CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. -- % of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Is the market beatable with martingales?

I am quite impressed by the results of AOF .
I have always been very sceptical with grids and averaging down in general.

Let’s anayze the facts.
Return and DD on 2y are very similar to robust and good darwins.
Risk Stability score has grown by 2 points last year.
A score of 5.5 is impressive for this kind of trading.
There is a clear effort to stabilyze the system, which is also invested with a significant equity higher than 10k.
My sincere congratulations to @FXShark . :+1:

3 Likes

Are you serious ? Loss Aversion with regular extreme negative excursions proves that this strategy will fall down. You encourage this sort of GRID strategy, it is a shame !!

The trader can take this risk but not investors. Darwinex should prohibit this product in conversion into a Darwin, another NMM etc even of Rs is stabilized. Pfff

2 Likes

I don’t encourage nothing, or better… I encourage darwins that are beating the market for years.

I am not speaking about NMM , NMM never reached one year of trackrecord.
Letting loosers run forever isn’t a grid.

Loss Aversion is an important and interesting concept but the algo just measures the excursions of your trades.
Also intolerance to drawdown is a form of loss aversion.

1 Like

Revisiting a bit, the community found me with this interesting title. It is the winning market with martingales … All the traders are far from any involvement with this technique or swindle or final death … sword of damocles … And good I use a clear martingale technique, if I buy an asset and if It makes me more attractive I buy more … I rely on the price and the future of the transaction … I work with this discipline and until here … everything is to escape and run away from anything according to an investor who touch me
I remember some words from Warren Buffer … about your investment in value … if you allow me a literary license it would be something like … I invest in a company and if I go down I buy more … as long as the company gives me confidence.
You all look for great algorithms, expert mathematicians … great traders with methodologies that sometimes do not know what they mean … and we mistreat the martingales … from the ceo Juan Colon to the last merchant who wants to have investors … big or small returns are the ones that should mark the strategies … the approaches with martingale techniques … are not penalizable if they understand … play roulette … has no mystery … but understand that it will come out one of the 37 numbers that it contains … it can be an approximation … The markets are very corronpidos , many majors have cheated and some have had fines … And the culprits are the martingales? … Martingales are not bad … as long as they are part of a dynamic whole

1 Like

https://www.darwinex.com/darwin/AOF.4.19#

25% in 5 years can be satisfactory? With 38% DD ?
If you consider the central part we have 60% in 3 years so the illusion can last long.

Suppose I bought AOF when it was impressing in June 2018 .
I had suffered a loss of 30% and my investment would be still down by -20% after one year.

exactly what I’ve said for months if not years. I’ve got at least $75,000 total of my own capital behind a system I’ve designed similar to this one. I devised it completely in my own thinking and named it “grid lite”… at least 9 or 10 recoveries from high drawdown so far

3 Likes

The “problem” with martingale strategies is an obvious one, but very true though.

It works, until it doesn’t

5 Likes

5 posts were merged into an existing topic: Mql5,zulutrade,myfxbook etc,

Grids, Martingales, or combinations of both should be protected and made viable by good risk management plans. Period. Then they have a good opportunity to remain profitable.
See Frero: https://www.simpletrader.net/signal/10898/Frero.html

or Blackwave Pacific: https://www.simpletrader.net/signal/4508/Blackwave-Pacific.html

from SimpleTrader who run variations of grids that work very well and are managed well.

2 poor examples which can be a fake or are still waiting for their death trade, or Both.

Against that stand millions of wiped out trading accounts of martingale and grid traders or their poor followers.

4 Likes

Is the market beatable with a Martingale? Yes, why not? Assuming you already have a trading system with a solid consistent edge, you could set a small enough starting risk size and a large enough start capitol and you could have only a small risk of catastrophe.

BUT is it optimal? Absolutely not. If you use the same solid consistent edge system but apply a non martingale money management you can expect to have better over-all return AND less over-all risk of catastrophe.

Is Martingale dangerous? It can be. A system with no edge that is expected to lose money over time can have it’s bad performance hidden for a long time in a positive looking P/L curve with Martingale MM. When analyzing the results of a system using Martingale MM we need much more data to even be able to tell if the system is profitable or not. Also, the risk of catastrophe can be deceptively high even when applied to a system with some edge (and if it’s somehow a smaller risk of catastrophe then your return will be suffering.) With martingale, you might get consistent stable (looking) weekly/daily returns but at the cost of more over-all risk. If you want the best over-all risk to return ratio Martingale is not it.

