Safe martingale in manual trading
Good afternoon, ladies and gentlemen, Forex traders.
Today we will talk with you about safe martingale, however paradoxical it may sound.
Martingale is usually associated with something dangerous and extremely unstable. You can call it a time bomb, which is ready to explode at any time on your deposit.
However, with the competent use of individual elements of the martingale, you can significantly improve the profit according to your strategy and at the same time reduce the moral burden.
What is martingale?
This system was originally invented for playing roulette.
The essence of the system is very simple. If we bet 1 dollar on red, and black falls out, then we bet 2 dollars on red. If black falls out again, then we bet $ 4 on red. If again the value that is not necessary for us falls out, then we make a bet of $ 8, $ 16, and so on until we win.
When we guess, our winnings cover all our previous losses.
In theory, this all sounds fun and profitable, but in a casino there is a limit on the maximum bet. And besides, constantly doubling, your initial rate of 1 dollar will very quickly increase to 1024 dollars. And soon, and up to 1 million dollars.
Not a single casino will give you so much money, and you are unlikely to bring so much money with you.
How is this system usually used on Forex?
Using this system is actually very simple. Imagine that there is some kind of price movement.
Let's say the price goes up.
We decided what to sell because the overbought formed on the chart.
We sell with a lot of 0.1:
The price has entered a trend and went even higher.
We do not close the previous deal, but at the same time open an additional position for sale, but with a lot of 0.2:
Now we are starting to wait for the price to go down again.
Imagine that the price does not want to go down and again goes up to conquer new peaks
Then we open another deal for sale, but with a lot of 0.4 and so on.
If the price still decides to turn around, we will be able to close all our positions and go to zero or get some profit:
Thus, martingale creates the illusion that losing trades can be avoided. But the problem is that a large lot size leads to great risk, and if we fall into some long-term trend, we can merge our entire deposit.
Therefore, most martingale systems lead to loss. There are many nuances in this area, and especially advisors.
But it is worth noting that with the proper skill on such advisers you can make good money.
Let's analyze the various elements of martingale that you can use in your trading strategy. At the same time, without using advisers, and complex calculations.
We will try to take individual elements from dangerous tactics and make it safe for our benefit.
Profitable TS + large leverage
Before we begin to discuss the elements of martingale, it is worth saying that you need an initially profitable strategy. It should be profitable and without martingale elements, otherwise nothing will work.
These mini-elements will help us improve its profitability and reduce the moral burden on the trader. But without an initially profitable strategy, this will not work.
In addition, we need a large leverage. With adequate money management 1: 100, in principle, is quite enough. A large leverage will not bring harm to your trade, of course, if you do not abuse it.
Let's say that you have a profitable strategy and a large leverage. Then go to the next item.
Keys to Safe Martingale
Using stops in your trading
Consider a common mistake among traders who try to trade according to the martingale strategy.
Most of them believe that the essence of the strategy is that trading occurs without stops. However, feet can and should be used. Thus, we can protect ourselves from a big loss.
Trading without stops is stupid and insecure.
The number of negative deals in a row on history
Once you have found a profitable strategy, you need to check how many negative transactions it has on history. It is worth noting that we are interested in exactly the number of losing trades in a row, following one after another. It is also required to find not the maximum, but the average value for the entire tested period of time.
The time period on which it is worth checking your strategy is selected individually. If a trading strategy involves trading on the m5 timeframe, then it is worth testing at least 1-2 months. If trading will be carried out on D1, then it is worth testing at least a couple of years.
I am sure that you will test your strategy as it should, and there should be no problems with this item.
For testing, you can use the TradeSystem2 or Forex Tester utility.
At first, we count the number of negative trades in history. And then we introduce the so-called “knee”, that is, orders with an increased lot corresponding to this number.
Let's say that according to your strategy, on average, 3 losing trades in a row, respectively, you will have 3 knees.
How will it look in practice?
Imagine that in your trading strategy the stop loss is 10 points, and the take profit is 20 points. You have found that the average number of negative deals in a row is 3.
