Wednesday, 1 November 2017

Calculate Your Winning Probability with Martingale Strategy

A martingale is a kind of trading strategy that is originated from France in the 18th century. In this strategy, the gambler/trader tosses the coin. The winning probability is calculated and it is said that the trade is in his favor if a coin comes up heads and loses it if the coin comes up tails. This is one of the oldest trading systems. Many investors universally use martingale strategy. The concept is quite trouble-free; you put your bet on one of the outside trades. After every turn you lose, you double your amount, and you keep doing that until you win.

The first win will recover all previous losses, and give you a profit equal to your original amount. At this point, you start all over again with your original trade, which you double again until your next win. Working on martingale strategy can be explained with the following example. You make a standard trade, say Rs5. Every time you win, you make the same trade for the next hand.  On the other hand, if you lose, you double your trade for the next turn.  When you eventually have a winning hand after a series of losing hands, your net win will be Rs5.  In fact, every time you win a trade, you will be up another Rs5, in spite of past losses.

Here is an example explaining well martingale strategy practiced in the stock market. You trade Rs5.  You win, so you trade Rs5 again. Then you lose, so you trade Rs10.  You lose again, now you trade Rs20.  You lose again, then you trade Rs 40. Again, if you lose then you trade Rs 80. In this hand, if you win, you will earn Rs80. Only by doubling the lost amount, you would be guarantying to come out ahead. However, in real life, one cannot always double the amount.

Therefore, that is the risk of the Martingale Strategy. If you lose an adequate amount of times, you will break. You will not have sufficient money to make the next trade. This is the reason why martingale is practiced for short-term investing. Longer you play there is a high risk of losing the money.

Money Classic Research is an advisory firm providing accurate tips and tricks on this strategy. 

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