Martingale is Evil?! - page 3
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Attached...
However, it is clear that it is not interesting.
Regards - S.D.
...What's more, it also doesn't matter that price can create a so-called "Drawdown", i.e., it can rip to one side and then immediately to the other. In this case I win due to the Martingale method. And even if the price creates two "Arrows" I still win regardless of the direction of the last price spurt.
What if there are six or eight arrows?
Martingale can probably be used if the probability of profitable trades is > 90%. Or in other words, the probability of a series
of 3-4 losing trades is negligible. But if there is a TP with 90% of profitable trades, why use a martingale?
From the book: R. Pelletier's book "Money Management with the Martingale Method".
"How can the martingale method be useful? To give an example, note that a series of martingale trades will be successful if a single unit of trade - one contract or one standard stock lot - wins over time. Suppose the result of each trade is 50-50, win or lose. We show that by using a series of martingale trades, the probability of a successful outcome on trades can increase from 50% to 87% with a minimum budget of four times the margin plus 6 average losing trades. Putting in five times the margin will improve the final result on a series of trades to somewhere around 90%."
At first, when I got acquainted with TCs (including those based on theMartingale principle) which were raising the deposit long enough and increasing it by times, and then losing it to MK, the decision arose immediately and unambiguously - into the basket! And only recently I started to think about the possibility of practical use of such TS. Here's a rough plan:
1. Suppose we have a TS, which, relatively speaking, has an average monthly profit of $500 with an initial deposit of 2K. Moreover, it allows (based on back-tests results on 6 year history) on the average no more than one drawdown per year with depth more than 1.5K-2K, i.e. during one year of trading we may well get MC, but if it will not happen, then the annual profit will be $500 x 12 = $6000 or +300%.
2. we take an initial deposit of 2K (its value is determined by both the number/depth of drawdowns and trading lot) and start trading and try to extract profit from a potentially losing TS. If we are lucky (which unfortunately happens more often on a demo;), then we will run a few months without deep drawdowns (by the way, to avoid them on a real account, you can run the TS on a demo, wait for drawdowns and after its completion, run it on the real account - it is unlikely that drawdowns follow each other).
3. Suppose we were a little lucky (we did not get drawdown and MC) in the first months of trading. All of the profit from trading each week we drop to another (reserve or used for other purposes) account. Thus, after four months we have doubled initial deposit and even after getting drawdown and MC we remain with initial deposit at least and start from the beginning.
4. in this way we continue working until we get MK, and we always have a loss limit of 2K. At the time of receipt of MC, it is very likely that the reserve account will have more than the initial 2K. Suppose it turns out to be 4K from which 2K we keep in reserve and 2K we put up for auction. If at the time of receiving the MC, the amount is significantly higher than the initial 2K (for example, 8K), we can put half of it (4K) up for bidding.
5. Cycle this process until you win. MK acts as a global stop loss here, and the size of the deposit limits the size of possible losses.
I have not tried this method in practice yet, I believe it has the right to live, although I did not take into account some subtleties. I am interested in opinion of experts.
At first, when I got acquainted with TSs (including those based on theMartingale principle) which were raising the deposit long enough and increasing it by times, and then losing it to MK, the decision arose immediately and unambiguously - into the basket! And only recently I started to think about the possibility of practical use of such TS. Here's a rough plan:
1. Suppose we have a TS, which, relatively speaking, has an average monthly profit of $500 with an initial deposit of 2K. At the same time it allows (according to the results of back-tests on
Respectfully - S.D.
2k=2000, 1.5k=1500, MK=margin call :-)
goldtrader
I don't know where I could find a system that would give me 25% a month. If you have one, calculate how many times it has been lost since 1999 :-)
I wish I could find a system that would give me 25% a month. If you have one, calculate how many times it has failed since 1999 :-)
If you have one, count how many times it has lost money since 1999. Depending on selected instruments and settings, they are usually lost no more than once a year. IMHO, Sarta's Expert Advisor works in approximately the same way. For example, in the attachment is one of those, not written by me so in .ex4, I do not think that it is better than Sarta's, more flexible (many parameters) also works.
By the way, as Sart wrote about his advisor, "Despite the prevailing negative attitude to martingale, a poor trader with a deposit of at least $ 400-500, this program can ABSOLUTELY risk-free bring $ 10 a day. If we multiply $10 by 20 trading days per month, we obtain $200, which is not 25%, but 40-50% of the original $400-500. I did not use Sarta's Expert Advisor neither on the history nor on the demo, but I have no reasons not to trust the author. Another thing is that the words "Totally risk-free" sound naive, to say the least. One can feel that the author has not been beaten by the market yet.
I don't know where I could find a system that would give me 25% a month. If you have one, then calculate how many times it has lost money since 1999 :-)
If you have one, count how many times it has lost money since 1999. Depending on selected instruments and settings, they are usually lost no more than once a year. IMHO, Sarta's Expert Advisor works in approximately the same way. For example, in the attachment is one of those, not written by me so in .ex4, I do not think that it is better than Sarta's, more flexible (many parameters) also works.
By the way, as Sart wrote about his advisor, "Despite the prevailing negative attitude to martingale, a poor trader with a deposit of at least $ 400-500, this program can ABSOLUTELY risk-free bring $ 10 a day. If we multiply $10 by 20 trading days per month, we obtain $200, which is not 25%, but 40-50% of the original $400-500. I did not use Sarta's Expert Advisor neither on the history nor on the demo, but I have no reasons not to trust the author. Another thing is that the words "Totally risk-free" sound naive, to say the least. I have a feeling the author has not been beaten by the market yet.
This topic has been covered above and I consider the EA file attached to be poorly written
Has anyone tried to object? Another thing that causes great doubt is the possibility to earn 40-50%/month "Absolutely no risk". IMHO, absolutely no risk is impossible to earn even 1%, and 40-50%/month is a crazy rate of return.
"In the example above with a 50% gamble, in which for every $1 loss there was a $2 gain, the mathematical expectation would be:
(0.5*2)+(0.5*(-1))=1+(-0.5)=0.5
Thus, the mathematical expectation of this game is 50 cents per move.
Let's estimate the mathematical expectation to the roulette game:
((1/38)*35)+((37/38)*(-1)) = -0.0526
Thus, when playing roulette the expectation is minus 5.26 cents per move for a bet of $1. If the bet is $5, then, on average, 26.3 cents will be lost per turn.
For different bets, the expectation will be different when expressed in pips, but the same when expressed as a percentage. The expectation of a series of bets is the sum of expectations of individual bets. If you bet $1 on a number in roulette first, then $10 and then $5, the mathematical expectation would be:
(-0.526 *1)+ (-0.526*10)+ (-0.526*5)=-0.8416
This principle explains why systems based on changing the size of bets depending on the size of loss or winnings are doomed to failure. The sum of negative expectations will always remain negative. Martingale can only be winnable with an unlimited amount of capital.
The most important conclusion in terms of money management is that when the mathematical expectation of a trading system is negative, no money management system can work a miracle and make a profit."
I want to say right away that I do not in any way equate Forex with roulette (goodness as I trade myself and will not allow myself to be "insulted" )))).
Martingale is a money management system. Everyone understands that. Maybe first of all a trading system with a positive expected payoff, even with a notorious equal number of profitable and loss-making trades and their relation to each other as 2:1 (of course in favor of profitable ones). And then to screw it on. And even the same martigail? I deliberately underlined the lines that are important from my point of view.
Well that's just it... don't take it as idle speculation.... and don't judge.