6 Likes

An excellent article with sound justification both theoretical and quantitative, plus examples, by our friends over at The RobotWealth Community :clap:

Hands-down, absolutely mandatory reading for anyone even remotely tempted to tread down the path of martingale trading strategies :bulb:

https://robotwealth.com/get-rich-quick-trading-strategies-and-why-they-dont-work/

4 Likes

Good article there.

I found similar results in my code when i first heard about martingale. It sounds so simple right, 50% chance and you’ll double down on your input (risk) to gain back what you failed the first time. But the math says that it does not work.

So i did some of my own code and math towards the issue. What i found was that the 1,2,4,8 formula isn’t aggressive enough actually. Since it blows the accounts up as mentioned i found that you need a more logarithmical formula instead.
I ran my code many many, many times i’d say in the billions since modern computers are fast now. I did see the initial formula fail up to 20 times in a row, considering a 50% chance to win that is just ridiculous.

To correct that my formula is something more like this:
risk_on_next_trade = (previous_risk x3 ) + 1

The above formula had a much better result but it also presented a new problem of underlying equity to trade with. Now i haven’t done much calculating in that but i found that i have to tell the computer to use about 20x more equity for the same initial risk size to make it work. For example i used the starting risk of 1 on a 5000 account when seeing improvements over the previous martingale formula.
All in all creating a formula that is better but lowering the potential of the profits since the equity had to be that much larger to begin with.

To summarize, it’s possible to make “it” work with my own formula but it almost negates the point of martingale in the first place. Something to think about i’d say. If i find the video and the code i’ll post it on request.

2 Likes

The minimum formula must be
risk_on_next_trade = (previous_risk x2 ) + 1
Results are 1,3,7,15,31 …

The first signal of the only two successful external examples more than 6 months ago in the post above does not exist anymore. I’m sure it won its death trade meanwhile.

Now we can wait whether or when the second one will be deleted.

i’m simply pointing out my formula. you are free to use what ever you like :slight_smile:

2 Likes

Martingale vs. Non Martingale (Simplified RoR vs Profit in 3 trade runs with all possibilities worked out when we have an edge)

Lets take a very small run of trades and calculate all possibilities. For simplicity sake, we will make it so that the only outcomes possible are a full loss or a full win. We will start with 4 units to risk over 3 trades with 8 possible total outcomes all worked out to provide an over all EV (Expected Value) of 3 trades. The system has a 50% chance of winning and wins 1.1x risk when it wins. Lets define Risk of Ruin (RoR) as our chance of losing 75% of the 4 unit start account. Of course we don’t normally make only 3 trades and risk such a high proportion of our risk capitol but I will show later how the conclusions hold true when we add trades, increase our edge, reduce risk or reduce the martingale multiplier.

Standard risk 0.43 unit on each trade NON martingale:

sum
“L” “L” “L”
-1.29 -0.43 -0.43 -0.43
“W” “L” “L”
-0.39 0.47 -0.43 -0.43
“L” “W” “L”
-0.39 -0.43 0.47 -0.43
“W” “W” “L”
0.52 0.47 0.47 -0.43
“L” “L” “W”
-0.39 -0.43 -0.43 0.47
“W” “L” “W”
0.52 0.47 -0.43 0.47
“L” “W” “W”
0.52 -0.43 0.47 0.47
“W” “W” “W”
1.42 0.47 0.47 0.47
EV of 8 runs 0.52

Martingale (2x) start risk 0.43 unit:

sum
“L” “L” “L”
-3.01 -0.43 -0.86 -1.72
“W” “L” “L”
-0.82 0.47 -0.43 -0.86
“L” “W” “L”
0.09 -0.43 0.95 -0.43
“W” “W” “L”
0.52 0.47 0.47 -0.43
“L” “L” “W”
0.60 -0.43 -0.86 1.89
“W” “L” “W”
0.99 0.47 -0.43 0.95
“L” “W” “W”
0.99 -0.43 0.95 0.47
“W” “W” “W”
1.42 0.47 0.47 0.47
EV of 8 runs 0.77

Hey the Martingale really is more profitable! Well, we have taken on more risk so it’s not a fair comparison. Notice in the martingale we have 1 run that is -3 units. -3 units from our start balance of 4 is a ruin. 1 ruin in 8 is a 12.5% RoR. Lets boost our risk on the NON Martingale run so it too has a 12.5% RoR.

