## What is the Martingale Strategy? Strategy to invest double your loss next time

Any veteran trader is always looking for ways to improve his or her strategy or system. On the other hand, novice traders can be a bit one-sided. More often than not, inexperienced traders are overly concerned with input signals and this can be detrimental to other key areas. Below, Bitcoin Magazine introduces you to a famous trading strategy that dates back to the 18th century and is still used today, especially for trading coins or lottery.

## What is the Martingale Strategy?

The Martingale strategy is a popular betting strategy that dates back to the early 18th century. Today, the Martingale betting strategy has become quite famous among hundreds of different strategies worldwide. This strategy can be used in any game of chance and it should only be used for a limited time. The simple concept it follows is to double the amount for every loss. It requires double the previous loss until won. After winning, not only recover the previous investment, but also get a profit on the last bet. However, like everything else, the Martingale strategy has certain advantages as well as disadvantages associated with it.

## Martingale with two results

Consider a trade with only two outcomes, with both having an equal chance of happening. Let’s call these outcomes A and outcome B. Trading is structured so that your risk reward is in a 1:1 ratio. Suppose you decide to trade a fixed amount of \$5. hope that outcome A will happen, but then outcome B happens and your trade loses.

For the next trade, you increase your size to \$10, again hoping for outcome A. That’s B happening and then you lose \$10. Again, you double and now trade \$20 – need result A to make a profit. You keep doing this until finally your desired result occurs. The size of the winning trade will exceed the combined loss of all previous trades. The size it exceeds them is equal to the size of the original transaction size.

Lost the first trade, but won the second

Lose \$5 on the first trade and then win \$10 on the second. This generates you a net profit of \$5.

Lost the first two trades, but won the third

You lose \$5 on the first trade, \$10 on the second and then win \$20 on the third. This generates you a net profit of \$5.

You lose the first three trades, but then win the fourth

You lose \$5 on the first trade, \$10 on the second and then \$20 on the third. However, you win \$40 on the fourth trade. Again, you are left with a net profit of \$5.

The probability that you won’t make a profit in the end is infinite – provided you have an infinite amount to double. As you can see from the chains above, when you finally win, you make a profit according to your original trade size. Sounds good in theory. The problem with this strategy is that you are only right to make small profits. At the same time, you have much more money in your pursuit of that small profit.

In our example above, we’re looking at just \$5. But with a losing streak of only three trades, we risked \$40. Imagine if that losing streak had lasted a little longer. If you lose six times in a row, you are risking \$320 in pursuit of your \$5 profit. In other words, you are facing a \$315 loss, just trying to win \$5.

What if your total risk capital is only \$200? You will be forced out of the game in just a few notes with a huge loss on your hand. Your odds of winning are only guaranteed if you have enough money to keep doubling forever. This is usually not much.

Everyone has a limit to their risk capital. The longer you apply the Martingale strategy, the more likely you are to experience a prolonged losing streak.

### Advantages of the Martingale . strategy

Over time, the Martingale strategy has built confidence in the players. This is because of the benefits it offers in a game of chance.

• It allows to recover the lost amount and also guarantees a profit on the last bet. Hence, one can make money through this strategy even after losing in a row.
• Martingale is easy to understand and does not require complicated mathematical calculations to understand and use it. So even if someone is not experienced enough, they can still bet on the games without any difficulty.
• One can use this strategy if he wants to play for a limited amount of time. This is a suitable system for short term betting. However, it is necessary to control greed when winning and fear when losing.
• If someone has an abundant amount of money then the Martingale betting system is optimal for such people. It is a great strategy to use by both experienced and inexperienced people who love to bet on different games.

There is a Vietnamese proverb that says “gambling eats each other in the morning” is to refer to those who have capital, have a high tolerance of losses and do not die at the gates of heaven.

### Disadvantages of the Martingale . strategy

• If someone encounters a losing streak in a row it is not good to use this strategy as it requires a larger amount of money in his or her pocket. This means spending an extremely large amount of money only to get a very small profit in the next time.
• The system is only good for a short time because it can empty the bag at a “very fast and dangerous rate”. In this case, a person needs to set a limit on his investment to avoid losing a very large amount of money.
• The dealer usually places a limit on the number of times a gambler can use the Martingale strategy. So it becomes quite difficult for a person to get his money back when it is not possible to increase the amount of the next bet.
• It costs too much to make a profit that is too small, causing our morale to plummet, creating insecurity, even panic if it is borrowed money or traded on behalf of others.

## Conclude

The odds if not improving in the long run, this puts a lot of pressure on people’s pockets. If you play for a long time, then you will have more chances to lose than to win. That is why this strategy should be used if you want to invest for a short period of time and stay disciplined.