Daniel, did you read ANY of the posts I made in this thread!?
1. Increasing your winning % reduces the chances of a blowup. It does not prevent them from happening, it just makes them happen less often. It WILL still blow up if you trade long enough.
2. I just did a quick simulation of a 60% winner. In a few-thousand-trade test, it hit several cases of 10 losses in a row. If you double your position size on each loss (bet 1, lose; bet 2, lose; bet 4, lose; bet 8, win; +1 profit total), that means a 10-loss series results in a bet size of 2^10 = 1024 TIMES your initial bet size. If you started out with 0.01 lot, you'd be risking 10.24 full lots. All to win a 0.01-lot-sized profit. Does that sound like a sensible Risk:Reward to you? And nothing prevents you from getting streaks of 11, or 12, or more losses. Either you trade with near-infinite funds (in which case your 0.01-size profits are a waste of your time) or you risk blowing up your account.
3. 6- and 7-loss streaks are common with 60% wins. 6-loss streaks mean you'll be betting 2^6 = 64 times your original bet size. I'll let you figure out how well that works if you start out with 2% risk.
Martingales make a system look unbeatable, but it's a mirage. A Martingale doesn't turn a losing system into a winner; it basically just delays the losses. And then those stored-up losses hit you all at once. Over the long haul a strategy traded with & without Martingale sizing will return roughly the same profits/losses, assuming you trade with finite funds and a bail-out point -- but the non-Martingale hands you the losses in manageable and predictable bites.
You can't limit the size of losses a Martingale can hand you. All you can do when it goes against you is to puke the position and take a huge loss.
You are MUCH better off to trade your higher win-% strategy with a simple non-Martingale fixed-size strategy. You won't have the pretty ruler-straight equity curve, but you won't risk getting bankrupted either.
Don't believe me? Here are some real numbers. This is a 5000-trade simulation of a 60% winning strategy. 60% of the time you win +1, 40% of the time you lose -1. The blue line is the result of trading 1 unit per trade, so after 3 wins and 1 loss you have a profit of +2. The red line is the result of trading with Martingale sizing, doubling the bet size after each loss.
Mart1.gif
Pretty, right? The Mart has a nice straight equity curve, 3x more profit than the non-Mart case. Sure, there were one or two uncomfortable moments, but it all worked out in the end.
But that assumes you have infinite money and you never have to crap out. Now let's say you have a more realistic account, and you can't stand to risk more than about 100x your original bet size. So after losing 7 in a row, instead of betting 128x on the next trade, you crap out and take the 1+2+4+8+16+32+64 = 127x loss from the previous 7 losing trades. That puts some dents in the pretty ruler-straight Martingale equity curve.
Mart2.gif
But hey, the Martingale still came out ahead, right? So it's worth sitting through those stomach-churning equity drops to get the higher profit, right?
WRONG. In order to get that higher profit, you're risking as much as 64x times your original bet size. Take a look at what happens if you trade a non-Martingale position, with only 2x the original bet size on EVERY bet:
Mart3.gif
So with 0.02-size bets, you make about as much profit as the Martingale makes with as much as 0.64-size bets. WITHOUT the gut-wrenching losses and ridiculous risks.
AND, since the 0.02-size non-Mart bets have a fixed and known risk size, you can actually scale them up much larger. If you determined the Martingale's 0.64-lot bet was your maximum tolerable risk, imagine what would happen to your profits if you traded a NON-Martingale strategy with, say, 0.10 or 0.20 or 0.50 lots per bet...
Let me say this very slowly and clearly: MARTINGALES DO NOT WORK.
Period. Full-stop. End of story. MARTINGALES DO NOT WORK.
If you don't believe me, do like Steve says. Go bloody your nose with a Martingale and THEN maybe you'll pay attention when somebody who's studied the thing tries to warn you. |
