There are a lot of different advisers, but if summarized in essence, we can distinguish a number of categories by which we will now consider them.
Let’s start with the most interesting one, one that affectionately nourishes the hearts and minds of novice traders who want to earn money as quickly as possible and outwit the evil market that can go, the infection is such as up and down. This category is called Martingale Advisers. And, perhaps, one of its most famous representatives is the Forex Setka trader.
“What is the meaning of martingale?” The meaning of this trading strategy is extremely outstanding and consists of “topping up against the market”.
When trading on the Martingale principle, if you have not guessed with the direction of the price movement, then there is no closing of a losing position, but the opening of a new one, but with a larger volume.
Also, this process is called position averaging, and here’s why:
1st purchase – 1 kg of tomatoes at a price of 100 rubles
2nd purchase – 2 kg of tomatoes at a price of 85 rubles (we remember that the price is against us, i.e. down, and we are opening a new position with an increased volume):
2 x 85 = 170 rubles
Therefore, the total volume of our purchases = 1 kg + 2 kg = 3kg
For these 3 kg we spent: 100 rubles + 170 rubles = 270 rubles
Therefore, for each kilogram in this case we paid: 270 rubles / 3 kg = 90 rubles.
Therefore, averaging. We bought 1 kg for 100 r and 2 kg for 85 rubles, and this is the same as if we immediately bought 3 kg for 90 rubles.
Why this is needed: As we know, the market is the ups and downs of the price, and therefore the calculation is that sooner or later the price will “rollback” in the direction we need. Let us continue to consider further explanation on the example of purchases.
Due to the fact that we constantly buy more and more at a falling price, our average price will be lower and lower:
1st purchase – 1 kg per 100 p.
2nd purchase – 2 kg at 85 p.
After 2 purchases, our average price = 90 p., And the current – 85 p. Those. in order for us to make a profit, we need a price increase above 90 r. What if the price continues to go down and we make another purchase?
3rd purchase – 4 kg for 70 p.
Average price = (1 * 100 + 2 * 85 + 4 * 70) / 7 kg = 78
4th purchase – 8 kg at 55
Average price = (1 * 100 + 2 * 85 + 4 * 70 + 8 * 55) / 15 = 66.
At its core, we trade in a counter-trend, but, so to speak, “in a tricky way”: we do not identify any places where a rebound is likely, but we simply take the market “in raw form” and expect that this rebound will sooner or later come from something will happen. And when it happens, all we need is for the price to go slightly in our direction (up in the example considered), literally slightly above the average price, and we will already be in the black.
In theory, it sounds pretty nice, and may at first glance resemble the “grail of trading”, but let’s be objective and further consider both the advantages and disadvantages of the martingale trading system.
Martingale Benefits :
1) Simple essence. We increase the lot against the movement -> we are waiting for a rollback -> the price has gone beyond the average price -> profit
2) Works great in flat
3) It works well with a volatile trend
4) With a certain skill in choosing an instrument and trading time, you can really (!) Earn (more on this later).
Disadvantages of a martingale :
1) It works extremely badly with recoilless (non-volatile) movements, which, of course, unpredictably happen sooner or later.
2) The rollback may not be enough for the price to go beyond your average price and therefore you will have to increase the position against the market again (figure), and thus drain the entire deposit
3) The winning potential in each profitable trade is much less than the potential for loss due to the constant increase in the losing position. With a rather long “refill”, the risk increases to the entire amount of the deposit.
I hasten to upset those who thought that recoilless movements are quite rare: the point is not in their rarity, but in the fact that sooner or later they will happen. And the problem is that no matter how much you have earned before, such a move will eat an ALL deposit (due to the fact that we constantly buy more and more in a losing position).
Suppose you are trading a lot of 0.01, and for profit-taking, you have chosen a movement of 50 points.
In each trade, you will earn $ 0.5. Having made a profit 10 times in a row, you will earn $ 5. But if a recoilless movement follows, sooner or later there will come a time when you don’t have enough deposit to open a new transaction with a large volume, and then Margin Call will come.
I also hasten to upset those who thought that he would be able to know in advance when this most recoilless movement will be and “stop” the work of the adviser. Of course, you can try and you’ll probably not even let you down a couple of times, but alas, this is nothing more than a guessing game, and 100% neither you nor anyone else can predict market movements in advance.
We turn to the most interesting: is it possible to make money using the Martingale trading advisor?
Yes, but this will require discipline and “weakened” greed.
Below I have compiled an algorithm that you can use:
1) We make a small deposit for the amount, having lost which we will not experience much sadness.
2) We study how much lately the maximum length of the recoilless pulse has been and how much lately the length of the minimum rollback has been. To do this, go to the timeframe you need and drop the ZigZag indicator with standard parameters on it:
- The biggest move is the recoilless momentum
- And the smallest – minimal rollback
Explanation: we are throwing ZigZag not in order to search for entry points with it, but solely
for the purpose of collecting information about the pulse/rollback length. Using it, doing this is the easiest. If you know an easier way – I will be glad if you mention in the comments.
3) We look at what kind of spread we have on this currency pair.
4) We determine through how many points we will open a new order with an increased volume (let’s call it the “price step”).
In the figure below you can see how ZigZag plotted price movements on the M1 timeframe. I just highlighted the largest red line and the smallest red line.
An important point: then we consider the desired time (or session) for trading with the help of an adviser on Martingale. Keep in mind: you need to collect data on impulses and pullbacks at the time at which you plan to trade with the help of an adviser.
Those. it makes no sense to measure the maximum momentum in the Pacific session if you plan to trade during the American, in which even kickbacks will be more likely.
It also makes no sense to measure the minimum rollback at the European session and wait for it during the Asian, at which the price passes on such an impulse.
In general, I hope you understand: we measure what we plan to trade. We do not scare ourselves with false fears, but we also do not console ourselves with illusions.
Can I make money with the help of a martingale advisor on forex? Yes, but this will require discipline and “weakened” greed.
Suppose the maximum impulse length was 120 p, the minimum pullback length was 40 p, and then spread with us was 2 p.
Next, we need to use the minimum rollback value in such a way as to close previously opened transactions in profit. To understand further material, you need to know what the “average price” is in trading using the Martingale method.