Martingale trading in Forex is a strategy used by traders to double down their losses in hopes of increasing their profits. At its basics, martingale trading encourages you to double the amount of money you invest in a losing position at intervals until you break even or bag some profits.
Unfortunately, martingale demands to have an unlimited supply of money and time for the strategy to work. You have to have enough money to keep on adding to losing trades until they turn to winners.
Most traders who use martingale rarely ever profit in the long run. Due to limited capital, they either cut their losses quick, leave their accounts running until they turn to profits or their accounts eventually get blown altogether.
Why is Martingale trading so popular in Forex?
1: It promises traders to increase their profits
Most traders believe that martingale increases their profits. But, the truth is, martingale trading just delays losses. Every time you double down your losses, you increase your risk exposure. But due to the huge profits a trader can earn from a good martingale position, most traders believe it increases their profits.
Martingale only delays your losses. Every trade you earn from a doubled down position delays the eventual losses. This is because martingale is designed to protect you from losses. Not increase your profits.
2: It lowers your average entry price
Every trader enters a position believing it’s going to be a winner. Every trader aims to make a profit so when they enter a position that begins to go into loss, they believe by adding more positions they’re entering the market at more attractive prices.
The truth is, getting into a losing trade is sometimes profitable. Sometimes, traders who double their lot sizes with every losing trade bag exponential profits when they turn to win trades.
But the truth is, that’s contrary to the advice taught in risk management classes. To succeed in forex over the long term, mitigating risks is one of the key rules. And doubling on losses can be catastrophic when those trades do not turn around.
Risks when trading Martingale strategy
1: Expect massive drawdowns.
Since with martingale you’re scaling on losses, always expect large drawdowns on your account. An account with small capital will eventually lead to a margin call.
2: The risk exposure increases.
Doubling down your losses increases the risk exposure in your account. This means that when the market doesn’t turn around in your favor, the losses will be fatal to the point of blowing an account completely.
Is it good trading strategy to automate?
Martingale on its own is not a great idea in forex. When you use martingale in automated software, your risks grow infinitely since a forex robot won’t be able to know when to cut losses or the best way to scale your profits.
Most people find that martingale on its own carries more risks than the profits it provides. The best way to use a martingale software on your account is by first having a large capital and letting it run over a long period of time.
For example, you could use a $10k account and let it run for a year or so when using the least possible lot size. 0.01.
Conclusion: Is it worth it?
If you’re aspiring to be a successful forex trader, it’s best to use risk management in your account. Martingale carries a lot more risks than the potential gains over the long term. Practice risk management and always cut your losses. Martingale trading certainly won’t turn your $1000 account to millions of dollars. But risk management, patience