The martingale trading strategy is probably the most recognized one in the Forex and binary options industries – especially the latter. Due to its popularity and relatively tedious form of operation, trading robots have been designed that work under the system’s principles. In this post, we’re going to look at the martingale trading strategy in brief for those who don’t know and see how well these martingale strategies can work.
Overview of the martingale system
This trading system was created back in the 19th century as a betting strategy in the game of roulette. The basic principle involves doubling the bet when you lose and retaining the same bet size when you win.
In its simplest form, it can be explained through a coin toss bet, let’s assume you bet $1 on heads. After the first toss, the coin lands on tails, and you lose $1. On the second toss, you bet $2 (double the previous $1) and again you lose; at this point, you’re down $3, and you bet $4 on the next toss. In case you win this time, you will be up $4, leaving you with a $1 profit given the previous $3 loss.
This is how the martingale system works – by doubling your bet after every loss, you guarantee that you can make up your entire loss when you do win. It wouldn’t matter how many losses you would experience, because in the end you will always make it up.
How this can apply to trading
The martingale system works most effectively with binary options since there are only 2 possible outcomes, just like a coin toss. Nevertheless, it can also be used in Forex trading as well as other markets. The same principle applies, ensuring that you can always make up any losses you experience by doubling up your bet when you lose.
As you can see, the process can be tedious since it is a continuous process involving the doubling of the bet on losses and so on. In theory, the process could go on to infinity, and it would be much better to automate the process. This is where the martingale robots come in. Instead of placing the bets manually, the martingale robot can keep the process going on and on as long as it takes.
Imagine a martingale robot that trades binary options which expire every minute. The robot can place 60 trades every hour, which would be 1,440 trades in a day. In a market that operates 24/5, you can only imagine the number of trades, and that is only on one financial instrument. Traders can go even further by installing the martingale robots on a VPS server and leave it running continuously.
How effective are these martingale robots?
The robots are only as good as the system, and they share the same drawbacks. The most obvious one is that you can very easily lose your entire capital before you have a win. The martingale strategy requires that you have infinite wealth, which is impossible, and thus you can have a devastating run of losses that cleans you out. Furthermore, the returns are quite small compared to the amount at risk, making it unfavourable.
There are certain ways of making the system more effective, but all in all, martingale robots are not recommended. It’s much better to have that human aspect that can consider other matters other than adhering to the system.