I am going to share with you all one of the primary trading strategies I use. As you read this keep in mind this is what I have found works best for ME in my situation with my busy life. I am not here to tell you martingale is the best strategy out there, it's just one that's out there that I have found to be very successful in my personal trading accounts. Its up to you to decide what strategy works best for you. This one I will be describing typically works best as a swing trading strategy.
Before you implement a strategy. Make sure you have a hobby and it can't be trading. No, seriously. If you are going to trade you have to be able to step back from the charts to keep a clear picture and understanding of whats going on to make sure the plan you implemented is still viable and you don't panic or make a dumb decision. Even though I have over a decade of experience I still find myself needing to step away from the charts to get a clear understanding or needing to take a break. It's impossible to just stare at a screen all day without getting exhausted or not thinking clearly. It's vital you do this because you need to take the emotion out of trading.
Where this strategy works the BEST VOLATILE markets. The more volatile the better. It lets you take advantage of quick dips and ride the waves back up. If you are in fast moving markets and have positions laddered down you can receive fills quickly and be able to scoop up lower prices and sell as it rebounds. The trick here is structuring your strategy accordingly and utilizing the appropriate time frames which I will get to later with examples.
Emotions are controlled: There is nothing wrong with using a stop and at times it's very appropriate. However, sometimes I really don't want to think about what the market is doing every second of every day. I can structure a strategy and go about with my daily life. Let's say you are trading with a stop and the market starts taking a dip and blows through it. But you KNOW it's going to rebound but you don't know when? What do you do? Keep entering in your full trading balance and get stopped out a couple times? Step away from the keyboard and wait for a new trade? With a sound plan and structure, I don't have to worry about this "mini black swans" so to speak, I can take advantage of them.
Example Exhibit 1: This was a fantastic trade. I was able to play this TWICE. The first was on this first long wick where I entered from 900 all the way down to 700 and was out in the 950 area. I was able to do this again with deeper martingales from 900 down to the 600 area. Notice that on the second time it spiked down it went as far as the 560 area, and I had been filled already at 600.
Exhibit 2. A quick trade where I was filled above 700 and above 650 at these lows. Exit was on the rebound for a small profit.
Exhibit 3. This trade was long time wise. My first entry points were at 600 down to 500. I was actually profitable when it went rebounded up to 580, but I did not get out for whatever reason at the time. I was then filled in my positions all the way down to 378 where my average buy became 460. This took time, but I knew it would rebound, which it did. My regret was getting out of this trade to soon. But, it's better to be wishing you were in the market, then be in the market wishing you were out.
Continued in comments....
Comment
⋅
The goal of martingale is to be able to participate in bounces to the upside for quick flips, but also enter in lower if a position move against you. Right now is a great example of why we enter long. Just looking at the chart, it looks like it could keep going down to 400. But we don't know that.
What if it rebounds? We can start entering in small with the anticipating that if it goes down, we'll enter more for a rebound. (In this particular case, I have buys laddered down quite deep.) So if the market goes down to 350, I will be filled at 450 and 375 and my average cost will be around 425, roughly.
2 things happen as this occurring. 1. I can remain emotionally sane and not panic. I know that I have buys deeper than this if the market continues down. 2. My cost is averaging down.
Lets use this scenario that the market goes from where it is now to 350 as stated above. I had a 5% stop loss on a 100% portfolio entry point at 550. Now I have to enter again and risk another 5% at maybe 450. I could potentially get stopped out twice if the market is extremely volatile, maybe a 3rd? Person using the stop on a 10k portfolio if he were stopped out twice with a 5% risk factor is now at $9,025 looking to get back in to make it up. On a martingale strategy I would only be filled with 50% of the portfolio if it goes down to 350. Without doing the exact math, the loss would be higher, lets say a 10% stop loss, however a 10% loss on a 50% portfolio entry point at this juncture would still leave you with just losing $500, or twice as LESS risk then using stops.
Most importantly about the above scenario is the martingale allows you flexibility in times of market volatility and keeps you emotionally sane.
To summarize: Assess the risk of where a trade can go. Control your emotions and ladder your buys accordingly if you use this strategy. I hope this helps you better understand how I trade and helps you in your trading and money management. If it does support your trading, please send me love via my tweet on my twitter page.
Best, -Sherem
A side note about massive Black Swann event's:
Of course if something happens like what happened with the swiss franc a few years back it's bad news bears all around. What you can do to really protect yourself in that event is put a stop loss behind your final martingale structure as discussed above.
Comment
⋅
If you have any questions or clarifications let me know!
Comment
⋅
Also, the mantra I trade by which ties into the martingale strat. "It's not about how much you make as a trader, its about how much you don't lose."
Comment
⋅
Thank you theredbaronZ for keeping me on my toes to clear things up a bit. With crypto I generally go pretty deep with how volatile it is. I want to show you my USD/CHF trade that I am in currently so you get a clearer picture of what I am doing.
