Safe martingale in manual trading

Good day, ladies and gentlemen Forex traders.

Today we will talk about safe martingale, as paradoxical as that may sound.

Martingale usually associates with something dangerous and highly unstable. You can call it a time bomb, ready to explode on your deposit at any time.

However, with the proper application of individual elements of the martingale, you will be able to significantly improve the profit using your strategy and reduce the moral burden.

What is martingale?

This system was originally invented for playing roulette.

The essence of the system is very simple. If we put 1 dollar on red, and black comes, we put $2 on red. If black comes again, we put $4 on red. If we still don’t get necessary value, we put on red $8, $16 and so until we win.

When we guess, our win recovers any previous losses.

In theory, it all sounds fun and profitable, but there is a limitation of the maximum rate in any casino. And besides, if you constantly double your initial bet of 1 dollar, it will grow up to 1024 dollars very quickly. And up to 1 million dollars in a short time.

Any casino will not let you put so much money, and you are unlikely to bring so much cash.

How do they usually use this system on Forex?

It is actually very simple to use this system. Imagine that there is some movement of price.

Let’s say the price goes up.

We decided that we need to sell because the chart generates overbought.

We sell with lot 0.1:

The price is in the trend and moved higher. We do not close the previous trade, but open one more sell position, but with lot 0,2:

Now we begin to wait when the price will go down again.

Imagine that the price won’t go down and goes up again to conquer new heights. Then we open another sell position with a lot 0.4 and so on.

If the price decides to turn around, we will be able to close all your positions and break even or even get some profit:

Thus, martingale creates the illusion that losing trades can be avoided. But the problem is that large size of the lots leads to great risk, and if you get some prolonged trend, you can merge the entire deposit.

That’s why most systems on the martingale lead to the loss. In this area, there are many nuances and this is especially true of expert advisors. But it is worth noting that with due skill, you can earn well using such EA’s.

Let’s look at the various elements of the martingale, which you will be able to use in your trading strategy without using advisers and complex calculations.

We will try to take individual elements of this dangerous tactics and make it safe for our benefit.

Profitable TS + high leverage

Before we begin to discuss the elements of martingale, it should say that initially you must have a profitable strategy. It must be profitable and without elements of martingale, otherwise, it will not work.

These mini-elements will help us to improve its profitability and reduce the moral burden on the trader. But you will not be able to do it without an initially profitable strategy.

In addition, we will need high leverage. Leverage 1:100 is enough with adequate money management. High leverage does not bring harm in your trading, of course, if you do not abuse it.

Let’s say that you have a profitable strategy and high leverage. Then we proceed to the next step.

The keys for safe Martingale

Using of Stop-Loss in your trading

Let’s consider a frequent mistake of the traders who try to trade using martingale strategy.

Most of them think that the essence of the strategy is that trading takes place without Stops. However, you can and must use Stops. Thus, you can protect yourselves from great loss.

Trading without stops is stupid and unsafe.

The amount of negative trades in a row in history

Once you have found a profitable strategy, you need to check how many negative trades it has in history. It is worth noting that we are interested in the number of losing trades in a row, following one after another. Also, you have to find not the maximum but the average value for the entire test period.

The time period, where you should test your strategy, must be selected individually. If a trading strategy means trading in M5 time frame, you should test 1-2 months at least. If your trading will be carried out on D1 time frame, you should test a couple of years at least.

I’m sure you will test your strategy as you should, and there will be no problems with this item.

For testing, you can use the utility Forex Tester.

First, we count the number of negative trades in history. And then we use the so-called “bend”, that is the order with a larger lot matching this number.

Let’s say that there are 3 losing trades in a row on average in your strategy, respectively, you will have 3 “bends”.

How will it look in practice?

Imagine that in your trading strategy stop loss is 10 pips and take profit is 20 pips. You’ve found out that the average number of negative trades in a row you have is 3.

There is some movement of prices on the chart, and you decide to sell 0.1 lot:

The price went up, and stop-loss has triggered. You’ve got a loss of 10 pips.

