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Martingale is a cost-averaging strategy. It does this by “doubling exposure” on losing trades. This results in lowering of your average entry price. The idea is that you just go on doubling your trade size until eventually fate throws you up one single winning trade. At that point, due to the doubling effect, you can exit with a profit.

Decision on entry signals

The Martingale system still needs to be triggered somehow to start buying or selling at some point. Any effective buy/sell signal can be used but the better it is, the better the strategy will work, and the lower the drawdown.

In the examples, when the rate moves a certain distance above the moving average line, you place a sell order. When it moves below the moving average line, you place a buy order. This system is trading false break-outs, also known as “fading”.

Set take-profit and stop-loss

When to double down? 

This is a key parameter in the system. The “virtual” stop loss means you assume at that point the trade has gone against you. It’s a loser. So you double your lots. Choose too small a value and you’ll be opening too many trades. Too big a value and it impedes the whole strategy.

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