Standard Risk 1 NON Martingale

sum
“L” “L” “L”
-3.00 -1.00 -1.00 -1.00
“W” “L” “L”
-0.90 1.10 -1.00 -1.00
“L” “W” “L”
-0.90 -1.00 1.10 -1.00
“W” “W” “L”
1.20 1.10 1.10 -1.00
“L” “L” “W”
-0.90 -1.00 -1.00 1.10
“W” “L” “W”
1.20 1.10 -1.00 1.10
“L” “W” “W”
1.20 -1.00 1.10 1.10
“W” “W” “W”
3.30 1.10 1.10 1.10
EV of 8 runs 1.20

OK, there we have it, NON Martingale is miles ahead of Martingale in EV when we compare strategies with the samf RoR. What if we reduce the Martingale Multiplier? A 1.5 multiplier and a 0.63 start size gives us a 12.5% RoR so we can compare…

Martingale (1.5x) start risk 0.63

sum
“L” “L” “L”
-2.99 -0.63 -0.95 -1.42
“W” “L” “L”
-0.88 0.69 -0.63 -0.95
“L” “W” “L”
-0.22 -0.63 1.04 -0.63
“W” “W” “L”
0.76 0.69 0.69 -0.63
“L” “L” “W”
-0.02 -0.63 -0.95 1.56
“W” “L” “W”
1.10 0.69 -0.63 1.04
“L” “W” “W”
1.10 -0.63 1.04 0.69
“W” “W” “W”
2.08 0.69 0.69 0.69
EV of 8 runs 0.93

Still no dice for Marty. The best EV to RoR ratio is non martingale. What if we increase the edge of the actual system? Lets bring it from 1.1 to 1.5…

Martingale (1.5x) start risk 0.63

sum
“L” “L” “L”
-2.99 -0.63 -0.95 -1.42
“W” “L” “L”
-0.63 0.95 -0.63 -0.95
“L” “W” “L”
0.16 -0.63 1.42 -0.63
“W” “W” “L”
1.26 0.95 0.95 -0.63
“L” “L” “W”
0.55 -0.63 -0.95 2.13
“W” “L” “W”
1.73 0.95 -0.63 1.42
“L” “W” “W”
1.73 -0.63 1.42 0.95
“W” “W” “W”
2.84 0.95 0.95 0.95
EV of 8 runs 4.65

Standard Risk 1 NON Martingale

sum
“L” “L” “L”
-3.00 -1.00 -1.00 -1.00
“W” “L” “L”
-0.50 1.50 -1.00 -1.00
“L” “W” “L”
-0.50 -1.00 1.50 -1.00
“W” “W” “L”
2.00 1.50 1.50 -1.00
“L” “L” “W”
-0.50 -1.00 -1.00 1.50
“W” “L” “W”
2.00 1.50 -1.00 1.50
“L” “W” “W”
2.00 -1.00 1.50 1.50
“W” “W” “W”
4.50 1.50 1.50 1.50
EV of 8 runs 6.00

Again the best EV comes from NON Martingale. Can we do even better if we reduce risk slightly after a loss instead of increasing it? Lets try a simple percentage risk of current equity strategy. Apparently we can achieve a RoR of 12.5% by risking 37% of current equity on each trade…

Percentage Risk 37% (NON Martingale)

sum first trade bal 2nd bal fin bal
“L” “L” “L”
-3.00 -1.48 2.52 -0.93 1.59 -0.59 1.00
“W” “L” “L”
-1.53 2.22 6.22 -2.30 3.92 -1.45 2.47
“L” “W” “L”
-1.53 -1.48 2.52 1.40 3.92 -1.45 2.47
“W” “W” “L”
2.09 2.22 6.22 3.45 9.67 -3.58 6.09
sum “L” first trade bal “L” 2nd bal “W” fin bal
-1.53 -1.48 2.52 -0.93 1.59 0.88 2.47
“W” “L” “W”
2.09 2.22 6.22 -2.30 3.92 2.17 6.09
“L” “W” “W”
2.09 -1.48 2.52 1.40 3.92 2.17 6.09
“W” “W” “W”
11.04 2.22 6.22 3.45 9.67 5.37 15.04
EV of 8 runs 9.73

OK so the percent risk strategy has double the EV as a 1.5x Martingale strategy of the same RoR. OK well, what if we redefine RoR to be only -0.25(6.25% dd)? That should give us more realistic risk compared to start capitol for this small amount of runs.

