The martingale strategy was most commonly practiced in the gambling halls of Las Vegas casinos. A martin gostel foreign currency trading strategy relies on the theory of mean reversion, so without a large supply of money to bore positive results, you need to endure missed trades that can bankrupt an entire account. Popularized in the 18th century, the martingale was introduced by the French mathematician Paul Pierre Levy. The martingale was originally a type of betting style based on the premise of “doubling down.
For instance, the 0 and 00 on the roulette wheel were introduced to break the martingale’s mechanics by giving the game more than two possible outcomes other than the odd versus even, or red versus black. To understand the basics behind the martingale strategy, let’s look at an example. There is an equal probability that the coin will land on heads or tails, and each flip is independent, meaning that the previous flip does not impact the outcome of the next flip. You do not have enough money to double down, and the best you can do is bet it all.
You may think that the long string of losses, such as in the above example, would represent unusually bad luck. But when you trade currencies, they tend to trend, and trends can last a very long time. This is also a clear example of why significant amounts of capital are needed. One of the reasons the martingale strategy is so popular in the currency market is because, unlike stocks, currencies rarely drop to zero. Although companies easily can go bankrupt, countries cannot. A great deal of caution is needed for those who attempt to practice the martingale strategy, as attractive as it may sound to some traders. The main problem with this strategy is that seemingly sure-fire trades may blow up your account before you can turn a profit or even recoup your losses.
In the end, traders must question whether they are willing to lose most of their account equity on a single trade. The offers that appear in this table are from partnerships from which Investopedia receives compensation. Can Forex Trading Make You Rich? Investopedia is part of the Dotdash publishing family. 970 from BA for delays in 2009 thanks to you telling me about new legislation.