the Martingale strategy : Forex

the Martingale strategy : Forex

Before you slap me, this not entirely what you think.

I attend to a Forex course taken in my local area. As mentioned previously, I am not paying for it as the teacher is a friend of mine who owed me a favor – meaning that regardless of what is being taught, I am losing nothing but time. I still want to make sure my time is not entirely wasted.

Today, my teacher began the lesson explained “the Martingale strategy”. He firstly explained your usual gambling scheme of doubling your risked capital in order to cover your previous loss, and immediately specified this is not the strategy he wants to show us.

What he suggested is the following. Let us assume a capital of 1000.

Your risk per position is 2%, meaning that you are willing to lose up to 20 on every position. You do this on a low time frame such as 1 hour. You open one position at a time: if the first position is successful, you open another following the rule I explain below; if the first position is a failure, you stop. When you encounter any failing position, you stop.

First position: stop loss at 20 €, you earn 40 €.

Second position: stop loss at 2% of 1000+40, you earn 60 €.

Third position: stop loss at 2% of 1000+40+60, you earn nothing and lose 60 €.

The final outcome is that you’ve earned nothing, but you’ve only lost 20 €, which was your initial 2% of risk you were willing to lose to begin with. This is because 60 – 40 (that you had earned on the second position) is 20. The idea is that the difference between the second profit and the first profit should be equal to the amount risked on your first trade, so that, if you lose the second trade, you’ve lost the same amount you wanted to lose in the beginning.

What this does is mantain your risk at the same level, while increasing the amount of money you can earn.

Is this different from what most people consider to be gambling? Does it make sense?

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