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Martingale Drug

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Let me introduce you to one of the most intoxicating drugs on the trading scene with a particular emphasis on the forex industry.

I am not going to bore you with the mathematical details why you are doomed to trade a martingale strategy simply a trading strategy that requires you to double your positions as the markets move against you.

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Above is a typical example of a martingale equity curve. You can see how the trader is taking increasingly larger bets in order to make incrementally more profits. What you get in return is this wonderful feeling of winning most of the time, which in turn helps inflate your sense of self. The shadow side of our psyche loves to believe that we are better than we are with this unconscious fuel feeding our egos to the point where we think we have talents that don’t actually exist.

The truth is anyone can produce this above equity curve applying random luck, and I guess it would take someone really wise not to be fooled by randomness.

Ok, Michael I get your point but can you provide me with any statistical proof to support your claim in the real world?

I think this table says it all. Working with a large database of FX traders, the median performance of non martingale is -15% which is not too good, but when you introduce traders that trigger a PsyQuation Martingale alert these traders produce a median -59% return (ouch).

Martingale table

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