Home | Free Email Newsletter | Contact
 


Beginnings

  New Traders
  Compounding
  Starting Capital
  Stock Entry
  Expectancy

Money Management
   Money Management
  Kelly Formula

Newsletter
   Free Weekly Newsletter
  Daily Newsletter

E-Books
  Three Day Hammer
 
Trader's Bible

 
Trading Systems

System Development
 
Where to Start
  Trading Systems

Hall of Fame
   Richard Wyckoff
  Jesse Livermore

Resources
  
Reading List
  Unclaimed Money

Company Info
   Contact

 Free Newsletter
Receive our weekly list of  3 Day Hammer Stocks

  First Name

 
Email

Martingale Systems

The Martingale Systems are probably the oldest of the betting systems. They were originally developed for play on the even chance bets on a roulette table but can be used on any even chance bets of other games. Although developed for gambling, Martingale money management methods can easily be used for trading.

Although there are many variations of the Martingale system, in its simplest form, you double the bet after each losing bet until a winning trade occurs. That final winning bet after a string of loses will replace all the previous lost money plus give you a profit equal to your original bet. It does not matter how many losing bets occurred as long as you double each bet after a loss eventually you must win.

For example, you are at Las Vegas playing roulette and you have four losses in a row and then a win. You start out betting $5 and you lose. You double the bet to $10 and you lose. The next bet is $20 and then $40. You have lost a total of $75. You double the wager from $40 to $80. You have $155 at risk, however you get lucky and you win. You win $80 less the $75 you lost and have a profit of $5.

Letís summarize that:

Lost - $75
Won - $80
At risk, before the win - $155
Profit - $5

If you have an infinite amount of money, eventually you will win. Letís say your losing streak was 8 before you won. That means that your final bet before the win was $2,555. You had $3,835 at risk to win $5. This is only about a 0.13% return on your money. I donít know about you, this seems like a bad bet.

What is important is that the bet size quickly increases during a string of losses. For those of us without a Bill Gates size bank roll, you can be bankrupt before being rescued by a winning bet. Even if you do have a huge bank roll, casinos have a limit on the size of bets in order to prevent heavily capitalized gamblers from using this strategy.

The problem with the Martingale systems is that after a run of losses, the bet size begins to get enormous. This system will work with certainty if the trader has a large amount of capital and time. No matter how great the string of losses, there will eventually be a winning trade which will recoup the losses. This system can only be recommended by those with unlimited wealth and time. For the rest of us, Martingale systems are a way to financial disaster.
 

\

Copyright ©2004 ARB Trading | Risk Notice & Disclaimer
Please contact us at: [email protected]


The Financial Ad Trader