If forex traders were told that there exists a 100% profitable trading strategy, most of them would treat this information quite skeptically. However, such kind of strategy really exists, and it is called martingale. It was devised for gambling chiefly. As far as gambling is concerned, martingale refers to any gambling system in which the stakes are raised, usually doubled, after each loss. However, you would be surprised to hear that this strategy can be applied in forex trading as well. And it doesn’t have any shady flavor at all, but it is quite adventurous, though.
However, one important point about the martingale strategy must be mentioned – it is only possible in case the trader is very well-funded. And. What is more, one missed trade can sweep away the whole trading account. Also, the amount of risk is far greater than the prospective gain. In other respects, in the case of a winning transaction, the profits can be enormous.
If the forex traders are not scared off by the potential risks involved in martingale strategy and ready to read further, here are the basics. Martingale’s strategy was devised in the 18th century by Paul Pierre Levy, a French mathematician, and developed further by an American mathematician Joseph Leo Doob who wanted to discredit the possibility of 100% profit. The essence of a martingale strategy lies in the fact that every time the bet loses the wager is doubled. One winning trade could exceed all the preceding losses. As for gambling, it resulted in just two possible outcomes of the bet: either winning or losing. As a result, to diversify the gambling process, to make it not so straightforward and, what is more, to reduce the efficacy of the martingale strategy to a minimum, 0 and 00 were introduced on the roulette.
As far as forex trading is concerned, it is important to remember that currencies are likely to trend and these trends can last very long. When the martingale strategy is applied, the trader’s average entry price is lowered considerably due to “doubling down”.
In fact, the martingale strategy is quite popular in the forex market, since currencies go to zero very seldom, in contrast to stocks, for example. It means that a currency can depreciate, but not to a zero. One more possibility that a martingale strategy provides for the forex market is that while trading currency pairs, a trader can buy a currency with a high-interest rate and sell a currency with a low-interest rate. If the amount of traded lots is large, the interest income can be quite sufficient.
However, it should be mentioned that forex traders willing to practice martingale trading strategy have to be very careful, despite its attractiveness. The underlying danger of this strategy is that it can blow up the whole trading account in a single trade before bringing profit, actually. That’s why many forex traders consider martingale strategy to be very risky.