Most traders wish they could find the one method to make all their trades profitable. It is said the Martingale forex strategies fall into this wish bin. This method is based on a theory of probability. If you have sufficient available funds, you will most certainly make your trades profitable by using this strategy.
What Is Martingale?
This is a strategy that gained popularity in the 18th Century when it was introduced to the world by Paul Pierre Levy, a mathematician based in France. This strategy was based on the ‘doubling down’ theory. The final stages of the strategy were carried out by a US mathematician, Joseph Leo Doob, when he attempted to disprove the conception of a strategy that is one hundred percent profitable.
The strategy works on the basis of one bet, but every time the bet becomes a loser, you simply double the amount of your wager. If you bet for long enough, you will eventually hit one wager where you make up all the money you have previously lost. It is because of this particular strategy that the 0 and 00 was introduced on roulette wheels. It was set up to try and break down the mechanics of this strategy by introducing more odds to the game. This caused the dissipation of the expectation of making long-run profitable bets by using this method impractical, hence the incentive for using it was removed.
Using Martingale as Forex Strategies
The main idea when you use this as one of your forex strategies is that as soon as you double down, you are in effect lowering your average price of entry. If you were to buy two trading lots of the EUR/USD, you will need it to go to 1.264 from 1.263 to allow you to break even. If the price declines and you go ahead and purchase four trading lots, you will only need an increase to 1.2625, instead of to 1.264 for you to break even. The more you purchase, the lower your average price of entry will become. Even though your loss could be as high as 100 pips on your first trading lot if the price went to 1.255; if the currency pair rolled back to 1.2569, you will be at a breakeven point on all the lots you currently hold.
This forex strategy requires a huge capital investment as is evident from the calculations. If you had a capital balance of $5,000 to trade with, it would all have been gone before you reached 1.255. It is possible for the currency to turn against you, but with this strategy most traders run out of money before they get to the end and in a profitable situation.
The popularity of this strategy in the forex market is because currencies do not drop to zero. Currencies may decline in value, but even with a very sharp drop, the currency will not reach zero. It is possible to earn interest in the market with this strategy, if you have the capital to use the strategy. This interest amount could make up for some of the losses you will experience. You should consider trading this strategy by purchasing a high interest rate currency and selling a low interest rate currency. If you have several trading lots of this type of currency pair, you could earn a substantial amount in interest which would help in the reduction of the entry price average.