After running a few of our Martingale strategies, especially Ophiuchus EA for almost 3 years and supporting many of our clients in running this strategy, we managed to conclude a few key success factors for Martingale Strategy Trading. We hope this sharing can help our existing clients to be more successful and new clients to be successful. This article is written specifically for our Ophiuchus and Limitless users but it also can use for any general Martingale Strategy Trading.
Realistic Expectations
We talked to many clients in the past few years and realize a lot of clients are looking for a holy grail martingale strategy that will never hit Margin call or burst the account. It might really exist but even a strategy that can last for 5 -10 years in the past, does not guarantee that it will never hit margin call in future. As if you have never seen a negative crude oil price before 2020, but it did happen in Apr 2020. Never underestimate what a market can do to any currency or trading instruments.
It is unrealistic to expect a Martingale Strategy that will never hit margin call.
Limitless trading
In our honest view, instead of looking for the holy grail martingale strategy, you should look for a Martingale strategy that can give you enough odds to profit for the long term and prepare to hit margin call with good risk management and capital control. As long as the martingale strategy has a higher chance to gain back 100% of your capital than hitting a margin call, then it is a good enough strategy. Of course, always start with small capital, try the strategy in a live account, and don’t just purely trust the backtest result.
Risk Management
Great trader focuses on risk and then returns, not the other way round. In normal trading, the stop loss of each trade is always the risk of your trade. For martingale strategy, as it trades using all capital in your account, hence, the only risk management is the capital control in your trading account. You must remember every cent in that account is always at risk when you are running a martingale strategy.
We often see some customers roll the profit from the trading every month and then one day, they hit a margin call and lose all the capital and profit from so many months. Then they believe that this strategy won’t work and continue to look for the holy grail martingale strategy. The fact is they fall into two pitfalls -> Unrealistic Expectations where they think strategy won’t hit margin call forever and a lack of risk management to control capital in the trading account.
Our general recommendation for all martingale strategies is always as follows.
- First, start with small capital or use a Cent account to try a strategy in live trading. This is the testing period.
- Once you concluded this strategy might work, you decide on an amount that you are comfortable to lose as capital for your account. One of the good ways to know whether you are comfortable with that amount is assuming one night, you saw the equity is -70%, and will you still be able to sleep soundly?
- Transfer out the profit to an idle account till you get 100% of your capital there. We recommend every month for Limitless and Ophiuchus EA. If you are using other martingale strategies, you need to decide a frequency that makes sense for your strategy.
- Once you reach that stage, it is now risk-free trading as you already get back full capital and now you are in better shape and better mental stage even when you see a big drawdown.
- The last stage is about Growth. Most traders will hope to see their trading profit will grow month by month. For Ophiuchus EA, you can either keep 50% of the profit in the account and increase the lot size then cash out another 50%, Or you can decide to increase your capital/lot size every half-year.
With the above approach, we believe you will have a higher chance to be profitable in long term.
Backup Plan In Mind
This is about having a backup plan in mind when your martingale trade goes south. It is similar to our previous sharing on how to handle the risky moment. You must always have a backup plan in mind on what you will do when your martingale trade has a risk to hit a margin call in the next few hours. The following are the plan that we adopt, we put them for reference here, but you need to decide your own plan. Our plan might not suitable for you.
- As we describe above, we always have an idle trading account which we keep all the profit from the previous period. We will always keep it as an emergency fund to top up our trading account when required. If you are going to top up your trading account using a bank or other deposit option, it will take time. But from the idle account, it will instantly transfer.
- We will only keep the equivalent amount of the capital in that idle account. For example, we will keep USD2,000 in the idle account if our capital is USD2,000. Additional profit will be transferred out. This is also where we set the hard limit for a top-up. If you are not sure what is a hard limit, please refer back to how to handle the risky moment.
- After the top-up, if the trades continue to goes south, we will let it hit margin call and then start with fresh fund a few days or weeks later.
Trading Condition
The trading account that you use to trade plays a crucial role in your trading success. Recently, we support one of the clients and realize the trading condition from his broker is the worst that we have ever seen. For trading EURUSD, the spread is over 2.5 pips and each trade will have commission charge too. Compared with our recommended broker, FBS and FPMarkets, the spread is only 0.8-1.4 pips and no commission charges for each trade.
The trading condition will impact your trading profitability. The better trading condition you get ,it will give you higher chances to success. If your current broker are offering bad trading condition, you should consider our recommended brokers, FBS and FPMarkets. We constantly receive invites from forex brokers to partner with them and we review their trading conditions together with all other factors like their history, regulation, deposits options, withdrawal options, trading account offer and many other factors. So far, we saw some other brokers that offer similar trading condition like FBS and FPMarkets, but we haven’t see forex broker that offer better trading condition than them yet. If you know any forex broker that offer better trading condition, please contact us.
Conclusion
If you attend any trading course or class before, you should have seen this diagram before, where it describes key success factor for trading. Although we are using algorithmic trading to trade, the Expert Advisor has taken care on the Trading System that part, but we still need to ensure Risk & Money Management and Trading Pyshcology that part are being taken care. In this article, Realistic Expectation will help on your trading pyshcoloy while Risk Management and Backup Plan in mind will help on your Risk & Money Management. Lastly, the Trading Condition is part of Trading System. All these 4 factors will increase your chance of success and profitability in Algorithmic Trading. Happy Trading !