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Can You Apply Money Management To Martingale?

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The attraction of the Martingale is irresistible, but this idea is not to be confused with using Martingale as your money management system. Successfully employing it can, in the best of circumstances, create wins, and even in the worst of circumstances, prolong your ability to participate in trading by recouping some of your losses. The fact remains though that it is just not possible to use Martingale as a money management system because, if left unchecked, it can lead to catastrophic losses with a single trade. In the case of binary options, it will never recapture all of your losses because the payouts are too low. My idea, for those of you who like to use this method of trading, is to apply management to your Martingale so that you can use it, enjoy it, and have fun with, while still limiting your exposure to loss at the same time.

Basic money management rules say that you should choose a set percent of your account, a percent you are comfortable losing. For me, this usually means 3%. I stick to trading 3% on each trade because I know that amount won’t kill me, even if I lose five or seven trades in a row. Using this rule, and it could be 1%, 2% or 5% if that is what you like, helps with trading because it takes one decision away: How much to trade. I never worry about how much an individual trade will win or lose, only my success rate. What I suggest is that Martingalers use the same principle. You might start with a much lower amount, like 1% or even a 0.5% because you know that eventually you will have several losses in a row, an event that could have you trading 2%, 4% or 8% of your account in the blink of an eye.

Yet another way to approach this idea is to go even smaller. Say, for instance, I wanted to try a Martingale. My risk management is 3% and my account is currently about $16,500, so that means my trade size would be $495, but I'll use $500 to keep things simple. I might start with 3%, but at one loss I am already up to 6%, and at that point I'm done. However, what if I were to use 3% as a cap? I could start with a trade size of $50 or $100 and go from there. If I win, I won't care that it is smaller than what I could have won, it’s still profit, and if I lose, I can safely double my bets twice if I start at $100, and three times if I start at $50. If I max out, the Martingale won't recoup all of my losses, but it won't lose more than my intended risk either and, at the same time, will have allowed me to make dozens of trades rather than just one.