Martingale debunked by Gary

[garyfritz]

It sounds like you've tested the strategy as thoroughly as you can in Empty4, and you understand it pretty well.

Definitely case #2 is a loser with or without Martingale so you shouldn't trade it.

Case #1 may be workable. But remember you don't control and can't predict the [T1,T2) period between Martingale losses. Your test may show they happen seldom so your P > SL. Live trading may do worse than that, and in fact it probably will. Any strategy can change like this in realtime trading, but the danger with a Martingale is that if your strategy starts losing, instead of gradually bleeding your money away, it takes it all at once. If it takes it 3 or 4 or even 5 times in a row...

Since you have limited your Martingale losses to 20%, you may have set up a controlled situation where you can survive even a bad streak of losses. (Of course cutting the Martingale progression short means your losses will happen more often, but I assume you included that 20% hard stop in your backtests.) It sounds like you've done a good job of understanding the whole situation and controlling your losses. Maybe you're the 1 in 1000 who can trade a Martingale safely -- though I still think you're paying a lot of risk for your preference for steady wins.

You have to choose the right answer for you. If it was me, even though I'm also the 1 in 1000 who studies and understands his systems very thoroughly, I would trade it without the Martingale. I want to see what my system is really doing without having the losses hidden by the Martingale, and I don't like to take on the risk of sudden large losses. I would rely on my portfolio of strategies to keep my equity curve fairly smooth. I don't want to have to worry about a visit from the Mafia.

[Iceworld79]

Hi garyfritz,
Thanks for your opinion and suggestion.
Yes, when I talk about 20%, it is only one account of my 3 accounts. so, overall, even I got hit, the situation is still OK for me.
I would definitely try the settings without Martingale as you suggested

[nanningbob]

I would like to comment here the difference between recovery and martingale. Martingale systems are really ranged bound systems. In other words you can only cover so much movement range and if price goes outside that range you are sunk. For example lets say you set your MG reentry at 100 pips and the maximum you can go before your account is margined out is 6 levels 1,2,4,816,32 Then you have a range of 6-700 pips. Works great until you go outside that range. If you double it to 200 pips then your range is 1600 and so on. The truth is no matter how big you make your range the market can always beat it. You may say OK I will go 400 pips and 6 levels and have an unbeatable range of 2400. The problem still is you may not get a 400 pip retracement in a 2400 pip range. So if you make your range big you may not get the big retracement to get back to BE. If your range is too small the market will move outside of its range. So that is why it will get beat at some point.

The key then is knowing when to kill a trade so as not get hit with the death trade.

A way I have used recovery is to never have more than 3 levels at play and dont double your lot sizes. This way I am not in danger of margining out my account. If you ever put a fourth level in play then you must close one level. I have found from experience that if I reenter every 2 or 300 pips I can find a retracement within 3 levels or a range of 6-900 pips max. I have since used recovery less and less as my trading skills have improved. I rarely if ever get to 3 levels anymore and 2 levels is usually all I need to do. That is because I have learned to precisely put my 2nd level into play at a point where it works and that is it. Of course not always perfect so I go to a 3rd at times. The bottom line is since I have begun using the weekly chart and its trend direction, I no longer try to recover going against a strong trend that shows up on the weekly chart. Almost all my reentries have me going back into the trend thereby eliminating the damaging trade. If I find I am going to be fighting a major trend move or reversal. I just take the loss now and move on. So I recover trade back into the trend but eat the loss if the trend reverses. This has made recovery a valuable trading tool.

[SteveHopwood]

If you ever put a fourth level in play then you must close one level.

This is the bit that constantly eludes people's understanding. Not quite sure why; it is not as if you do not state this often enough.

Hey ho.

[garyfritz]

I should probably mention that my "debunking" analysis did NOT include that recovery logic. Not having followed Bob as long as you, I had not heard that idea until your earlier post in this thread. I'm not certain how it would affect the result. When I get a chance (not soon) I'll try to repeat my analysis and see how it changes things.

[nanningbob]

I should probably mention that my "debunking" analysis did NOT include that recovery logic. Not having followed Bob as long as you, I had not heard that idea until your earlier post in this thread. I'm not certain how it would affect the result. When I get a chance (not soon) I'll try to repeat my analysis and see how it changes things.

Think of it this way. There are traders who do not use their entire lot size in one entrance. They break it up into 3 parts and enter on multiple levels. Let us say you like trading 3 lot sizes. Instead of entering all three at once you enter them as 1 lot size at 3 different spots. This allows you the flexibility to find the spot you want to enter in. Let us say you enter one lot but some sudden news story breaks and give a pair a 2 or 3 day reversal. Well when that run is done you can enter your 2nd lot and then the third at a retracement. You phase in your lot size. This also helps in case you are just plain wrong. Instead of taking a 3 lot loss you now only take a 1 lot loss not having played your whole position. To me this really helps your money management in that you still play your 3 lot size on winning trades but not on your losing trades, unless you have really blown your entrances. If you can grasp the basic principle and follow long term trends then you can make most all your trades profitable. I am a fan of small lot size to account size so as to make trading a relaxing and sometimes boring affair. The concept that you can make pinpoint entrances when you are dealing with a hundredth of a penny move seems ludicrous to me. Give yourself some space and allow trades time to become profitable. Most currencies really only change direction a handleful of times a year you just need to give yourself the room to stay with a price trend. Check your monthly charts and you will see what I mean. Good luck.

[Jemook]

Hey Bob if I were you I'd include that in the recovery manual. No one can argue with that.

[nanningbob]

Hey Bob if I were you I'd include that in the recovery manual. No one can argue with that.

I know some that would. I could say I went out today and saw a blue sky and there would people who would argue with me.

[astral77]

I was shocked to see the level of hostility directed towards you in FF in the past few months. Makes me wonder who is directing this campaign. My guess is the criminals.

As far as I am concerned during the last 3 to 4 years recovery has been shown to be working as a viable system (during a very turbulent period in the history of the world markets). Anyone not convinced then it is their problem and not ours. Not going to argue about it for hours and hours. Anyone thinks we are fools or idiots by using recovery, is fine by me also.

Kind regards

[SteveHopwood]

I was shocked to see the level of hostility directed towards you in FF in the past few months. Makes me wonder who is directing this campaign. My guess is the criminals.

Bob, I was not aware of this as I was not reading your forum at FF - been a tad busy and never really 'got' 10.1 I always did put this down to my failings, not yours. I guess it is the crims at work as well; only an idiot or a crim would reject your work out of hand and try to destroy your desire to help the little guy.

Here Bob, not only do you have wall-to-wall appreciation, and a vibrant team of mods who keep threads clean of aggression and unpleasantness (even if one of them does occasionally ban himself inadvertently ) but you are a mod yourself. You can protect yourself from the cretins.

This forum attracts new members at the rate of just shy of 100 a week. If this continues, in a few years it will be the foremost Forex forum available to us little guys. FF has already discovered the roots of its own ultimate demise. This is a shame, but it is down to the likes of TIT to set the tone, and the tone they set is poor to dreadful; when the forum starts to lose members, it is their fault.

Here, we just go from strength to strength.