Does Forex Double Martingale Work?

forex casino double martingale

A Short History of Double Martingale

 

The Double Martingale Strategy has it origins from the casinos. Every time a player loses a bet, he doubles the bet until he wins. He only has to win once the cover all his losses.

Example: A player bets $1 and he loses, he then doubles his bet to $2 in hope to cover his $1 loss. At the same time gains a profit of $1 when he wins this round. If he loses the round, he continues to double his bet to $4. He continues to double to $8, $16, $32, as so on every time he loses a round.

If the player has unlimited amount of money, he would have a 100% winning rate. However, most players have limited amount of money. When a player faces too many consecutive losses, he will reach a point where he will not be able to double his bet. Eventually he will be faced with a huge loss or loses all his money.

In this short article, I will show you the 2 most popular ways how the Double Martingale Strategy can be applied to forex trading. Double Martingale Strategies can be used together with an existing strategy or it can also used by it own.

 

Double Martingale Strategy

 

Going Long

Trader enters a buy order and defines how many pips he intend to win.

Price Moves Up

Trader takes profit of the number of pips he intend to win.

Price Moves Down

The trader doubles the lotsize of the trade, hoping it will eventually go up and will make a profit.

When the price moves up and the profit for all the trades reaches the number of pips he intend to win. The trader will then close all trades for the profit.

Example

Trader buys 0.01 lots of EURUSD at 1.2220 and intends to have a profit of $1 USD. The PipValue of each pip (0.0001) is 0.1 USD for the EURUSD pair at 0.01 lots. To have a profit of $1 USD, the price has to move up by 10 pips (0.0010) to 1.2230.

We assume spread to be 0 for easier explanation of how this Double Martingale Strategy works. If price moves up to 1.2230, the trader would close the trade for the desired profit of $1.

However, if price moves to 1.2210, the trader would face a loss of $1 and closes the trade. He would then place another buy order at 1.2210 for 0.02 lots. Price would have to go up by 10 pips back to 1.2220 for him to win $2 and cover his original loss of $1.

If price continues to go down, he continues to double his lotsize in the similar fashion.

 

Going Short

The opposite is true for using Double Martingale strategy on short trades.

 

Double Martingale Strategy (Hedge)

 

The player can start by choosing whether he wants to place a buy or sell order.

In this Double Martingale Hedging Strategy, the trader would make a profit when the price moves in either direction!

Does this sound too good to be true?

Lets find out..

 

Going Long

Trader enters a buy order and defines how much pips he intend to win.

Price moves up

Trader closes with the profit intended.

Price moves down

Trader will close the buy trade for a loss. Next, he places a sell order right at the point of the close trade, hoping for the price to go down further. The lot size for the sell trade would be double the initial lotsize to cover the loss.

Price continues to go down, he will close the trade for the intended profit (trader is now in a sell trade). However if goes in the opposite direction, he will close the sell trade for a loss and double the lot size opening a buy order.

In other words, he alternates buy and sell orders every time he loses. This goes on till the trader wins, and one win will cover up all his losses.

Example

Trader buys 0.01 lots of EURUSD at 1.2220 and intends to have a profit of $1 USD. The PipValue of each pip (0.0001) is 0.1 USD for the EURUSD pair at 0.01 lots, hence have a profit of $1 USD, the price has to move up by 10 pips (0.0010) to 1.2230.

We assume spread to be 0 for easier explanation of how this Double Martingale Strategy works. If price moves up to 1.2230, the trader would close the trade for the desired profit of $1.

However, if price moves to 1.2210, the trader would face a loss of $1. He will then place 0.02 lotsize sell order at 1.2210, in hope that the price would go down by 10 pips to 1.2200 and he would win $2, covering his initial loss of $1.

If the price moves in the opposite direction he will double his lotsize again to 0.04 and place a buy order. He alternates buy and sell orders every time he loses until he eventually wins.

 

Going Short

The opposite is true for using Double Martingale strategy when starting with a short trade.

For starting with buy trade, the order type will be in this order: buy, sell, buy, sell… and so on. If a trader starts with a sell trade, the order type will be sell, buy, sell, buy… and so on.

 

Double Martingale Strategy Risks:

 

These strategies sound like they are bulletproof, but they might not be. If trades do not go in the trader’s favor for many rounds, the lot size being used will be so huge. The account would not have enough money and it would face a margin call.

Even with a large account size, there are trade limitations set by brokers. For example, there is max lot size given by brokers. Double Martingale Strategy would not work at that point as lot size cannot be doubled when that limit is reached.

The percentage of losing is small but a single lost would wipe out the whole account, hence it is usually not recommended to use only the Double Martingale strategies for trading.

The Double Martingale Strategy can be considered a high risk and with a low return strategy as the trader would risk alot more than what he is about to gain. However, with the right timing and proper analysis, this strategy might work for you.

 

Forex Double Martingale Analysis

Now you should have a better understanding of how the Double Martingale Strategy works in forex trading. For strategies like the Double Martingale, is not recommended to be executed by you manually. It requires alot of time and effort. Even if you watch the price very carefully and execute the trades manually, you would perform as well as a Forex Robot. Forex robots are programmed initially and can do many calculations at the backend in milliseconds. It has the ability to execute trades at the exact point in time and price whenever trading conditions are met.

Does the double martingale strategy work in forex trading?

Let find out!

 

Results on the EURUSD pair for whole year of 2017:

Settings:

  • Starting lots of 0.01
  • $2 USD profit
  • Stop trades at 8pm on Friday
    • The reason for stopping trades on friday is to minimize risk over the weekend.
  • Account balance of 10K

 

Double Martingale Results

Results:
forex double martingale results

As we can see there is a huge drawn down. If there was not enough money in the account, the account would not be able to open next position at that point in time and would have blown the account. But since there was sufficient funds, the account was able to make a win after that, covering the loss. Hence, it was still profitable to use the double martingale over the year of 2017 with these settings.

double martingale results

 

The maximum drawdown was $3687.30. Net profit was $1480.49 in one year. That is about 15% gains, but the risk is very high.

Double Martingale (Hedge)

Using the similar settings, we tested out the double martingale hedging method.

double martingale forex

We can see that in this case, the account is blown. You may be wondering why is it a straight line at the start. It is because the profits are so little that it looks like a straight line compared to the huge loss on the right!

Results:

double martingale forex

Does this make this method worse than the one before?

No. It depends on the time period as well as the settings. When different settings are set, the results will be different.

Speak to us if you like to see more test results of this strategy on other periods or currency pairs.

Do you have other strategies you would like to see results of?

We can run tests so you will know the results immediately. This save you alot time to manually test out your strategies.

 

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