Percentage Risk 2.1% (NON Martingale)

sum first trade bal 2nd bal fin bal
“L” “L” “L”
-0.25 -0.08 3.92 -0.08 3.83 -0.08 3.75
“W” “L” “L”
-0.05 0.13 4.13 -0.09 4.04 -0.08 3.95
“L” “W” “L”
-0.05 -0.08 3.92 0.12 4.04 -0.08 3.95
“W” “W” “L”
0.17 0.13 4.13 0.13 4.26 -0.09 4.17
sum “L” first trade bal “L” 2nd bal “W” fin bal
-0.05 -0.08 3.92 -0.08 3.83 0.12 3.95
“W” “L” “W”
0.17 0.13 4.13 -0.09 4.04 0.13 4.17
“L” “W” “W”
0.17 -0.08 3.92 0.12 4.04 0.13 4.17
“W” “W” “W”
0.39 0.13 4.13 0.13 4.26 0.13 4.39
EV of 8 runs 0.51

Martingale (1.5x) start risk 0.052

sum
“L” “L” “L”
-0.25 -0.05 -0.08 -0.12
“W” “L” “L”
-0.05 0.08 -0.05 -0.08
“L” “W” “L”
0.01 -0.05 0.12 -0.05
“W” “W” “L”
0.10 0.08 0.08 -0.05
“L” “L” “W”
0.05 -0.05 -0.08 0.18
“W” “L” “W”
0.14 0.08 -0.05 0.12
“L” “W” “W”
0.14 -0.05 0.12 0.08
“W” “W” “W”
0.23 0.08 0.08 0.08
EV of 8 runs 0.38

Martingale loses again but here we can see the EV differences starting to get more subtle. We now know that if we want to increase profits by accepting more risk, we are always better off taking additional risk by increasing our percent risk of equity on every single trade than we are switching to a Martingale of any kind.

The Illusion of Profitability

So, it’s not a death sentence though, what’s all this hype about how dangerous Martingale is? Well, something else we see is that Martingale has a disproportionate amount of winning runs vs losing runs. Adding to equity on each loser significantly increases the chance that any end trade in a planned sequence will end in a profitable run, but that doesn’t mean it’s more profitable, it’s not, the EV of Martingale is always lower. It does mean that effectively draw-downs are made less likely usually delaying them but also increasing them . A much larger sample size will be required to converge on true system performance of a given system where edge is unknown. So much so that we can literally take a losing strategy and apply a large enough start account to a small enough starting lot and make it look profitable for some time. Lets try it! Here’s a losing run…

It’s very clear to the eye the performance of this strategy is poor and we have a negative EV here. But we can hide this with a simple Martingale MM…

Like magic, we have created the illusion of profitability beyond the sample! But when losses do hit us they will be big. We now have (semi-) hidden enormous risk. Continuing to run the martingale with this losing strategy will result eventually in a larger loss than the non martingale would lose in the same period. So, one danger is that poor performance can be masked by unscrupulous EA or signal providers… We need waaaay more bigger sample size to properly judge any strategy too. Thankfully the Darwinex people have provided us with some defense against such dangerous traders who tend to take on moer risk during DD.

More Reasons to Quit being friends with Marty

But is it really that dangerous if we know we have an edge? Let’s compare two strategies with equal EV so we can compare the risk and also see how much the risk increases when we plan more trades. We will use the last Martingale table and compare it to a NON martingale strategy of equal EV to compare risk in a fare way.

Non Martingale 1.57% risk

sum first trade bal 2nd bal fin bal
“L” “L” “L”
-0.19 -0.06 3.94 -0.06 3.88 -0.06 3.81
“W” “L” “L”
-0.03 0.09 4.09 -0.06 4.03 -0.06 3.97
“L” “W” “L”
-0.03 -0.06 3.94 0.09 4.03 -0.06 3.97
“W” “W” “L”
0.12 0.09 4.09 0.10 4.19 -0.07 4.12
sum “L” first trade bal “L” 2nd bal “W” fin bal
-0.03 -0.06 3.94 -0.06 3.88 0.09 3.97
“W” “L” “W”
0.12 0.09 4.09 -0.06 4.03 0.09 4.12
“L” “W” “W”
0.12 -0.06 3.94 0.09 4.03 0.09 4.12
“W” “W” “W”
0.29 0.09 4.09 0.10 4.19 0.10 4.29
EV of 8 runs 0.38

(Notice the EV is the same as our last Martingale run 0.38) So with a percent of equity strategy we are 12.5% chance of a 0.19 DD and a system of equal EV with the Martingale landed us at 12.5% chance of a 0.25 DD. What if we increase risk a little and drop the edge of our system from 1.5 back to 1.1…

