To be successful in the foreign exchange market, traders need to learn trading strategies. Among them, Martingale is one of the bold strategies that help you increase profits super quickly. Although not completely accurate, Martingale will help you calculate unexpected market fluctuations. Let’s find out Forex Trading what is martingale and how to apply this strategy to Forex trading!
What is Martingale?
Not only in stock or cryptocurrency trading, Martingale is also frequently used by forex traders.
Strategic concept What is Martingale?
Martingale is a trading strategy based on the principle of betting. Specifically, the bet level will double after each losing order. The purpose of this strategy is to increase the chance of capital return, recover losses and increase profits.
The Martingale strategy was born in the 19th century. The principle of Martingale is that if the player loses a bet, double the bet next time. Sooner or later, luck will smile, helping you make up for lost losses and at the same time create better profits. Of course, the win/loss ratio is 50/50. Therefore, Martingale is considered a simple trading strategy, similar to the game red and black.
Advantages of the Martingale trading strategy
So what are the advantages of the trading strategy what is Martingale that so many traders choose? Here are some of the biggest highlights:
- Fast recovery: By doubling the bet after each loss, traders can quickly regain previous losses thanks to the Martingale strategy. Every time they win, they will recover all of their losses. Not only that, you can also earn a profit corresponding to the first bet.
- Potential profits: If the probability of winning is higher than losing and the payout ratio is higher than 1:1, traders can make huge profits. For example, if the chance of winning is 60% – the payout ratio is 2:1, the potential profit will be 20%/bet amount.
- Easy to implement: No need for complicated calculation or analysis techniques, you can still apply the Martingale strategy. Simply, you just need to double your bet if you unfortunately lost money last time.
Limitations of the Martingale trading strategy
Every trading strategy has its advantages and limitations, so does Martingale. Below are some risks and impracticalities when applying the Martingale strategy:
- Probability is difficult to predict: The Martingale strategy is based on the assumption that the possibility of positive factors is higher than negative. However, this is just an assumption, not completely accurate. The probability is always 50:50, no matter the number of bets.
- Expected value is always negative: Forex exchanges all charge transaction fees. This reduces the expected profit value each time you enter a trade (bet). Therefore, the long-term Martingale strategy may decrease in terms of expected value.
See more: Learn Dow theory for trading beginners
How the Martingale trading strategy works
After knowing what is Martingale, you will surely be curious about how it works? Forex trading is not gambling. For a trader with thorough forex knowledge and understanding, they will definitely be serious about their money. However, the Martingale strategy is still a useful method to help traders increase profits.
First, you need to choose the amount you want to place an order within a certain period of time. This amount is equivalent to the initial bet amount according to the Martingale strategy. At the same time, you will analyze profit and loss corresponding to the timelines.
If the order is profitable, start a new order with the same amount as before. If the order is losing, open a new order with twice the amount, wait for the same amount of time and then evaluate. For example: If you lose your first $50, invest $100 the next time. If you continue to lose, invest another $200 in the next trade. Keep doing that until you make a profit.
How to trade forex according to strategy What is Martingale?
When applying the Martingale strategy, traders often choose currency pairs with large fluctuations. A typical example is the GBP/USD pair. When you look at the GBP/USD chart, you will see that it is quite loose, prone to strong fluctuations. Some other volatile currency pairs such as EUR/USD, USD/JPY. (Although the weekly chart of USD/JPY usually moves in one direction over long time frames).
At the same time, you should not trade forex according to the Martingale strategy when the market releases important news. Because it is likely that a clear trend will be established in the long term.
See more: Exness – Trade With The World’s Leading Broker Exness
Formula for applying safe Martingale trading strategy
The Martingale strategy is quite simple and easy to implement. However, to increase safety and efficiency, you need to combine it with some other parameters and trading methods. Below, we will reveal to you the formula for success with what is Martingale.
Consider the Slippage level
So what is Slippage? Slippage, also known as price slippage, is measured by the difference between theoretical price and actual price. In the context of great fluctuations, traders tend to trade fomo or race orders. Whether the market is negative or positive, you will still bet twice the amount of your previous loss. However, if the Slippage level is too large, your order will be executed at a much higher price than expected. And because of that, expected profits may decrease.
Technical analysis to determine SL and TP levels
What is the purpose of technical analysis when applied what is Martingale? When applying the Martingale strategy, you need to know what price you want to buy to double your position. At the same time, calculate the profit-taking level to close the position. If you continuously stuff orders with price steps that are too small, your account will exceed its tolerance. If you stuff orders with large price steps, the Martingale strategy will fail or unfortunately you will continue to lose money.
In addition, you need to determine the time frame in which you want to double your position. As well as measuring market volatility with the greatest possible risk. You should only take profits when the total position according to the Martingale strategy has a positive profit. Note that you must look at the overall order instead of just seeing one positive order and forgetting about the overall loss.
Use the same Short Selling Strategy
What is short selling? It is a short-selling strategy when you notice that forex commodities show signs of negative developments. Instead of buying low and selling high, traders will do the opposite. That means buying at the peak price and selling at the lowest price to make a profit from the asset price difference. Therefore, you can open a position with doubled money with the Short Selling strategy combined with Martingale.
Combined with Price Action
You cannot always enter orders with the Martingale strategy. It is necessary to observe the market and capture reliable reversal signals to create the Martingale order system.
Why do you need to combine Price Action with what is Martingale? Market prices reflect political, economic, and social factors, and Price fluctuation parameters will be clearly shown on models, charts, etc. And Price Action will help you analyze Analyze and closely follow the market and determine price fluctuation trends. From there, you can find a more accurate entry point.
Conclude:
Above, Forex Trading has provided the most basic knowledge to help you understand What is Martingale? This is the simplest strategy that traders can apply to recover losses and increase profits. Martingales may be suitable for one trader but not another. Depending on each person’s style and understanding, make trading decisions with effective strategies. Improve your forex knowledge, and apply Martingale in combination with other trading methods to succeed!
FAQs:
Why is the Martingales strategy popular in the forex market?
The reason is that the currency value never drops to zero like stocks. Currency reflects the health of each country’s economy. It never falls into bankruptcy like corporate stocks. Therefore, losses are also doubled and the break-even time is also shortened.
What is the biggest limitation of what is Martingale?
The nature of the forex market is very volatile. The Martingales strategy always requires doubling the opening position amount after each loss. Therefore, forex trading with Martingales is considered one of the strategies with the highest risk. Especially for traders with limited capital, Martingales is not suitable.
Does Martingales work with forex trading?
Forex traders can benefit from applying the Martingales strategy. On condition, they must clearly understand and manage the risks that may occur with this strategy.
