What is Martingale in Forex Trading?
Quick Answer: Martingale doubles trade size after each loss in hopes of one win recovering prior losses, but the exponential exposure quickly overwhelms margin and leads to catastrophic drawdowns.
Understanding the Martingale Strategy
Martingale is a betting system where you double position size after each loss to recover prior losses with one win. While tempting, it assumes infinite capital and no position limits—conditions that do not exist in real forex trading.
Why Martingale Fails
After a string of losses, position sizes explode, quickly breaching broker limits or margin requirements. A five-trade losing streak using a starting 0.1 lot position escalates to 3.2 lots—an enormous jump for most accounts. Volatile instruments like GBP pairs can extend losing streaks far beyond expectations.
Catastrophic Drawdown
Even with a high win rate, martingale eventually encounters a streak that wipes the account. Survivorship bias hides the many accounts blown up attempting this tactic.
Smarter Alternatives
Focus on strategies with positive expectancy and controlled risk. Use position sizing techniques such as Kelly fractions or fixed-percentage risk instead of doubling down blindly. If you do scale into trades, base the decision on market structure, not losses.
Progressive Hedging
Some algorithms pair partial martingale scaling with hedges to smooth equity curves. Even then, maximum drawdown must be tightly monitored to avoid ruin.
Related Terms
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