A martingale forex trading system uses a strategy designed to build account equity slowly while covering all past losses with a single winning trade. The logic is simple. The forex trader must first enter a trade at a predetermined lot quantity. If that trade ends up wining, the next trade is opened at the same lot quantity. If the previous trade failed, the lot quantity is doubled on the next trade. The idea is simple; assuming the average pips lost per losing trade are equal to the average pips won per winning trade the forex trader will cover all previous losses and build account equity the first trade was designed to build.
Example Martingale Forex Trading System Money Management Strategy
1. Lots Traded
A. 1st trade: .1 Lots
B. 2nd trade: .2 Lots
C. 3rd trade: .4 Lots
D. 4th trade: .8 Lots
E. 5th trade: 1.6 Lots and so on
2. Set take profit level to 50
3. Set stoploss level to 50
4. The Forex Trading System wins 60% of the time
5. Approximately two trades are opened per day
Assume in the above example that the starting balance of the forex trading account is $5,000. Using simple math it can be determined that there is a .16% chance that there will be seven losses in a row. Although these odds appear to be fairly good, seven losses will likely drain the entire account. Since there are two trades per day the chance that there will be seven losses in an average day is .32%. So what does this tell us? Simply put, after 313 trading days chances are the entire account will be drained on a 10.7 lot trade. The account balance at the time would be approximately $8130.
So why does this happen? The answer is simple. Even though there Is only a .32% chance that the entire balance of the account will be lost, there is still a chance. If there is a 1% chance that a randomly chosen person that is able to do 20 pull-ups then 1 out of every 100 people should be able to do it. Likewise, if there is a .32% chance that the forex trading system using martingale money management will fail on any given day, 313 days later it will likely happen.
Checkout our trading system here.
