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A study of the Martingale and Anti-Martingale Systems

I had the pleasure of developing an EA for a couple of friends recently based on their request for a Martingale based trading system.

Insight 1:
The results of the Martingale EA tested with random entries were generally worse off than one that is based on a simple MA Crossover for trade entries and exits even though both systems were unprofitable.

Insight 2:
Since the MA Crossover based Martingale system was not profitable, reversing the buy and sell entries and exits resulted in a profitable Martingale system.
As can be seen from the Strategy Tester Reports for the 7 major pairs of currencies based on this Reverse MA Crossover Martingale system, all were winners except for the USDCAD pair which had a Maximum Consecutive Losses of 4.      

Insight 3:
A closer analysis of these 7 Strategy Tester Reports show that there were more winning trades than the losing ones for all the major pairs.
Given these facts, an Anti-Martingale system where lots are doubled for winning trades rather than doubled for losing ones in a Martingale system should produce better results.

Stay tuned for the comparative results of this Martingale versus the Anti-Martingale EA systems...

In summary:
1. A purposed entry and exit strategy that give an edge to the trader is mandatory for a profitable trade.
2. It pays to consider and incorporate contrarian trading strategies in our trading system.
3. A systematic doubling of the lots in a winning streak can result in greater profitability.
4. It is very tedious to backtest trading strategies like these manually without the benefits of the ease and speed of an automated trading system.
 

These were the Strategy Test Reports of the Anti-Martingale EA.
As expected, the overall result is more profitable than that of the Martingale EA given that there were more winning trades than the losing ones based on a simple Reverse MA Crossover entries and exits strategy:

This is the P&L comparison of the Martingale vs. the AntiMartingale EA.
The results were more spectacular in the case of the AntiMartingale system.

While the Anti-Martingale EA's overall profits were 3 times higher than that of the Martingale system, 3 accounts came close to been wiped out!

The lessons learned from these exercises is that while all Martingale and its derivative systems can be fabulously profitable, they can cause huge drawdowns and require sufficient capitals and controlled stop losses to trade well.

In conclusion:
1. Simplicity is bliss. Although a simple entry and exit strategy is sufficient to trade successfully, systematic lot sizing can substantially improve the performance of an already profitable trading system.
2. Knowledge is power. Understanding the general behaviors of the currency pairs via extensive back testings will help the traders to decide on what and how to trade them more effectively.
3. Automation is key. There are limitations to what a manual trader can hope to achieve in his/her trading. The best way forward is to automate the processes of their trading.

Talk to me to find out how I can be of service to you.

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