Martingale system in Trading

We trade ES futures using a 5 step hybrid martigale system hedged with options. In essence its a 54 contract trade that scales in and out averaging down costs to exit either profitably or the entire tradeset hits a safety stop.

Future options hedge the tradesets reducing losses. Trade Long and short tradesets concurrently with a range of 25 points. Profitable exits as long as market checks up 5 points every 25 points. We stop out and take the loss when the market exceeds are programmed trading range. We have blown out many accounts trying to avoid taking the inevitable runaway loss.

Discipline... Set hard and fast session limits. 3 strike outs and close down trading for the session. Lots of $100 - $2500 winners and each stop out is about a $10K loss. (Manageable risk)

Overall returns are decent when ES stays inside of 50 point session swings. Inevitably we are drawn down and forced to stop out. Important: your Risk objective is not to avoid the loss but to mitigate the damages. Using future options to hedge each tradeset you can reduce your loss to 1/3.

ie.

Contract Add increments
1 - Enter Long or Short at market
Add 1 - 5 points
Add 4 - 7.5 points from average cost (Buy options hedge)
Add 12 - 7.5 points from average cost
Add 36 - 7.5 points from average cost

Safety Stop entire tradeset at 25 points from entry.
Exit set at 1.5 points with 1 point trail stop.


This is a very fast game that should be autotraded... Lots of trades, calculations and transactions. Avoid temptation to interfere based on chart indicators.
 
Quote from fickletrader:

Adding risk control to a martingale strategy can work, but you aren't using true martingale anymore.

Several of the market wizards talked about strategies they use to help them dodge the "big wipeout" that other posters warn about martingale trading. Here are some examples:

* Larry Hite (Market Wizards, page 182): Monitor volatility and only trade and maintain positions when volatility conditions are favorable for your system(s).

* Monroe Trout (New Market Wizards, page 164): Close all open trades and stop trading for the rest of the day/week/month when a pre-determined portfolio drawdown is reached.

My personal research has shown that combining these kinds of risk control measures with mean-reversion trading systems and one or two levels of martingale betting can produce excellent results over long periods of time.

And now for the good news... You should also be using anti-martingale trend-following systems right along-side the mean-reversion systems. Just don't cut the profits short on the trend-following systems because the mean-reversion systems have side-lined themselves using the above mentioned risk control measures.
More...

To quote Kenny Rogers ("the Gambler")

You have to know when to hold them
You have to know when to fold them
You have to know when to walk away
You have to know when to run

To the OP: it all depends on how good your system is. If you know exact turning points in the markets and know how to exploit them then you can trade in whichever way is the most profitable. But if your system is marginal then this is a garanteed way to be wiped out.

If you cannot make a decent living using fixed size then forget it.

Dad did extensive investigation and cam to the conclusion that there is only a single method to improve your profit factor and it is neither martingal or anti-martingale. And no, it is not fixed size although fixed size is not far behind.

Take care
 
Quote from PocketChange:

We trade ES futures using a 5 step hybrid martigale system hedged with options. In essence its a 54 contract trade that scales in and out averaging down costs to exit either profitably or the entire tradeset hits a safety stop.

Future options hedge the tradesets reducing losses. Trade Long and short tradesets concurrently with a range of 25 points. Profitable exits as long as market checks up 5 points every 25 points. We stop out and take the loss when the market exceeds are programmed trading range. We have blown out many accounts trying to avoid taking the inevitable runaway loss.

Discipline... Set hard and fast session limits. 3 strike outs and close down trading for the session. Lots of $100 - $2500 winners and each stop out is about a $10K loss. (Manageable risk)

Overall returns are decent when ES stays inside of 50 point session swings. Inevitably we are drawn down and forced to stop out. Important: your Risk objective is not to avoid the loss but to mitigate the damages. Using future options to hedge each tradeset you can reduce your loss to 1/3.

ie.

Contract Add increments
1 - Enter Long or Short at market
Add 1 - 5 points
Add 4 - 7.5 points from average cost (Buy options hedge)
Add 12 - 7.5 points from average cost
Add 36 - 7.5 points from average cost

Safety Stop entire tradeset at 25 points from entry.
Exit set at 1.5 points with 1 point trail stop.


This is a very fast game that should be autotraded... Lots of trades, calculations and transactions. Avoid temptation to interfere based on chart indicators.
More...
Wow, my apologies for being so hardset against it.

You do realize that 90% of the people on this site can't do this, and are better off not even knowing what a martingale is, don't you?

But that's very good trading, just don't try this at home kids, professionals only please. :D
 
Quote from bali_survivor:

If you cannot make a decent living using fixed size then forget it.

Dad did extensive investigation and cam to the conclusion that there is only a single method to improve your profit factor and it is neither martingal or anti-martingale. And no, it is not fixed size although fixed size is not far behind.
More...
I don't know who "Dad" is, but most likely what you are talking about here is a percentage of risk based algorithm traded in tandem with a high expectancy, trend following system.

If you can learn to love your losses with that one, you can do very well. :)
 
I agree
It is the worst system ( martingale )
IT,s always better to put a stop losses or just dont over trade
And i have realised news is very importnant
1 day i kept avaraging a ER contract long and it was going all the way down Man that was really pain in the heart loosing $3500 from a 10 K account
A simple stop loss would have taken care of it
 
Some swear by a simple 1-2-3 system of betting, ( I mean trading ) with a 3-2-1 stop system.

Works if you aren't too hopeless a trader
 
Quote from PocketChange:

We trade ES futures using a 5 step hybrid martigale system hedged with options. In essence its a 54 contract trade that scales in and out averaging down costs to exit either profitably or the entire tradeset hits a safety stop.

Future options hedge the tradesets reducing losses. Trade Long and short tradesets concurrently with a range of 25 points. Profitable exits as long as market checks up 5 points every 25 points. We stop out and take the loss when the market exceeds are programmed trading range. We have blown out many accounts trying to avoid taking the inevitable runaway loss.

Discipline... Set hard and fast session limits. 3 strike outs and close down trading for the session. Lots of $100 - $2500 winners and each stop out is about a $10K loss. (Manageable risk)

Overall returns are decent when ES stays inside of 50 point session swings. Inevitably we are drawn down and forced to stop out. Important: your Risk objective is not to avoid the loss but to mitigate the damages. Using future options to hedge each tradeset you can reduce your loss to 1/3.

ie.

Contract Add increments
1 - Enter Long or Short at market
Add 1 - 5 points
Add 4 - 7.5 points from average cost (Buy options hedge)
Add 12 - 7.5 points from average cost
Add 36 - 7.5 points from average cost

Safety Stop entire tradeset at 25 points from entry.
Exit set at 1.5 points with 1 point trail stop.


This is a very fast game that should be autotraded... Lots of trades, calculations and transactions. Avoid temptation to interfere based on chart indicators.
More...


One of the best reality posts ever on elite trader.

This is how consistent money is made--not by guessing direction, et al.

nice style.

bravo!
 
Works till it don't, then it's very painful. I once played a Martingale system at the craps table. Two things that killed it. Table limits and the dreaded deviation from the mean.
 
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