FX Trading The Martingale Way

I mentioned the Martingale strategy a couple of weeks ago when I was focusing on money management. 

http://www.forexproject.com/Blog/Investing_and_Trading/The_Martingale_Method/

There's a new article by Lien on Investopedia about the Martingale and its popularity with forex traders.

http://www.investopedia.com/articles/forex/06/martingale.asp  

Popularity: 2% [?]

The Martingale Method

The Martingale Method is not a trading system, it is a money management method, moreover an interesting one.  Follow with me because the logic is simple.  You can read more about the Martingale Probability Theory here.

Martingale Method I

Assumptions:

• You are using a discretionary or mechanical trading system.
• You know your system well therefore you know how many consecutive losses your system has ever had.  For this example, we'll assume your system has had at most 10 consecutive losses.
• You trade 3 lots.

Scenario:

•  You have had 10 losses in a row trading 3 lots per trade.  

Conservative Martingale Method I Example:

1. On your very next trade after losing 10 in a row, increase the lot size to 4
2. If this 4 lot trade is a winner, go back to normalcy trading 3 lots.  Your done using Martingale for now
3. If this 4 lot trade is a loser, increase the lot size to 5
4. If this 5 lot trade is a winner, go back to normalcy trading 3 lots.  Your done using Martingale for now
5. If this 5 lot trade is a loser, increase the lot size to 6
6. etc, etc, etc

Keep increasing lot sizes by 1 until you win.  I think you get the point.

Martingale Method II

Assumptions:

• You are using a discretionary or mechanical trading system.
• You know your system well therefore you know the average number of losses your system has before turning a winner.  For example, we'll say that on average, your system has 3 losses before turning a winner.
• You trade 3 lots.

Conservative Martingale Method II Example:

1. You are currently not in a trade.  You will wait until your system has 3 consecutive losses before doing anything.  You WILL NOT trade.
2. Once your system has 3 losses in a row, start trading your system again.  Your first trade will be a 3 lot trade.
3. If you win, great.  If you lose, increase the number of lots to 4.
4. Increase the number of lots until you win.

Aggressive Martingale Method II Example:

    The only change here would be to enter your first trade with a larger lot size than normal after  your system has 3 losses in a row.  So instead of just trading 3 lots, trade 4.  

Popularity: 5% [?]