Here, I entered in at roughly 9924 and had a short position at 9965 at these lows that got triggered when this spiked up. But I still have a stop loss above the top. But now, instead of being all in at the 9924, my average cost is closer to 9945ish. I am able to take advantage of volatility and still keep a stop that would invalidate a move to the downside.
This doesn't seem like a real Martingale strategy. Since these are not really binary win-lose "bets" you can't keep increasing the "bet" until you "win" and come out ahead like Martingale advocated. And like you mentioned you can't just keep doubling forever if the market really goes down hard. Perhaps the Martingale terminology has evolved to mean something different over time.
A better term might be dollar cost averaging or trade risk averaging perhaps or funds exposure averaging.
I'm not saying it is a bad strategy at all. I see the wisdom of the risk averaging and the flexibility: But calling it Martingale was very confusing to me and I kept trying to figure out what the "bet" was and how to double each succeeding bet after a "loss" until a "win" paid it back plus some. For a while I though it was putting a stop-loss under each buy and counting a stop-out as a "loss" and then each lower buy in would be larger to cover the previous losses but that doesn't really tell what a "win" is. Is it getting to the original target? And if so how long do you wait for it to get there? Forever? Is it making the original projected gain % or total $$ gain? If so then the initial buys would need to be largest because they have a lower gain to the target.
I'm sure there is a way to think of this in a Martingale way but it seems easier to just call it laddering buys for a long position with a fixed target point and probably a cutoff time-frame so your funds aren't all tied up forever.
Sherem
⋅
@theredbaronZ, Maybe modified martingale is a better way of describing it? A typical set up I use is a 10-20-30-40% when entering in a trade like this. It's not a "true" martingale but the concept is the same. I didn't really ilustrate stops in these cases because I go pretty deep with crypto with my buys since I have a large trading crypto account and compared to any other assets crypto is the most crazy volatile of them all which is why i tend to wait things out more. Once it has more consistency I will do things like this USD/CHF example I am in which i think might be better at illustrating how I do things.
Here, I entered in at roughly 9924 and had a short position at 9965 at these lows that got triggered when this spiked up. But I still have a stop loss above the top. But now, instead of being all in at the 9924, my average cost is closer to 9945ish. Does that help a bit to clear up how I am doing things?
Have you really been trading for 10 years? Seems unlikely given that you don't know what you're saying. You may well know what you're talking about, maybe its a language thing, but you don't come across like it. You'd do well to do some research and explain what you mean clearly, rather than explain things in a vague way and using common phrases wrongly thus adding more confusion.
There is absolutely no correlation between martingale and what you've spoken about as you never once mention your stake or how you increase it depending on the outcome nor what you are looking to achieve.
Frankly, this is bad advice.
Sherem
⋅
@Rocky_Outcrop, Of course, I am vague in my explanations. I am not going to give away all of my trade secrets for free or detail exactly my entries. You make it sound like it's my job to research, but I am just here to point you in the right direction. If you want personalized advice from me, you can pay me for it. That being said, I do occasionally detail them in some posts, like this one and keep people up to date: That example is a laddering example. In other posts where I answer questions, I typically do a 10-20-30-40% structure.
Dollar cost averaging, same as laddering... what's your point? You linked a martingale probability link You say I have no idea what I am talking about but did you even read what you linked? You linked the martingale definition that has to do with probability and not the betting aspect. 2 very different things friend. Start here: investopedia.com/articles/forex/06/martingale.asp
Rocky_Outcrop
⋅
@Sherem, I honestly don't care. I wrote out a bit of a response to you and deleted it, I'm not going to enter into some debate with you. What I said stands and I don't need to debate it with you.
I appreciate that you're trying to help and educate people but your response to me undermines that, don't be vague on purpose and confusing on purpose whilst using the words "guide" and "noob" in the post title.
The links you included in your response are good and useful to people. You say there are other posts where you answer questions, that's great. I didn't do any research into you or your posts and you are trying to be helpful to others and that's good so I commend that. You're probably also peer reviewing your own thoughts and strategies, something I don't do, which is very commendable.
All the best.
raaajesh
⋅
@Sherem, thank you for the post, I was about to post details about this strategy.
raaajesh
⋅
@raaajesh, oh sorry mistake in typing , please read as “I was about to request you to post ....”
A better term might be dollar cost averaging or trade risk averaging perhaps or funds exposure averaging.
I'm not saying it is a bad strategy at all. I see the wisdom of the risk averaging and the flexibility: But calling it Martingale was very confusing to me and I kept trying to figure out what the "bet" was and how to double each succeeding bet after a "loss" until a "win" paid it back plus some. For a while I though it was putting a stop-loss under each buy and counting a stop-out as a "loss" and then each lower buy in would be larger to cover the previous losses but that doesn't really tell what a "win" is. Is it getting to the original target? And if so how long do you wait for it to get there? Forever? Is it making the original projected gain % or total $$ gain? If so then the initial buys would need to be largest because they have a lower gain to the target.
I'm sure there is a way to think of this in a Martingale way but it seems easier to just call it laddering buys for a long position with a fixed target point and probably a cutoff time-frame so your funds aren't all tied up forever.