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Forex Trading & Martingale Infographic
Favoured by gamblers and
occasionally touted as a Forex strategy – We show you why it is not!
Martingale is a process of doubling your
bet each time you lose and is used by gamblers around the world usually in a
“50/50” scenario – Such as roulette
The idea is that by doubling your stake
each time lose, you will eventually win and make a profit (of your original bet
amount) – For example - After 3 losses, Bet 4
wins and the gambler receives 16 chips (8×2) – He has
bet a total of 15 (1 + 2 + 4 +8) so is now up 1 chip (his original bet amount).
How this relates to trading
Well, let’s assume we have a £10,000
trading account and we risk an initial 2% of this (£200) on our 1st trade – This means that after any losing streak we will eventually win
(£200). We will also assume that our trading strategy is one with a
Risk:Reward of 1:1 which has a 60% strike rate.
After just 5 losing trades in a row there is no
longer enough money in the account to carry on - Now, let’s risk 5% on the
1st trade, after just 4 losing trades in a row there is no longer enough money
in the account to carry on.
Following a strategy with a 60% strike rate, the
chance of 4 losing trades in a row is 2.5 in 100, the chance of having 5 losing
trades in a row is just over 1 in 100.
The above means that if you apply a Martingale
approach when using a Forex strategy with a 60% strike rate it is likely that
before you have made 100 trades you will be out of the game, especially if you
risk 5% of your initial Account balance.
Extreme caution is advised if
considering Martingale as part of your Forex strategy, the best consideration
would be to give it no consideration.
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