Martingale debunked by Gary

[garyfritz]

Card counting changes the odds on your hand. The equivalent in an EA would be changing your EA's win percentage.

If you could do that, you would reduce the chances of a Martingale blowing up. Martingales hit their blowup point more often if you lose more often, so increasing your odds means you'll blow up less. But you WILL still blow up eventually. Martingales essentially push the risk down the road a ways. You can have a pretty equity curve because you don't accept losses "right now." But you're basically just delaying those losses, and eventually they will come back to get you.

[slipshod]

Western governments & central banks over the last few years have been issuing more debt to extend the day of reckoning for existing debt and hoping for a turnaround to get everything tickety-boo. I just realised - they're using a Martingale.

[MiTija]

Western governments & central banks over the last few years have been issuing more debt to extend the day of reckoning for existing debt and hoping for a turnaround to get everything tickety-boo. I just realised - they're using a Martingale.

Governments have an advantage. They can print legal tender aka money. As long as they have paper and ink, they can spend. This does however devalue the money people have saved. The more money that is printed, the less it is worth. Did you notice last week, the stock market went up, when the Fed announce it was printing money aka quantitative easy. As the USD devalued, it took more USD to purchase the same stocks. From the non-US point of view the price of stocks did not really change.

It makes for wonderful politics: Look the stock market is going up. We must be in a recovery. That is the sales pitch. They never mention that due to the devaluation of the USD, everything costs more, including stocks. Then again, in the USA they fixed the inflation issue. They just stopped counting energy and food in the inflation numbers. That fixed it. No inflation. Easy Peasy.

MiTija

[nick0016]

Very informative. Did not know that martingale could be that dangerous.

[thelearner]

all I know is Martingale makes you win everytime UNTIL your trades goes on a BIG MOVE (like 150-200 pips or so without stopping). I can remember backtesting every martingale EA like crazy and in the end there is always 1-2 BIG movement that wipe out the entire balance. So I second you, gary!

p.s I think it is better to add position on winning trades then martingale. It means your win will be big and your loss will always be the same risk.

[jlcgarcia]

all I know is Martingale makes you win everytime UNTIL your trades goes on a BIG MOVE (like 150-200 pips or so without stopping). I can remember backtesting every martingale EA like crazy and in the end there is always 1-2 BIG movement that wipe out the entire balance. So I second you, gary!

p.s I think it is better to add position on winning trades then martingale. It means your win will be big and your loss will always be the same risk.

Hi

I am testing what thelearner sugested about adding positions on winning trades. Here it is a backtest with this idea of averaging in and also using stop losses.

Also I am posting here my real account using a system very similar to this backtest.

Dibujo.GIF

Dibujo1.GIF

[Translator]

I am testing what thelearner sugested about adding positions on winning trades. Here it is a backtest with this idea of averaging in and also using stop losses.

Also I am posting here my real account using a system very similar to this backtest.

Can You share Set file please ?

[xilix]

jlcgarcia, open eyes. Try 2008 year. BOOM.

[Wapen]

Hi All,
Interesting thread. I have traded Scooby's first EA (FR Old) for nearly a year now on demo. It uses the recovery trade method. I did same analysis of the system recently what interisting stats:
L1 trades, 265 trades, 56% winners
L2 trades, 159 trades, 75% winners
L3 trades, 55 trades, 100% winners.
That was until the recent EURUSD rally. Trading lot size was to big and got margin call.

Now if one have only targeted L2 trades with a descent SL.

My conclusion is that Recovery & M are dangerous. It can maybe be tamed but with close calls all the way.

Happy trading all.

[Jonathan2FI]

Hi,
Martingale has never seduced me ......however "Elagnitram" has essentially the opposite of martingale with a twist!
Ever had an EA that has relatively consistent patterns of wins and then drawdown losses when the market exhibits behavior that is not catered for in your EA. Drawdown happens and has to be accepted do not go down the route of eliminating every neg trade by building complexity into the EA ...and then curve fitting.. been there done that etc...

But what about on the first or second loss half the lot size and reset to 100% on the second win. This will only work where patterns are evident and backed up by stats - it also only works if the time between the losses allows you to affect the lot sizes.
I know more sophisticated drawdown limiters with slave accounts and MA of equity curves and people say yeh but you will miss the big moves etc
For example the above strategy would have merit on an EA that trades trends but occasionally gets caught up on the wrong side of flat markets. I have attached a simple excel sheet for testing note you can change the factoring value in the factoring formula 50% 25% etc .. I know this does not work with many strats so dont use it!
Jonathan