reduced (but NOT eliminated). E.g. for a system that wins 70% of its trades, the chance of N consecutive losses is (1-70%)^N; the chance of 7 consecutive losses is 0.30^7 = 0.022%. If you can survive 6 consecutive losses, you have only 1 chance in 4500 of blowing up with 7 losses. But remember those 21 consecutive losses with 50% wins... If you never blow up, your closed-equity curve is a beautiful straight line. But once again with that 70% system you could get about the same results just by increasing your position size by about 1.7x, and you have none of the Martingale risks.
• Bailing after a few consecutive losses results in smaller blowup losses, but the blowups happen more often. Bailing after more consecutive losses causes fewer blowup losses, but they're bigger. The end result tends to be similar even though the equity curves may look very different.
• If you're lucky, you won't hit many blowups, and you'll make more money than without the Martingale. If you're NOT lucky, you may hit a lot of blowups, and you'll lose far more than you would have without the Martingale. If you're like me, the Trading Gods will guarantee you see the latter result, and the Martingale will kill you.

Therefore: I conclude that Martingale Mania is a will-o-the-wisp, a fantasy. Martingales hugely increase your risks without providing any benefit. Martingales won't help you unless your system is already a winner, and if your system is a winner, a Martingale is a bad way to increase its returns.

Just Say No to Martingales.

[SteveHopwood]

Wow. I am going to find a way of turning this into a sticky thread that everyone should read.

Fantastic again, Gary.

[garyfritz]

I realized my simulation may actually be optimistic, depending on how your EA trades.

If you set your wins and losses to $100, it says "if you have 2 losers and 1 winner, then your result is 1 * -100 + 2 * -100 + 4 * 100 = $100. In other words, it assumes each loser is $100 * (the current Mart level). If you hit the bailout point, it says you lose 1 * -100 + 2 * -100 + 4 * -100 = -$700. That's correct if you do "take a trade, oops it lost, close that trade, double the size on the next trade."

In actual use, I think many Martingale EAs keep their losers open until a winner finally rescues them. So maybe it buys EURUSD at 1.3100, then buys again at 1.3090, then again at 1.3080, etc. If you're trading 1.0 lot, each of those 10 pip moves represents $100. But you keep each position open, so the losses accumulate. If you bail with a loss when you hit 1.3070, you don't have a $100 loss in your L1 trade. It moved 30 pips so you lose 1 * $300 on the L1, 2 * $200 = $400 on the L2, and 4 * $100 = $400 on the L3. Instead of the $700 loss my spreadsheet would show, you'd actually take a $1100 loss. So an accurate simulation may look even worse than mine.

Unfortunately that behavior is specific to the EA's trading style. I'll think about it, but I don't think I can represent that general case.

[tolujana]

you are right about martingale it fails on its own
i was not really going on martingale its self
i really was thinking of trying a good trading system and mixing it with martingale
i know its crazy but just wanted to try it
may be i ccould use ur advice
the entry signal for every trade is never going to be random
wiith all the trading system on this forum, i have a lot to try
so using a particular trading style i enter a trade assuming buy
if its a loosing trade the next trading signal based on this particular trading style would begin the martingale trading style but never double the lot and using a stoploss and tp as given by the trading style
so i was onot going martingale fully
its a good trading style that wins most of the time
then backing up with martingale
but not with a 12468 sequence. i expect the trading style wouldnt give me a1:1 sl to tp ratio
it obviously means i would trade the good trading system with a small lot.
all am taking from martingale is the lot multiplication and not the entry signal
it could just be a good EA but with a setings that u could use a martingale multiplying system for subsequent trade after the last loosing trade.
if you think this is rubbish too.. could you help me throw it away with reasons

[garyfritz]

As I said: if you have a winning system, a Martingale will increase your profits. But you can get similar results just by increasing your base lot size a bit, without any of the Martingale problems and risks. So why would you use a Martingale?

[SWG123]

As I said: if you have a winning system, a Martingale will increase your profits. But you can get similar results just by increasing your base lot size a bit, without any of the Martingale problems and risks. So why would you use a Martingale?

It's why I've always disliked Martingale - it forces you to use smaller lots so that you can increase them later on, when it has been proven that your decision-making is flawed.