Non Martingale 5% risk

sum first trade bal 2nd bal fin bal
“L” “L” “L”
-0.57 -0.20 3.80 -0.19 3.61 -0.18 3.43
“W” “L” “L”
-0.19 0.22 4.22 -0.21 4.01 -0.20 3.81
“L” “W” “L”
-0.19 -0.20 3.80 0.21 4.01 -0.20 3.81
“W” “W” “L”
0.23 0.22 4.22 0.23 4.45 -0.22 4.23
sum “L” first trade bal “L” 2nd bal “W” fin bal
-0.19 -0.20 3.80 -0.19 3.61 0.20 3.81
“W” “L” “W”
0.23 0.22 4.22 -0.21 4.01 0.22 4.23
“L” “W” “W”
0.23 -0.20 3.80 0.21 4.01 0.22 4.23
“W” “W” “W”
0.70 0.22 4.22 0.23 4.45 0.24 4.70
EV of 8 runs 0.24

Martingale (1.5x) 0.16 units start risk

sum
“L” “L” “L”
-0.76 -0.16 -0.24 -0.36
“W” “L” “L”
-0.22 0.18 -0.16 -0.24
“L” “W” “L”
-0.06 -0.16 0.26 -0.16
“W” “W” “L”
0.19 0.18 0.18 -0.16
“L” “L” “W”
0.00 -0.16 -0.24 0.40
“W” “L” “W”
0.28 0.18 -0.16 0.26
“L” “W” “W”
0.28 -0.16 0.26 0.18
“W” “W” “W”
0.53 0.18 0.18 0.18
EV of 8 runs 0.24

12.5% Chance of 0.57 DD vs Marty’s 12.5% chance of 0.76 DD. Significant but not deadly… yet… let’s add one more trade with exact same systems here as we already know Martingale always has the lower EV to RoR ratio, lets stay focused on the risk of trading Martingale over and over. Here are the two losing runs which now occur at a 6.25% frequency:

Non Martingale 5% risk - worse case

sum “L” first trade bal “L” 2nd bal “L” fin bal “L” fin bal
-0.74 -0.20 3.80 -0.19 3.61 -0.18 3.43 -0.17 3.26

Martingale (1.5x) 0.16 start lot - worse case

sum “L” “L” “L” “L”
-1.30 -0.16 -0.24 -0.36 -0.54

The risk of the Martingale is now nearly double that of the risk of the percent of equity strategy even though it has the same expectancy and we’re still using 1.5x for Marty instead of 2x! We can see the more trades we plan, the higher the risk jumps for Martingale in contrast to a percent of equity strategy even when we adjust them to have the same average expectancy. So, if for some reason the lower profitability to RoR ratio of any Martingale system isn’t a good enough reason to shy away from it (you don’t like money?) consider the additional risk of each additional planned trade in a Martingale strategy…

4 Likes

While martingales are useless to really beat the market they are spectacular to make money beating social trading game.
You can generate return without edge.
A pure martingale is easy to spot from the equity chart but mixed martingales are difficult to spot.

You can diversify more martigales on more timeframes and assets, than you can smoothen the result with some fixed risk random walks, endless possibilities… :smiling_imp:

A noob investor would think “why this degree of sophistication and not just beating that market with honest edge?”
Because the most sophisticated fake edge is 100 time easier to acheive than real alpha.

3 Likes

To make money with martingales is only possible if

  • you start in a Lucky moment in a swing market
  • you take more money out in time than you put in as deposit
  • to close all positions and restart it with the initial deposit in a lucky moment. Only very very few martingale traders know the right moment for this

I will never understand martingale traders starting with 3k and losing 60k without withdrawing significantly more than these initial 3k. That is greedy and insane.

What I really hate with martingale traders on social media platforms and here

  • they come out public only after they made a significant profit and mostly they are closer to the death trade
  • they don’t give followers or investors a strategy how to make money with their dangerous strategy
  • they don’t Tell investors when they took money out

The majority of investors in such a strategy lose the majority of their investment because of that. If the margin calls follow the death trade that is fulfilled very fast

Because they dont’ know it! :smiley:
The martingale can blow after one day or afte one year, but if it lasts for 3 months they make fees.

1 Like

That’s what I just added to my post to make it clearer :wink:
Edit: the first martingales published on MT4 forum were all designed for blowing off the account one day, also the ones who won the performance contests Published there

Edit again: the broker contests forced the trader to rollover the price amount before the payout more than 100 times so a typical martingale trader would never get a cent