The price goes somewhere further, and you again get a signal to sell.

You sell again, but now with a larger lot.

Here I will make a little stop on another problem that often occurs with traders. How much can you increase your lot? Somehow they believe that you should always double every lot in a martingale. It’s not necessary. A lot can be increased by 2 times, 3 times or at 30%. It all depends on your desires and appetite for risk.

In our case, let’s increase a lot at 50%:

We’ve sold 0.15 lot, and our system has failed again. We have a loss of 10 pips again.

The price ranges on the chart again, and you have a sell signal again.

We notice it and set an order with a lot increased by 50%:

And really, the price goes in our direction, and we earn take-profit in 20 pips.

Now let’s calculate what would have happened if we hadn’t increased the lot, and traded all the time with 0.1 lot.

The first time we lost 10$, second time we lost with the same lot of 10$, and the third time we would have a take profit. As lot is the same, the result is 20$.

In the end, we broke even, that’s good because we suffered no losses.

Now let’s count how much we get when the lot is increased by 50%. The first time we lose 10$, the second time 15$, and the third time take profit gives us 40$.

In the end, we get a 15$ pure profit instead of 0$, as in the case if the lot would be a regular.

What would we do if the third trade would bring us the loss and the chart would continue its upward movement?

Let’s assume that the price started to move on and we have a signal once again. We are once again beginning to sell. But what a lot should we use in this situation?

From history, we found that there may be three losing trades on average when we use the strategy. Therefore, we can increase our position three times exactly. Fourth time is considered to be a non-standard case.

If there is an unusual movement not in our direction, do not risk, it would be better to gradually reduce the lot to 0.15, or return to 0.1 immediately and start trading standard lot size before the strategy would enter a normal mode of unprofitable and profitable trades.

Don’t get attached to purchases or sales

 

Martingale is usually considered from the point of view of what we cling to a certain direction of the chart. Actually, we should not do it.

Imagine that you have some loss in SELL trade.

The price goes against us. There is a stop loss, and then we get a signal to BUY.

Why should not we take it?

We open a buy order, but with an increased lot size of 0.15.

Let’s imagine that the price again went against us and crossed the important level.

We open a sell order with lot size 0.2 and subsequently earn:

If our strategy had five losing deals in the history, then we would use 5 “bends” (orders).

 

The largest lot should be no more than 10% of the deposit

In your trading do not forget about money management. The largest lot in a series of your orders should be not more than 10% of the deposit, this is done in the case of triggering of stop loss on the last “bend”.

Of course, we are slightly increasing our risks, but we stick to prudence because our task is to make a profit but not to lose the entire deposit.

Enter manually, and then use the EA

One of the options of this strategy is the opportunity to use technical assistance in your trading. For example, you may find the entry point and open positions manually and then use the EA that will automatically open additional deals with increased lot size.

But there is a drawback also. You won’t be able to use signals of your strategy when using this approach. There will be an increase of lots and opening of additional orders only at a certain distance from your first entry.

 

Put “bends” on the levels of support/resistance

The opening of the position with an increased lot size at levels of support/resistance would be a good option.

You can open additional orders at these levels, even if there is no the signal of your strategy.

For example, we make a buy order at this point:

The price has not reached our profit target, turned around and knocked out our stop loss.

Where can we place an additional order?

In case of negative turn of events, we can put it on the level, which takes place at the round number 1.08:

As you can see, the price has already bounced off this level.

Our order goes negative, but the secondary order is triggered and brings us profit later.

Similar entries are made on the levels of resistance or any other important values.

Check everything on the history

I think you understand that before you go on the real account, you should check everything on the history.

This will help you to test your strategy without losing money from your account.

I hope these tips will help you in your trading.

I remind you that these elements can be applied, provided that you have a profitable strategy. Be careful and don’t forget about money management.

I wish you great profits.

Take care, Michael

ForexTraderPortal.com