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Home Martingale MM

Money Management Using the Martingale Method. An old method used by professional card players may be useful for active FOREX traders as a means of money management. Martingale method consists of doubling the size of the bet after a losing deal. The system is named in honor of a legendary gambler of 19 century, who played in the casinos on the French Riviera. Classic Martingale involves doubling your bet after each losing transaction. For example, when 100 dollars are lost, the next transaction must be for 200, then for 400, then for 800 and so on until the loss of the initial 100 is paid off. Of course, casinos have taken a simple precaution and put a limit on bets. When the limit is of 1 000 dollars, the system becomes useless after the fourth level.

In its pure form, Martingale requires almost unlimited capital on FOREX. In a certain form Martingale can be transformed into soft progression that requires a small increase in the amount of the bet after losing transactions as well as reduction in size or lack of change after winning ones.

Model progression suggests that the number and percentage of winning transactions will be permanent. It is recognized that fulfillment of this condition may be unrealistic; however, the average expected values should be obtained. The other important condition is that each transaction in its entirety is independent from the others. How can Martingale be useful? Let us assume that in a series of transactions the ratio successful/loosing is 50 to 50. With the help of Martingale probability of winning positions may be increased by a minimum budget for a fourfold increase in the margin and an average of 6 losing transactions. Fivefold increase in margin can raise the result even up to 90%. Of course, such a system presupposes the availabity of very strong capital and initially low step of entry. Martingale progression establishes the number of trading contracts on entry of each consecutive transaction. The modified progression presented here is not a pure Martingale system for doubling your bet. Here the first opening of a position is always by one contract. The total quantity of contracts, i.e. units at risk for loss is always the sum of units in the first and last transaction. When the transaction is profitable, the first and last columns of the development of the progression are excluded from the table when calculating the amount of contracts at risk in the next transaction. In case of loss the amount of contracts at risk are added at the end of progression development column. At the time of achieving a positive balance in the series, it is assumed that it has ended and a new one begins. 

Пример А
Transaction # Progression development Number of risk contracts Winning (W)
                                                                                  Loosing (L)
   1                           1                                1                      W

In example A one contract is the amount of the first transaction and the result is winning. The series ended after the first successful transaction. Let us see some other examples, each of which begins with a losing deal.

Пример Б
Transaction # Progression development Number of risk contracts Winning (W)
                                                                                 Loosing (L)
   1                           1                                1                      L
   1                           1,1                             2                      W

In example B the first transaction is a loosing one and therefore the progression  extended with one more contract and became 1,1. In other words, the amount of contracts to be traded in the second transaction is the sum of the first and last value in progression development column, which in this case is 1 plus 1 equals to 2. The second transaction was successful and thus the series ended.
Пример В
Transaction # Progression development Number of risk contracts Winning (W)
                                                                                 Loosing (L)
   1                          1                                 1                     L
   2                          1,1*                            2                     L
   3                          1,1,*,2                        3                     W
   4                          1*                               1                    W

In this case the second transaction is also completed at a loss. In the third transaction that is successful the sum is equal to 3 and thus a zero balance is achieved. Thus the series is nullified and the fourth transaction is made with a contract and in success the series ends.

Пример Г
Transaction # Progression development Number of risk contracts Winning (W)
                                                                                 Loosing (L)
   1                          1                                 1                     L
   2                          1,1*                            2                      L
   3                          1,1,*,2                        3                      L
   4                          1,1*,2,3                      4                     W
   5                          1*,2                            3                     L
   6                          1*,2,3                         4                     W
   7                          1,1                             2                     W
One of the objectives of the Martingale modified method appears in maintaining the lowest possible level of the number of the contracts for playing, i.e. minimizing the risk.
Example D
# Var. Progr. Dev. Progr. Dev. with Min. Risk Nr. Of Risk Contracts Winning(W)
                                                                                                     Loosing (L)
1                1                            1                        1                                L
2                1,1                         1,1                      2                               L
3                1,1,2                      1,1,2                   3                                L
4                1,1,2,3                   1,1,2,3                 4                               L
5                1,1,2,3,4                1,1,2,3,4              5                                L
6                1,1,2,3,4,5             1,1,2,3,4,5            6                               L
7                1,1,2,3,4,5,6          1,1,2,3,4,5,6          7                              W
8                1,2,3,4,5                1,2,3,4,5               6                               L
9                1,2,3,4,5,6             1,2,3,4,5,6             7                             W
10                2,3,4,5                 1*,1*,3^,4,5          6                             W
11                1*,3^,4                1*,1^,2^,4            5                              L
12                1*,1^,2^,4,5        1*,1^,2^,4            6                             W
13                1^,2^,4               1^,2^,4                 5                             W
14                1#,1#                  1#,1#                    2                             L
15                1#,1#,2               1#,1#,2                  3                           W
16                1#                       1#                         1                            W
The collection of individual units at risk of loss and those that are winning shows that the successful exceeded the losing ones even when replacing Variable Progression Development with the Development of Progression with Minimal Risk. In example D, the maximum investment for a transaction is 7 units, and the ratio of losing/winning is 9 to 7; while in a clean Martingale system for doubling 64 contracts would be needed for the seventh level, and the ratio losing/winning would be 6 to 1. See more in Courses

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