Advantages and disadvantages of the Martingale strategy

The following calculations well illustrate the dangers of using the Martingale strategy. Suppose you have a deposit of 100 USD:

• You open a trade of 1 USD. The trade is losing, your deposit is 99 USD.
  
  
• You double the trade and get a loss again. Your deposit is 97 USD.
  
  
• You double the trade again in 4 USD. After the loss, your deposit is 93 USD.

And so on.

Already after 6 consecutive losing trades, your deposit will be reduced by 2/3. For a 1000 USD deposit, the number of losing trades in a series increases to nine.

The deceptiveness of Martingale is that the trader's logic relies on the theory of probability. According to it, the probability of a positive outcome is 50/50, and a series of six losing trades seems impossible. And there are two points here. First, it is quite possible - the testing results of many strategies demonstrate that. Second, in case of a positive outcome, you only return to the breakeven point. For example, with a 97 USD deposit, a 4 USD deal will increase your deposit to 101 USD. Loss of time and spread is your loss.

The advantages of using Martingale:

1. In the case of a series of successful trades, the trader will always be on the plus. Fast acceleration of the deposit.
   
   
2. The possibility of building strategies solely on the basis of mathematics and statistics without the use of technical analysis.
   
   
3. The strategy becomes effective in professional hands. If there is no trading algorithm and a well-thought-out risk-management policy, it generates losses.

Disadvantages of using Martingale:

1. Fast loss of most of the deposit under the condition of a long series of losing trades.
   
   
2. The more money you have, the more losses you incur. The more money you have, the long series of losing trades your account will be able to withstand.
   
   
3. Breach of risk management rules. The longer the series of losses, the greater the volume of transactions is forced to set by the trader, crossing the permissible limits.

In Forex, the main problem with the Martingale strategy is the depth of drawdown, which depends on the point value. If a trader's deposit can relatively withstand a drawdown of 300 points, then if the volume of transaction increases by 10 times (that is 4 transactions in total - 0.1 lot, 0.2 lot, 0.4 lot, 0.8 lot), the point value will also increase by the same amount. The allowable drawdown is reduced to 30 points. The example does not take into account the reduction of the deposit amount due to the loss on the first three trades of the series.

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