There is some kind of price movement on the chart, and you decided to sell 0.1 lots:
The price went up and the stop loss triggered. You have received a loss of 10 points.
The price goes somewhere further and you again have a sell signal.
You sell again, but now with an enlarged lot.
Here I will dwell a little on another problem that is often encountered by traders. And how to increase your lot? For some reason, it is believed that when martingale, the lot should always be doubled. This is completely optional. You can increase the lot by 2 times, 3 times or 30%. It all depends on your desire and risk appetite.
In our case, let's increase the lot by 50%:
We sold 0.15 with a lot, and again our system crashed. We again received a loss of 10 points.
The price again somehow fluctuates on the chart, and a sell signal appears.
We notice this and place an order with a lot increased by 50%:
Indeed, the price goes our way, and we earn a take profit of 20 points.
Now let's calculate what would happen if we did not increase the lot, but trade all the time with the 0.1 lot.
The first time we lost $ 10, the second time we lost with the same lot $ 10, and the third time we would have taken profit. Since the lot is the same, it turns out $ 20.
As a result, we went to zero, which is even good, because we did not incur losses.
Now let's calculate how much we would get when increasing the lot by 50%. The first time we lose $ 10, the second time $ 15, and the third time take profit gives us $ 40.
As a result, we get $ 15 of net profit instead of $ 0, as if the lot would be constant.
What if the third transaction brought us loss and the chart continued its upward movement?
Suppose that the price began to move on and the signal reappeared. We are starting to sell again. But what will the lot be used for?
From the history, we found out that on average there can be three unprofitable transactions per strategy. Therefore, we can increase our position exactly three times. The fourth time is already considered a non-standard case.
If there is a non-standard deviation in our direction, it’s not worth the risk, it would be better to smoothly lower the lot to 0.15, or immediately return to 0.1 and start trading your standard lot before the strategy enters the normal mode of unprofitable and profitable transactions.
Do not get attached to purchases or sales
Martingale is used to considering from the point of view that we cling to a certain direction of the chart. This is actually not worth doing.
Imagine that you have some unprofitable sale transaction.
The price goes against us. It knocks out a stop loss, and then a buy signal appears.
Why not take it?
We open a buy order, but with an increased lot of 0.15.
Let's imagine that the price again went against us and broke through a significant level:
We open a sale with a lot of 0.2 and subsequently earn:
If our strategy had five losing trades in history, then we would use 5 tribes.
The largest lot - no more than 10% of the deposit
In your trading, do not forget about money management. The largest lot in your order series should be no more than 10% of the deposit, this is done in case of stop loss triggering on the last knee.
Of course, we slightly increase our risks, but at the same time we adhere to prudence, because our task is to make a profit, and not to drain the entire deposit.
We enter manually, and then use the adviser
One of the options for applying this strategy is the ability to use technical assistance in your trading. For example, you can find entry points and open positions manually, and then use an adviser that will automatically open additional transactions with an increased lot.
But there is a drawback. With this approach, you cannot use the signals of your strategy. There will be an increase in the lot and the opening of additional orders only at a certain distance from your first entry.
For these purposes, you can use Protraderthat we have on the site.
Or you can use the adviser: ArgoAverager EA, which does not open the transaction itself, but only helps you average. Everything is customizable and adjustable.
Put the knee on the support / resistance levels
A good option would be to open positions with an increased lot at the support / resistance levels.
You can open additional orders at these levels, even if your strategy signal is not there.
Let's say in this place we made a purchase:
The price did not reach our profit target, turned around and knocked out our stop loss.
Where can we put an additional order?
In the event of a negative development of events, we can set it at the level that takes place at the round number 1.08:
As you can see, the price has already bounced off this level.
Our order goes into minus, and an additional order is triggered and subsequently brings us profit.
Similar inputs are made at resistance levels or any other important values.
We check everything on history
I think you already understand that before you go to a demo or a real account, you should check everything on history.
This will help you test your strategy, while not losing money from your account.
I hope these tips will help you in your trading.
I remind you that these elements can be used provided that you have a profitable strategy. Be careful and do not forget about money management.
I wish you big profits.