The legendary martingale. How It Works?
Your capital may be at risk. This material is not an investment advice.
Traders have split in two camps. Some consider the martingale system to be among the most effective and use it actively. Others fear it like the plague. And true enough, martingale is a very specific method of capital management. After using, it you may either earn a fortune or lose one. The difference is, as always, in the approach. How can you use martingale in a way that is sure to make a profit? Find out in this article.
How It Works
Martingale is a capital management system that allows an increase in profits by using a special algorithm of calculating the trade lot.
This algorithm was first used back in the 18th century. Its basics are as follows: if traders suffer losses, they double the next trade, allowing the double profits to cover the previous losses.
Say, you have made a $1 trade, but miscalculated. So, in order to compensate for the loss and still earn something, you make a second trade, this time for $2. The trade turns out to be profitable, you recover your $1, and gain money on top of that.
Martingale in the Financial Market
The martingale system has adapted itself quite successfully in the financial world. In stock trading, the probability of profit and loss is 1:1. In order to profit from a trade, traders have to make a correct prediction as to whether the prices will rise or drop. With such a high probability, many stock traders have turned martingale into a sustainable tool for increasing their profits.
The Rules for Using Martingale
The main rule is to double the trade lot after you lose money. In this case, the double profits will be able to both cover the earlier loss and make your trading profitable.
Despite its apparent simplicity and definite efficacy, the martingale system also entails dire financial risks.The fact is, before finally profiting from your trading and covering your previous losses, you might need to double the trade lot more than two or three times.
So before you start using this popular capital management method, we recommend reading our advice.
Make Sure You Have a Safety Buffer
If you want to always have enough funds for doubling the trade lot, you should keep your martingale trades to a minimum. The minimum trade lot on the Binomo platform is only $1. This means that to double your lot for the first time, you will need $2, and to double it for the second time, you will need $4.
Pick an Effective Strategy
Martingale is not a strategy in and of itself. It is a tactical method of trading. In order to decrease the number of offsets in doubling your trade lot, you should use this methodonly together with a trade strategy. By using a trade strategy, you will noticeably lower the probability of suffering several losses in a row, thus reducing the risk of losing a lot of money.
Use a Demo Account to Practice
Before you start using the martingale system in your real account, you should learn how it works in the Demo mode. The Binomo Broker offers the demo platform to its clients without any time or training deposit constraints.
These three simple rules will increase your chances for success significantly!
