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Martingale Fever Season Coming Back

By Alexander
In Forex Basics
Aug 8th, 2013

Have you ever heard of the theory that history goes on the spiral: for almost every event you might find a couple of analogues in the past. People keep making same mistakes trying to achieve different results. Well, have a good luck with that.

Martingale fever season coming back

In the Forex market, the repeating conditions are one of the basics. Just think about: support and resistance levels, Fibonacci levels, and reading candlesticks – everything is based upon the idea that at some similar conditions, price is going to move the same direction. And one more thing that always comes back under the different mask is the guy called Martingale with his strategy that is as old as a world itself, well, almost.

Martingale strategy had been first mentioned in XVIII century in France. It was first used in the casinos to play roulette and after the owners introduced the limitations for a minimal and maximal bets, it came into the Forex market. The Martingale’s idea is very easy: you keep trading the same way, doubling the lot after every unprofitable trade and come back to the original amount only after winning the trade. So with this strategy it doesn’t matter how many times have you lost. Every win will cover all the loses and brings you the profit equal to the one you’d have if you won your first trade. ” This is brilliant” you might think opening the platform and preparing to become rich. Well, let me give you some bitter pill: “Sooner or later you’ll blow up your account.”

Martingale origination from casino

“How is it possible?” you ask, well everything is very easy: your money is not endless, at least you’re Bill Gates. In this case Greeting Mr. Gates, you can stop reading this article and come back to trading. If you’re still here, then think: doubling the lot every time you lose will eventually put you in the position when your trade has to be bigger than your account. Unpleasant, isn’t it. The main reason why people are getting so much involved within the Martingale system and don’t stop themselves at some point is the particularity of thinking that is based on the analysis of the previous facts and connecting this knowledge with the current situation. Not easy to understand? Imagine you flipping the coin and ten times in a row you had tails. If I ask you “What is the possibility that next result will be tails again?” you will most certainly say something around 1:10 (about 10%), well here is the thing – it is still 1:2 (50%). It doesn’t matter at all how many times in the raw you lose your trade; the possibility to lose next time does not get lower.

Martingale blowing up trading-account

For many years, people have been blowing up their Forex accounts using Martingale strategies; however, it was not a barrier for EA developers in creating the robots, based on it. And those robots had a huge success… at first. But when the accounts started to blow one after another like the bubbles, traders realized that it is not the best idea to trade that way. But only for certain period and then everything starts from the very beginning. Now on the forums I can see plenty of threads where people keep promoting Martingale system. That is what I cannot understand. People who are so much involved in the idea of analyzing different information, creating systems and following the observation are not able to see one simple thing: at the end of the day, the Martingale system is proven to be dangerous and unprofitable.

Martingale dangerous-and unprofitable

What could be the reasons behind this situation? First thing that comes into my mind is the inflow of the new people in the Forex trading. Remember when you have just started your trading. It was so many things to learn, millions of questions “What are support and resistance beside the French revolutionary?” “What all those indicators want to tell me, and who gave them those strange names like Ichimoku?” and the most obsessive “Who is that Fibonacci guy?!” Remember, and imagine if somebody tells you something that is so easy to understand and what can make you some money in short time. Don’t tell me that you wouldn’t be seduced by such a proposition. Anyway, without proper understanding of Forex market those newbies blowing up their accounts in three months and this is the end of one more Martingale cycle.

Leonardo Fibonacci

Another push-up for the Martingale strategy became the EA based on it. It all started at the beginning of 2004 (yes, I do trade that long) when the EA called Firebird was released. It had a great success at the beginning, but one by one, the accounts that was using this robot went completely down. People get mad and burn the Firebird down. Surprisingly, after some time, there were new robots released that had been based on the same Martingale strategy, and everything repeated once again. The last Martingale EA that I came across with, was Forex Envy. People trust those robots since at the beginning, they are quite profitable, but the longer it trades the more careful you have to be. It is almost like a pet tiger – you never know when he’ll become hungry enough to eat the feeding hand.

Now let’s play a little game. Imagine we are all in Club Martinholics Anonymous. I start: “Good afternoon, my name is Alex, and I blow up my account with Firebird!’ (I really did!) Now it’s your turn. Be honest!

….and don’t forget to share the article.

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