How much money would you need to Martingale your way to profits?
- Thread starter 1a2b3cppp
- Start date
Martingaling / Averaging down using exponential scaling is unrealistic outside of a tight range. 1,2,4,8,16,32... 128 or 1,3,9,27.
Averaging down in Linear progressions at fixed intervals (1,1,1,1,1) will expand the range your capital can cover but requires a 50% retracement to break even.
Play around with a combination of a 1 step average down with pyramiding exits with directional stop and reverse.
Lets say ES is 1310.
Your strategy is flip flopping for a break out inside a tight range.
Entry: Long 1 @ 1310: Target Exit 1312: (Net 2)
Average Down: Long 2 @ 1308 Target Exit: 1309 (Net 1)
Stop -3 @ 1307 (Net -5)
Reverse Short 1 @ 1307: Target Exit 1300 (Net 2)
Average Down: Short 2 @ 1309: Target Exit: 1306 (Net 2)
Stop +3 @ 1310 (Net -10)
Every time you flip and reverse you take a 5+ point stop.
Once you reach your target exit you employ a pyramiding trailing exit strategy. After your 3rd flip you increase the initial packet size from 1 to N+1.
A modest amount of capital $10K can trade this strategy for 7 flips before busting. The winning ratio is high ... 99.1% or something close to that.
You eventually lose money if you just take a fixed 1 or 2 point scalp without pyramiding the exits for potential rainmaker. You risk the bank once beyond 9 flips in draw down and trading size. Its a thing of beauty when you catch a 10 point move scaling size.
This algo works well for volatile markets but needs to hibernate when the market goes flat to keep from flip flopping.
Each play is a sequence of trades... and for all practical purposes is a $10k bet that the market will break out of a 3 point trading range before crossing the entry and hitting the edges 7 times.
In Vegas terms you are betting that the roulette table doesn't precisely hit RRR, BBB, RRR, BBB, RRR, BBB, RRR.
Averaging down in Linear progressions at fixed intervals (1,1,1,1,1) will expand the range your capital can cover but requires a 50% retracement to break even.
Play around with a combination of a 1 step average down with pyramiding exits with directional stop and reverse.
Lets say ES is 1310.
Your strategy is flip flopping for a break out inside a tight range.
Entry: Long 1 @ 1310: Target Exit 1312: (Net 2)
Average Down: Long 2 @ 1308 Target Exit: 1309 (Net 1)
Stop -3 @ 1307 (Net -5)
Reverse Short 1 @ 1307: Target Exit 1300 (Net 2)
Average Down: Short 2 @ 1309: Target Exit: 1306 (Net 2)
Stop +3 @ 1310 (Net -10)
Every time you flip and reverse you take a 5+ point stop.
Once you reach your target exit you employ a pyramiding trailing exit strategy. After your 3rd flip you increase the initial packet size from 1 to N+1.
A modest amount of capital $10K can trade this strategy for 7 flips before busting. The winning ratio is high ... 99.1% or something close to that.
You eventually lose money if you just take a fixed 1 or 2 point scalp without pyramiding the exits for potential rainmaker. You risk the bank once beyond 9 flips in draw down and trading size. Its a thing of beauty when you catch a 10 point move scaling size.
This algo works well for volatile markets but needs to hibernate when the market goes flat to keep from flip flopping.
Each play is a sequence of trades... and for all practical purposes is a $10k bet that the market will break out of a 3 point trading range before crossing the entry and hitting the edges 7 times.
In Vegas terms you are betting that the roulette table doesn't precisely hit RRR, BBB, RRR, BBB, RRR, BBB, RRR.
This strategy works well when there's a (relatively) strong bias in the underlying. Else you're breaking even minus commissions.
But since most assets tend to trend more than normal it works when the volatiliy is high.
If you can keep trading costs under control and can diversify on a lot of assets and then maximize capital utilization then the equity curve looks good ok.
Your execution needs to be perfect however. It would be very hard to trade for retail traders.
Also you need to dynamically adjust the flipping gap taking into account volatility.
Ninna
This has always been a problem with the algo... you don't know your in a flat zone until you've reversed. One variation was to hibernate the trade sequence at each stop and require the market price to move into a new price zone before resuming with the reversal.
The primary benefit of this style of an algo is the ability to front load the risk and not be time locked in a position or play.
Psychologically I prefer to scale size in an already profitable position. The mind set of gambling with 1/2 your profits is much more comfortable than gambling to cover your loss.
The primary benefit of this style of an algo is the ability to front load the risk and not be time locked in a position or play.
Psychologically I prefer to scale size in an already profitable position. The mind set of gambling with 1/2 your profits is much more comfortable than gambling to cover your loss.
Can you please answer me this question. If you had a million dollars and you just wanted to make 50k a year to be comfortable, why would you not just invest in bonds, some other fixed income product or even real estate? I'm just trying to understand your logic.
I still think you are not comprehending the math here.
I also think he doesn't understand the maths.
Here's the paradox 1a2b3cppp:
You can keep your $1M in cash and take a chunk out every year. You can take $50k every year for 20 years.
This will get you more money out of your $1M than the martingale strategy...
I don't think that you understand how risk and return are related. In other words, if you don't want to blow your accnt using martingale your return will be laughable.
Ninna
All of it.
Well, then you are limited to relatively rare opportunities, such as December 2008-March 2009, when market was so much down and some stocks were dirt cheap as well as oil and many other commodities.
Otherwise, in market conditions like last 6 months, it would require you to start from very small position size and would result in pretty poor returns.
I don't see the reason to invest your money for such poor returns, when you could just buy real estate, rent it out and make more $.
So, in my view, averaging down can be a good strategy, but when you have, so to say, "fundamental edge", like when commodity is obviously so much down and short interest is so huge, that it's really apt to squeeze up.
But as said above, those opportunities are rare...
P. S. By the way, OK way to average down if you want is IMO, to sell puts. You will collect some premium if not exercised and will collect the premium + get your position at the desired level if exercised.
Why pay for averaging down, if you can get paid for it.
I know. I already explained why averaging down doesn't work when people do it within too tight of a range. I gave an example for both futures and forex.
As mentioned, I have no idea which direction the market is going to go in. I don't know when a "comet" is starting. I don't know how long it's going to go. And looking at a chart, I don't know if whatever the current trend is is going to continue. As stated, I cannot predict direction (and I've never met anyone else who could, either).
As for "not letting the market turn against you," that will end up in a discussion of "noise vs. trend," which I also cannot distinguish. It's like... "oh look, we're in an uptrend... but price just went against me 5 points. Is it time to exit or is that just 'noise?'"
I have no idea. And I don't think anyone else does, either.
I'm wondering what the feasibility of this is vs. doing what you said.
What about the feasibility would you like me to explain to you?