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What Is The Martingale Strategy In Forex Trading?
Despite the high risks of losing a deposit, Forex trading strategies based on the Martingale principle are very popular among traders, as they allow them to make a tangible profit in a short period of time and to raise the capital.
What Is Martingale?
Martingale is a betting management system discovered by French mathematician Paul Pierre Levi. Initially, the Martingale system was used only in gambling to calculate bets, later it was actively used and transformed by traders in the stock and currency markets.
What Is The Essence Of The Martingale System?
For those who are not aware of it, let us explain the principle of the classic Martingale system. Initially, the method was focused on the roulette game. For example, there is a dollar put on red. Once black falls, the bet is doubled, that is, there is already $2. At the next loss, the bet is doubled again with $4 on red. And so up to the fall of the winning color. Roughly speaking, the Martingale method is a geometric progression adapted to roulette.
How Does Martingale Apply To Forex?
With the development of exchange trading, the Martingale method began to be used in the Forex market. The general principle of its use is very similar to roulette, only instead of "red" and "black" buy and sell orders are used.
It looks as follows:
At some level, a Sell trade of 1 lot is opened. If contrary to expectations, the price continues to grow, the unprofitable trade is not closed, and another Sell position with doubled volume is opened. This sequence continues until the price turns around and allows the trader to close transactions with a profit or, at least, without loss.
Main Objectives Of Martingale Strategy
Technically, all variants of Martin are not a trading strategy, but a special method of money management, which consists of increasing the trading volume after each losing trade, so that in case of reversal the profit will fully compensate for the current loss. If open trades already give profit, the volume remains the same or increases in a profitable direction. The point here is to avoid losses by increasing the trading risk, that is:
When opening a trade in the direction of the main Martingale trend, the Forex approach allows you to wait for rollbacks and still earn;
If a position is opened against the trend, then starting from the minimum lot, you can withstand a drawdown and go at least to breakeven.
Martingale Forex strategy opens sequential trades with a gradual increase in volume and as a result, gives the execution of the total trade at some average price. Technically, the price cannot constantly move in one direction, so any rollback (at least 30-50%) - will make a profit. Only sharp strong movements against open positions, for example on the news, can be very dangerous.
How To Use The Martingale System?
Forex Martingale strategy Indicators: MACD (12;26;9) CCI(14) EMA(20). Asset: any currency pairs with a steady trend. Timeframe: H4 for analysis and entry, D1 for holding trades. Trading Time: The most active time for the selected asset. Risk per trade: no more than 0.2% of the deposit. This medium-term trading system uses cascading Martingale and is considered to be quite risk resistant. General principles:
An initial trade is opened when an ordinary Buy/Sell signal appears. StopLoss and TakeProfit - up to 100 points.
The first pending order is placed 25 pips higher/lower than the first position, with the same volume. Stop Loss - 75 points, Take Profit - 100 points.
The second pending order is placed 50 pips higher/lower than the first one, with Stop Loss - 50 pips, Take Profit - 100 pips. The volume of this order should be twice as big as the volume of the first trade.
The third pending order is placed 25 points higher/lower than the second one. Stop Loss - 25 pips, Take Profit - 100 pips. The volume of this order is 3 times more than the volume of the first order.
We are looking for an entry point on the H4 timeframe. We place a buy order if:
at D1 we see a steady uptrend and the MACD histogram is above 0;
at H4 the price moves above the moving average line and the MACD line breaks the zero level from bottom to top.
We open a sell order if:
at D1 you can see a steady downward trend and the MACD histogram is in the negative zone;
at H4 the price moves below the moving average line and the MACD line breaks the zero level from top to bottom.
If the calculated SL and TP have not triggered, these Forex trading tactics Martingale uses signals at H4 to close the positions:
either the price goes above/below the moving average line;
or the MACD breaks the zero line in the opposite direction;
or there is a divergence between the price and the CCI indicator line.
Risk at Martingale
A complete break-even Forex strategy on Martingale in real trading is impossible. Often, beginners' deposits are saved from losses exactly because this method is psychologically complex enough and not suitable for everyone. One should always remember that any Forex Martingale strategy has a negative mathematical expectation. Besides, the financial market has a special factor that significantly reduces the chances of profit (analogous to "zero" when playing in a casino) - is swap). However, you can choose assets with positive swap and then trading with Martingale will be a little safer. With any Martingale strategy, there is a point of no return, after which a limit on the deposit will lead to the forced closing of the StopOut trades. A few practical tips:
The best Martingale Forex strategies work more effectively on pullbacks than on breakouts.
More or less secure Martingale as a forex strategy contains no more than 3-4 loss levels.
Sooner or later any Martingale system will "kill" the deposit, so you can use no more than 5-10% of your total capital for this method.
Regular withdrawal will help to soften the consequences of losses.
Is There A Safe Martingale?
As a rule, the Martingale method is associated with something dangerous by most traders. And for beginners - it is generally one of the most popular "ghost stories". Of course, the use of the Martingale method in trading involves increased risks. It is hard to believe but yes - there is a safe Martingale! The use of separate elements of "Martin" can increase the profitability of trading and even reduce the psychological burden on the trader. Let us consider several method elements that can be used in a trading approach, increasing its profitability. What is necessary for safe Martingale? First of all, we will need a profitable trading strategy. The Internet proposes a huge choice of systems, so it will not be difficult to choose a profitable one. Remember, the use of safe "Martin" will give us an increase in profit, but if the strategy is known to be unprofitable, then we are unlikely to succeed. Next, we need a trading account with high leverage. Appropriately using the rules of money management, the leverage of 1:100 will be enough. Preparing for safe "Martin" Let's focus on the following essential factors:
Using Stop Loss orders in trading
Most traders for some reason believe that trading using the Martingale method is done without SL. Needless to say that SL is insurance against big losses and it is not wise to trade without them. SL orders can and should be used in the Martingale system.
Defining a series of negative trades in a trading approach
Everyone knows that there is no Grail on Forex, and even the most profitable trading strategy "sins" by losing trades. So, we should determine the average series of losing trades. Please note - not the maximum value, but the average number of continuous losing trades for the test period. To optimize the testing of a trading strategy, you can use one of the utilities, of which there are a lot of forex resources.