To make a profit in Crypto trading, in addition to needing to have a solid grasp of technical analysis knowledge and judgment, another important part you need is a capital management strategy (Money Management or Portfolio Management).

In this article, we will learn together about the Martingale method of Capital Management and some notes when applying the Martingale method in making money trading. 

I. What is a Martingale?

Martingale is a betting strategy with double capital (x2) on losing. That is, when you start the game (playing cards, trading, betting, …) regardless of whether you lose, you will double your bet the next time.

The martingale strategy can bring high profits and high risks

This strategy comes from the mindset that no matter how many times you lose before, you only need 1 win to remove all previous losses.

This is a very simple method, easy to understand, easy to implement that anyone involved in trading should know.

II. Pros and cons of the Martingale strategy

• Advantages: Simple to apply, easy to understand, easy to implement.

In terms of martingale, the main rule is to double the trade volume after you have a loss. In this case, a double profit would be able to both make up for the previous loss. And make your trade profitable.

• Dis: 
• It will be a huge loss for traders who do not have enough capital to pursue a long series of losing orders.
• The accumulated profit after 1 winning order is not much.

III. How does the Martingale strategy in trading work?

Martingale Capital Management requires you to calculate the exact entry amount after each position based on your Total Available Capital.

Take a look at the table below to see how it works:

Eg: Each order enters $10 of capital.

You can see:

• Orders 1-7 are consecutive losses.
• After each losing trade, the bet capital is doubled the previous one.
• Total accumulated profit is the sum of previous times.

On the 8th time, the amount of capital entered was $1,280 and won. As a result, the total accumulated profit will be $1,280 plus the previous (negative) accumulation. Profit = $10

In this scenario you see that the final profit is equal to the amount of capital you first invested. Thus, from the very beginning, you need to calculate how much capital you want to put in to satisfy your expectations. What matters is the end result. Is Martingale that easy to play?

This is just an example case to make it easier for you to understand. And when it comes to this Martingale strategy, people only mention that case. However, it actually has other scenarios.

IV. The scenarios of Martingale in trading

1. Martingale – consecutive win – lose

If the order wins, go back to the beginning.

This is a good scenario for any trader. Take a look at the example above, orders 1-7 all win consecutively, the cumulative profit is $70 after the end of order 7. Even if order 8 is lost, it only costs $10. Total accumulated profit is still $60.

Attention:

• The final accumulated profit (after 1 losing trade) depends on the number of previous winning trades.
• When you encounter a losing order, you start playing again. Stop all orders when the target is reached to preserve profits.
• The scenario of winning many orders in a row can happen, but the rate is not high.

2. Martingale – consecutive loss – win

If the order loses, go back to the original.

This is the scenario that no trader wants.

With 7 consecutive losing orders, the accumulated profit is now negative at -$70. Even though the 8th order won, the return to the original $10 entry level was not enough to cover the previous loss.

Attention:

• The final accumulated profit (after 1 losing trade) depends on the number of previous losing trades.
• When you encounter a losing order, you start playing again. Stop all orders when Loss hits your limit.
• The scenario of losing many orders in a row can happen, but the rate is not high.

3. Martingale – consecutive wins – winning order after x2 of capital (temporarily called Reserve Martingale)

This can be considered a more advanced way of playing Martingale. Profit will increase exponentially x2 after every win. But just 1 losing order will lead to loss.

Attention:

• STOP & go back to the original playing capital, when the profit for that turn is enough.
• The losing order will pull the total accumulated profit to negative, exactly equal to the initial capital (not much).
• This double winning strategy is suitable for brothers with good technical analysis & psychology. And most importantly, know where to stop before encountering any losing trades.

V. Profit from Martingale strategy in trading

In this section, I will explain and give examples for you to find the right strategy for you.

The above scenarios are all one-way scenarios (consecutively winning or losing) they are likely to happen, but the odds are not high. In fact (I have applied) the WIN and Loss times in each order are different.

The most common scenario would be:

• Total 12 orders, lost 6 orders and won 6 orders.
• After 12 orders, the last accumulated profit I got was $30.

Martingale – Common scenario

In the above example, you can see that the Win:Loss ratio is 1:1. That is, 1 win, 1 loss.

But also with 12 consecutive commands & Win:Loss ratio is 1:1. Consecutive losing orders & consecutive winning orders, we have:

Martingale – Scenario of consecutive wins & consecutive losses

Now, from the 7th order onwards, you return to the scenario of a series of consecutive losing orders. Although rare, the problem is possible. The result is a loss of -$310.

Of course, we will never let such a series of consecutive losing orders happen. Obviously, this strategy can still make you lose money when there are many losing positions in a row.

Attention: The example above has a Win:Loss ratio of 50:50. For those of you who rely on good technical analysis, there may be a better ratio of 60:40.

VI. Notes when applying the Martingale strategy

1. Set appropriate profit expectations

Each winning order only brings a profit equal to the amount of money you participate in. So right from the start, you need to set your profit expectations close to your reality, so as not to fall into a situation where you are too eager to make profits and end up losing.

2. Prepare a large enough participating capital

The worst case happens when you have many losing orders in a row (of course only 1 winning order will be removed). But as long as you have the capital to place the next orders, there will still be a chance to take it back & make a profit. Therefore, the amount of initial preparation capital is very important. And you also have to pay attention to capital management according to Martingale.

3. Loss tolerance

You should take into account the scenario of losing how many orders in a row, the amount of Funds you can tolerate.

Eg: Losing 5 consecutive orders (initial capital $100), that means you are losing to -$310 (10+20+40+80+160) and do you have $320 to place your next order? If not, you have lost the game.

4. Play small command at first command

This will help you to have enough capital to play the next orders if you lose many trades in a row.

5. Follow the rules

• Stop when the target is reached.
• The greater the number of consecutive losing orders, the greater the possibility of the final cumulative loss.
• Increase profits when having good Win:Loss.
• Apply the Reserve Martingale strategy when you are confident that you have enough technical analysis knowledge, trading psychology & trading systems and large capital.

VII. Summary

So, after this article, you must have understood what Martingale is? In fact, Martingale is just one of many trading strategies. It may be right for one person but not for another. It is extremely important to learn & deepen your knowledge to improve yourself every day.

Ola City hopes that you have the right strategies for effective trading.

Good luck with your trading!

Best regards, 

Ola City Global