What Is the Martingale Strategy and How Does It Apply to Crypto Trading?
Trading Analysis

What Is the Martingale Strategy and How Does It Apply to Crypto Trading?

6 Minuten
4 months ago

CoinMarketCap Alexandria dives into the Martingale strategy, a high-risk, high-reward gambling technique that has made its way into the world of crypto trading.

What Is the Martingale Strategy and How Does It Apply to Crypto Trading?


Strategy is perhaps the single most important pillar of crypto trading – and there are many different popular crypto trading strategies out there. In this article, we dive into the Martingale strategy, an approach that has its roots in gambling. Read on to learn how you can use this strategy to navigate the uncertainty of crypto markets!

Chang is an occasional gambler, trying his luck at the Roulette wheel. He bets $25 on black, but the ball lands on a red number; he loses the bet. He bets on black again, this time with $50. Another loss. With his third bet on black (this time betting $100), he wins – taking home $200. After subtracting the losses from his first and second bets, Chang made $25 in winnings.

As you can see, Chang doubled his bet after each loss. This approach is one of the most common betting strategies in casinos and sports betting – but it can work for investors too. Let’s dive into the strategy, how it works, and its pros and cons!

Disclaimer: Before diving into the details, remember that this article is based on my limited knowledge and experience. It has been written for educational purposes. It should not be construed as advice in any shape or form. Please do your own research.

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What Is The Martingale Strategy and How Does It Work?

The Martingale strategy has been around for centuries – dating back all the way to the 1700s. The strategy was popularized by John Henry Martindale, who owned and operated a casino business in the UK. Martindale encouraged his customers to use the strategy, telling them that his wealthiest customers used the strategy to take home huge winnings.

His system quickly rose to popularity, as the strategy was simple enough to be understood for the common man. There are just two rules to remember:

  • Double your bet size after every losing bet.
  • Revert to the starting bet size after a win.

Probability shows that no matter how imbalanced the odds are, gamblers will eventually win a bet. By doubling down after every losing bet, the winning bet will return enough to recoup all the previous losses, and some profits – just like Chang did in the example.

The main challenge with this strategy is finding sufficient capital – because it might take more than a few trades before you win. If you run out of money before that happens, you will have lost all your money.

The Martingale System in Practice

Chang’s success story at the start of the article is a perfect example of how the strategy should work in practice. You may lose a few trades at first, but by doubling your bet size, you will win back all your losses and extra profits as soon as you win a trade. In sum, it usually looks like this:

Bet $10, lose. Balance: -$10.
Double the bet to $20, lose. Balance: -$30.
Double the bet to $40, lose. Balance: -$70.
Double the bet to $80, lose. Balance: -$150.
Double the bet to $160, win. Balance: +$10.

The fun part is when you eventually win a bet. No matter how many bets you lose in a row or what your starting bet size is, your profit will always equal the starting bet size.

Using the Martingale Strategy in Crypto

So why do people apply a strategy with its roots in gambling to financial markets? This is a fair question to ask, especially when we consider the key differences between gambling and trading. After all, a trader can make reasonably well-informed decisions, whereas a gambler merely tries to play the odds.

Nevertheless, the system can be applied to crypto trading as well. Similar to the original gambling strategy, a trader can decide to long Bitcoin with $100. This trade serves as the initial bet. If the trade loses, they double the stake to $200 and try again. They keep on doubling down the bet until they get a winning trade. This can work well with 1:1 risk-reward, but in trading, you’re able to push the risk/reward balance in your favor.
In doing so, you’re able to increase the potential profit, while keeping the maximum loss the same as in a gambling strategy – resulting in a slightly better likelihood of success. Nevertheless, a bad streak will destroy your account just the same as it would in the gambling scenario.

An alternative approach to the Martingale strategy is known as a reverse Martingale, where you double the bet when you profit, and halve your investment when you take a loss. This strategy has the potential to grow your account quickly, but taking profits out of the account is crucial.

After all, by doubling your position size after every win, a single losing trade can wipe out all those profits. Successful reverse-martingale traders, therefore, only increase their position three or four times in a row, before restarting with the original bet size again. This approach allows them to take bigger risks, while also locking in profits.

Pros and Cons of the Martingale Strategy

The single biggest advantage of the Martingale strategy lies in its simplicity – with no ratios or complex calculations, even the least clever among us will be able to understand how it works. Another clear advantage is how you will eventually win back your losses, no matter how many bets you lose in a row. Just make sure you bring a big wallet.

Moreover, the Martingale strategy allows you to keep a clear head and minimize the effect of the emotions associated with trading and gambling. By using a simple-to-understand, easy-to-apply strategy, traders and gamblers alike can make decisions based on logic, instead of emotions.

The martingale strategy works well in the short term. However, gamblers run into problems when they encounter a losing streak – which is bound to happen eventually.

Even if you start with just $5, a losing streak of 7 bets will force you to put up $640 for the next bet – 128 times the capital you started with. And even then, you are not guaranteed to win. As you can see, doubling your bet after every loss can turn into a precarious and expensive situation quickly.

Another problem is presented here; many casinos and trading venues have caps on the maximum amount you can risk in a single trade or bet. Once you reach that cap, you can no longer double your risk in order to make back the previous losses.

But even if you do manage to get a winning trade before running out of money, the reward is very small compared to the risked capital. In the previous example, your bet of $640 would result in only $5 worth of profits. Most traders wouldn’t even consider taking a trade with such a risk-reward ratio.

Does the Martingale System Work?

All things considered; the Martingale strategy is one that only works with near-infinite capital to sustain extended losing streaks. Even then, it gets to a point where you are risking a ridiculous amount of money, just to make back your earlier losses.

As such, the strategy can work in theory, but the real world shows us that very few people have managed to get the strategy to work over the long run.

Is the Martingale System Profitable?

The Martingale system can be profitable, provided it is used in short bursts. The longer you use the strategy, the higher the odds that you’ll encounter a devastating losing streak that wipes out all your previous profits.

Closing Thoughts

In sum, the Martingale system can help gamblers and traders turn a profit – but only when they use the strategy for limited periods of time. As such, the strategy is unlike to make you rich.

When using the Martingale strategy, it is crucial to pay attention to your bet size, and not let it get out of hand. The losses can stack up quickly and turn into an uncontrollable situation where much more money is lost than originally intended. This is probably why Martindale popularized the technique – he owned the casino after all. As such, using the Martingale system is probably unwise. The risks generally outweigh the rewards by far, and it requires a huge amount of capital to weather extended losing streaks.

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