09 märts The Danger of the Martingale
One strategy is known as a martingale strategy. This type of system is based on the idea that you will double your bet after losing trades and—in theory—you will always cover your losses with winning bets that are double the amount of the losing bet. The strategy is geared to systems where the chance of winning is equal to the chance of losing.
There are number of substantial risks an investor could face with a martingale strategy when trading forex. One of the issues with forex price movements is that they usually consolidate and then trend. While currency pairs usually only trend approximately 30% of the time, if you are caught on the wrong side of a bet during a trending market, a martingale strategy may generate the risk of ruin.
For example, assume you have a portfolio of $200. If your first trade is a loser where you risked $20, it would only take 4 consecutive losing trades for you to lose all of your capital (-$20, -$40, $-80, $-60). Since you would only have $60 dollars left on your 4th trade you would bet what was available.
A second danger in using a martingale system when trading forex is that most brokers supply substantial leverage, which means small movements in a currency pair might also drive substantial losses. Many brokers offer leverage of 400:1, but even 50:1 could be harmful. For example, if you have a portfolio of $200 and you buy EUR/USD using $50 at leverage of 50:1, a 2% change would eliminate your capital (50*$50 = $2,500 *2% = $50). In this case, three losing trades in a row would eliminate your capital. Although a martingale system might work well in roulette, it presents substantial risk in the forex market.