Let me begin by explaining. Martingale is a very popular trading system based on increasing positions after losing trades and adjusting positions downwards after profitable trades.
The strategy is based on the well-known psychological fallacy, according to which the probability of winning after losing increases.
In simple words: martingale is when the price goes up and you open a sale, the price goes up again and you open a sale. You go against the price, and when there would be some slight pullback, you close all those positions, but when the market starts a global trend up with a huge probability you’ll not be able to close it.
Martingale can be attributed to a high-risk trading system, but if this strategy is used correctly, a trader can make a profit even with a high percentage of losing trades.
There are two types of Martingale — simplified (when the trading position is doubled after each loss) and complicated, which requires more skill and patience from the trader, because it implies treating your trades as one series, which can be considered complete when the profit exceeds the loss.
The main problem is that when you open a trade you do not know where you set the stop loss and exactly what your risk will be.
My rule of thumb is to always set stop losses and low predictable risk per position.
For example, before I open a trade I always write down a trading plan, every day I make a trading plan, and I ask myself what my risk will be in that position. For example, I might lose 100 usd in some position, and after that I have to figure out how much volume I can open to have a certain risk for each position.
I would even recommend some people not to trade at all, because if you have no knowledge, you will most likely just lose money. You know, it’s like getting behind the wheel and not knowing where the brake pedal is. It would be great if there were somebody in your circle who would be willing to share his knowledge, to teach you, to warn you against mistakes and losses.
Having a mentor in trading is a must. It minimizes stress, money losses and loss of time.
By the way, have you ever used a risk manager? Because you can only protect your account if you have a good risk manager, you can do it manually, or you can install software that will generate a predictable risk every day.
Try to find a professional with an impressive experience in trading, with real successful cases, whom you can trust and from whom you really want to learn.
I want you to remember and follow these rules:
First, before you open a trade, always know what your risk per position will be.
Second, always know where you will close the position if the price goes against you.
Third, if you don’t have a step-by-step strategy, never trade. A trader should always have tomorrow. Remember this. The trading plan is your tomorrow.
Fourth, protecting your capital is your responsibility. Only yours, remember that. You should not trust unverified brokers or anyone else who provides such a service. Even if they tell you that now is the very opportunity to make money and, for example, the price of gold is about to skyrocket, or that they will help you, do not be fooled! There are a lot of scam brokers out there. Their job is to get money out of you for a deposit, your job is to keep your money.
Following these rules you will save and multiply your funds! Trade wisely!