Let's start with the history of this method. According to one version, created his Martingale gambler who doubled their bets after each loss as long as won. But, contrary to the legend, the term "Martingale" - just a metaphor, the main value of which - an increase of human effort through any device. Method was used in all possible casino games: roulette, craps, heads / tails, and so on. The Martingale system is known from the middle of the 18th century.
The principle of the method consists in a series of increasing rates. How does it work? It all starts lowest rates, for example $ 1. Further, all the well-known pattern:
- If your bid has been deployed, comes back to the minimum value - $ 1.
- If you lose, the next bet should be increased to 2-fold and that is - $ 2.
- This should be done as long as you did not win, and then again back to the minimum bid - $ 1.
According to this principle was that the last winning bid will cover all the previous losing and bring minimal profit. However, in this method, there is the main feature - you need to have a large cash reserve, as a series of 10-losing results to make the next bet to $ 1,024, and this with a minimum amount of $ 1!
Martingale method work best wagers, so to speak, to "equal chances": heads / tails, red / black, odd / even, etc. As soon as the Forex market has become more accessible to private speculators, and then remembered about this "proven" method. In the role of heads / tails here are the buy / sell!
In the forex market Martingale method can be applied in several ways, based on the unique properties of the market: the currency pair can not forever be in a certain price range, and can not grow indefinitely in the same direction ( trend always ends). According to these principles of the construction and application of the method:
- Keep open trade orders in one direction, for example, on a purchase. When triggered stop-loss, again take a position with the doubling up until the order has not been profitable. How will it look like in practice: putting a buy order lot 0.01 with a stop at 100 pips. Again open for loss of purchasing volume to 0.02, and so long as the purchase does not bring profit to 100 pips. Very rarely, the pair may take 1000pp without consolidation, so sooner or later going to work one profitable trade request.
- Alternate types of orders to buy and sell. This version is based on the fact that the Forex market can not always be in the flat, and one day will come out of the price band. It might look like in practice: we buy a certain currency pair lot 0.01 and immediately: Pending order to sell the same pair of volume 0.02 below our trade position. If the open order a profit, then remove the pending order and sell a couple of .01 lot (putting to buy 0.02). If we work for a pending order to sell, expose an order to buy at the same price as the first order, only the amount of increase to 0.04 lots. Sooner or later, the pair leaves the flat market and open trade order will make a profit, which will cover the previous losses.
Also, the method can be applied not Martingale in standard form, that is, not to double each subsequent position. Sophisticated method involves the use of other factors. For example, each successive position to open, without doubling, and a 50% increase in volume, that is not * 2, and * 1.5. Also, you can use the Fibonacci numbers, that is, the volume of orders possible series may look like this: Lot 0.01, 0.01, 0.02, 0.03, 0.05, 0.08 and so on. Which variant of the method used, complex or simple, every trader must decide itself on the basis of calculations of the size of the deposit, and money management.
It should be noted, is very important in the application of this method does not just rely on the fact that sooner or later "to win back" profit. Before opening its first position, is how to spend technical analysis and shift the balance to the odds 50/50 in their favor, at least 60/40!
Method can be applied in a pure "form", and in combination with other methods and all kinds of analysis of the Forex market (technical and fundamental).
With all the possible advantages of the method of Martingale can be identified and serious drawbacks:
- Requires a large shopping deposit.
- The performance of the method can often be justified, that is for profit 1USD, you must have a deposit of at least 1000 USD.
- The risk of losing the entire deposit. There is a certain probability that a series of unprofitable positions exceeded the allowed possible indicators. The pair will continue to move without correction or will be extremely long to be flat.
- The size of the maximum possible trading lot in your brokerage firm may limit allowable series of warrants.
- Slippage may result in loss-making general indicators as pending orders will not work on exposed online.
"Win-win" approach Martingale on closer inspection was not 100% option. But miss the attractive features of this mode of operation in the Forex market is not worth. You can look at it and develop their own, unique strategy of trading, combining closer you strategies and analyzes.