Martingale
The martingale is a relatively simple betting strategy. It consists of doubling the bet after every loss so the first winning hand gives a total win equal to all losses combined plus the amount of the original bet.
The conditions so that the martingale is profitable are
- That the win probability is close to 50%
- That a win would win back 100% of the original bet.
For example, in the coin game heads or tails, you win back your bet if you win, otherwise you lose it. Suppose your initial bet is $1 and you lose the first round. At your next turn, you bet $2 and you lose again. You then bet $4 and you win. You will have won back your loss of $1+$2=$3 and you will have won $4 on the last turn, giving a total winning of $1 (equivalent to the original bet).
This strategy can be applied to trading. For example, you open a position fixing a stop loss and goal of making $100. If you lose, you open a second position with a stop loss and a goal of $200, and so on, until you get a winning trade. In the end, you will have won $100.
From a statistical viewpoint, if you have great ability to double the bet, you will have a great probability of winning. But as you will see in the simulation tool, the more you tolerate a great number of successive losses, the more your capital will have to be for a relatively small gain.
The martingale simulator takes into account 3 factors:
- The maximum number of successive losses you think you will reach in the worst case scenario.
- The initial bet
- Your total capital
Trading tools
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