Hello, dear readers! Today is a very interesting article, especially for beginners, the temptation to use the Martingale principle in trade is very large for them, perhaps by inexperience. Here is the proof of principle of the Martingale loss in the long run, if someone has a desire to refute it - you can try!
Martingale.
To start let's see what the Martingale strategy, since not all readers know about it, I want to warn the future! Martingale principle was invented for casino games (and then came to trading) and named for inventor names (there are other versions).
Martingale (or martingale) - a money management system, the principle of which is to increase the rate after the loss, up to the point until there is a prize! It's very simple: you bet $ 1. If you win, you take the money. If you lose, then the next time bet $ 2 to hit a loser. If you lose $ 2, then $ 4 bet. Win - fought back previous losses, losing - increase the next bet. The idea is that sooner or later happen to the winning bid, so you stay in the black. I tried to explain in a few words, in spite of the seeming simplicity and consistency and profitability of this method is unprofitable.
Also note that not to be confused with the method of martingale pyramiding or other money management techniques, in which increasing volumes of transactions! The main difference is that with the increase in the volume of Martingale goes either to a winning trade, or to the loss of all the money (when the increase is not enough money); and limited, that is the situation with the lack of funds will not occur (the correct approach) with other above-mentioned money management strategies to increase the volume. I know that reading this article is not just a serious topic, but to know and understand this stuff every trader is obliged to, otherwise it will leave a mark on your trading deposit! No it does not wish to, so gather all your attention and strive to read this post!
Proof of principle of the Martingale loss in the long term.
A-B * X * Y =?
Here is a simple formula to help me to realize our plans! Zoom into your eyes, would-be traders who use trade Martingale principle, I know, there are not enough in the spaces of our motherland!
Not once met positive reviews on the Internet and trade with this method, so tighten your brains and the will to abandon a losing strategy !!! (I did not try to agitate strongly?) Now directly from the formula:
A - the amount of profitable trades;
B - number of losing trades;
X - the average value of a profitable trade;
Y - the average value of loss-making transactions.
It is widely common formula for evaluating the effectiveness of trading systems. The formula, as you see, is very simple. From the total income is subtracted the total loss. Now apply this formula to estimate Martingeylovoy system (absolutely any). Even more personal substituted into the formula will not focus on the average value of losing trades - Y. The limited value of losing trades when trading on the principle of the Martingale? Yes, nothing !!! You can bet $ 1, $ 2 and then followed by 4, 8, 16, 32, 64, 128, 256, 512, 1024, 2048, and so on, ad infinitum, or as long as there is enough money in your account (it is not infinite).
Every loss reaches infinity, the formula would look like this: A * B * X = infinity?
Remembering school math, I note that work on any number of infinity results in an infinity, that is, B * infinity = infinity.
The formula can be rewritten as: A * X = infinity?
Since infinity is greater than any positive number that can be obtained by multiplying A * X, then the loss will be more profit. As a result, in the equation will always get negative response, with a minus sign, it certainly speaks of loss Martingale system.
Q.E.D.
A - the amount of profitable trades;
B - number of losing trades;
X - the average value of a profitable trade;
Y - the average value of loss-making transactions.
It is widely common formula for evaluating the effectiveness of trading systems. The formula, as you see, is very simple. From the total income is subtracted the total loss. Now apply this formula to estimate Martingeylovoy system (absolutely any). Even more personal substituted into the formula will not focus on the average value of losing trades - Y. The limited value of losing trades when trading on the principle of the Martingale? Yes, nothing !!! You can bet $ 1, $ 2 and then followed by 4, 8, 16, 32, 64, 128, 256, 512, 1024, 2048, and so on, ad infinitum, or as long as there is enough money in your account (it is not infinite).
Every loss reaches infinity, the formula would look like this: A * B * X = infinity?
Remembering school math, I note that work on any number of infinity results in an infinity, that is, B * infinity = infinity.
The formula can be rewritten as: A * X = infinity?
Since infinity is greater than any positive number that can be obtained by multiplying A * X, then the loss will be more profit. As a result, in the equation will always get negative response, with a minus sign, it certainly speaks of loss Martingale system.
Q.E.D.
Of course, the dismantling of the formula is not very interesting, but you have to remember that all traders career! Speaking in a simple way, then your deposit is not made of rubber, and the ever increasing money for the lot is not enough! So you will lose money.
Beginners and Martingale system.
But Martingale enjoy almost all the newcomers, when they can not come up with a profitable strategy, is such a sad situation! I'm not an exception, used 3 months. Drawdowns reach 70% of course about any serious work, and the speech was not, but the lack of experience is common to all beginners, it was my mistake, which is not going to repeat. By the way, in a previous article I discussed how to speed up trade training, read: "How to learn to trade forex? Pal theme. "
Meanwhile, the Cubs are not limited to their money by buying averaging advisor or by downloading a free, many open PAMM-account and draw on their investors' money! (About the wisdom of such investors can not speak) There are bills that showed good performance and nice graphics equity more than a year, but the result is always the same! The loss of funds, with investor. See popular monitoring PAMM-accounts, but at the other end, to see how many people are losing money because of the illiterate capital management and use of Martingale in particular!
If someone wants to prove the possibility of a profitable trade on the Martingale method, you get the account for a period of 5-10 years! I such never met and unlikely to meet!
By the way, in the world of hedge industry, too, there are examples of excessive risks, and as a consequence of heavy losses! Here is one of the most famous: «LTCM». It did not help even two Nobel Prize winners, so any private trader you have to be doubly careful! How to calculate the risk, I spoke here in this article, "Learn what should be the size of the position!"
Beginners and Martingale system.
But Martingale enjoy almost all the newcomers, when they can not come up with a profitable strategy, is such a sad situation! I'm not an exception, used 3 months. Drawdowns reach 70% of course about any serious work, and the speech was not, but the lack of experience is common to all beginners, it was my mistake, which is not going to repeat. By the way, in a previous article I discussed how to speed up trade training, read: "How to learn to trade forex? Pal theme. "
Meanwhile, the Cubs are not limited to their money by buying averaging advisor or by downloading a free, many open PAMM-account and draw on their investors' money! (About the wisdom of such investors can not speak) There are bills that showed good performance and nice graphics equity more than a year, but the result is always the same! The loss of funds, with investor. See popular monitoring PAMM-accounts, but at the other end, to see how many people are losing money because of the illiterate capital management and use of Martingale in particular!
If someone wants to prove the possibility of a profitable trade on the Martingale method, you get the account for a period of 5-10 years! I such never met and unlikely to meet!
By the way, in the world of hedge industry, too, there are examples of excessive risks, and as a consequence of heavy losses! Here is one of the most famous: «LTCM». It did not help even two Nobel Prize winners, so any private trader you have to be doubly careful! How to calculate the risk, I spoke here in this article, "Learn what should be the size of the position!"
Each for himself, dear friends, must once and for all determine the purpose, which it wants to achieve in the trade. Application of the principle of Martingale can give a beautiful equity on the PAMM-account, besprosadochnuyu trade for 3-9 months, and maybe years! For you will go to investors, and you will learn on the forums, but it still runs! So indulge yourself - everyone can! There is a second way, when your trade is focused on the long term, when you believe in the profitability of your systems and shakes that "can now all be burned." The first way - the appearance, you seem a profitable trader. The second - the result, you will be a profitable trader. Everyone makes the choice himself. No error is complete, I made them so much that it is not counted!
