The secret of the Martingale strategy

November 29, 2024

The Martingale strategy, also known as the 'casino strategy', fascinates me due to its apparent simplicity. It consists of always betting on the same side and, if I lose, doubling the bet until I win in order to be able to switch sides.

It seems infallible, doesn't it? But there is a fundamental requirement that many ignore: you need an enormously large capital! Because if the roulette shows the same result 10 or 20 times in a row, would you have enough money to keep doubling?

Let's do the calculations: 1 yuan, then 2, then 4… the progression is brutal!

You might think it's unlikely to get the same result so many times in a row. But here's the catch: the probability on each roll is always 1/2, even on the 100th play. The past does not influence the future in games of chance. This fallacy has ruined many overconfident players.

In financial markets, some apply this same strategy. In stocks, they call it “averaging down”. You buy a stock at 100 yuan, it drops to 90 and you buy another, then to 80 and buy more. If it rises to 90, you balance losses and gains.

Many investors use this method, convinced that the stocks of “good” companies will eventually recover. But in margin markets like currencies and futures, the situation is different. There are no “good” or “bad” products, only expectations of movement.

Does Martingale work in forex? This market offers advantages: high leverage (200-500x) and small initial positions (0.01, 0.02…). It seems ideal, but is it really?

The basic version starts with 0.01 lots, doubling with each fixed movement. To avoid massive losses in one-way trends, variations have emerged:

• Variable lots with fixed distance
• Fixed lots with variable distance

It all comes down to adjusting three variables: initial lots, lots per order, and distance between orders. Many obsessively seek the “golden ratio” among these variables.

As they say: “With good parameters, a worry-free life; with bad proportion, a problematic life.”

The harsh reality: more than 90% of Martingale systems fail. I have seen fortunes disappear due to this strategy that promises guaranteed profits but hides a financial abyss.