THE MARTINGALE AND ANTI-MARTINGALE STRATEGIES

It's very important to understand the following two strategies and the differences between them.

Strategy #1
Martingale = increasing your risk when losing
This is a strategy adopted by gamblers which claims that you should increase the size of you trades when losing. It's applied in gambling in the following way:
Bet $10; if you lose bet $20; if you lose bet $40; if you lose bet $80, if you lose bet $160; etc…
This strategy assumes that after 4 or 5 losing trades, your chance to win is bigger so you should add more money to recover your losses.
The truth is that the odds are the same in spite of your previous loss. If you have a system that generates winners 50% of the time and you have 5 losses in a row, your odds for the next are still 50:50!
The same fatal mistake can be made by some novice traders. For example, if a trader started with a balance of $10,000, after 4 losing trades (each is $1,000) his balance would be $6,000. The trader will think that he has higher chances of winning the 5th trade and so he increases the size of his position 4 times to recover his loss. If he loses, his balance will now be $2,000! At this point he does not have enough capital left to continue this strategy. It is likely he will never
recover from $2,000 to his starting balance $10,000. A disciplined trader should never use such a gambling method unless he wants to lose his money in a short time.
Never use a martingale strategy in your money management!
Strategy #2
Anti-martingale = increase your risk when winning & decrease your risk when losing
This means that a trader should adjust the size of his positions according to his new gains or losses. This is the preferable method of managing your money.
Example:
Trader A begins with an account balance of $10,000. His standard trade size is $100. After 6 months his balance is $15,000. He should now adjust his trade size to $150 to continue to risk 1%.
Trader B starts with $10,000. His standard trade size is also $100 to start. After 6 months his balance is $8,000. He should now adjust his trade size to $80 to match his account size.
HIGH RETURN STRATEGY
This is another strategy for traders looking for a higher return and still preserving their starting balance.
According to your money management rules, you should be risking 1% of you balance. If you start with $10,000 and your trade size is $100 (Risk 1%) and after 1 year your balance is $15,000, now you have your initial balance + $5,000 profit. You can increase your potential profit by risking more from the profit amount while restricting your initial balance risk to 1%. For example, you can calculate your trade the following way:
1% risk of $10,000 (initial balance) + 5% of $5,000 (profit)… $100 + $250= $350 risk per trade.
This way you’ll have more potential for higher returns and at the same time you are still risking only 1% of your initial capital.
USING THIS MATERIAL IN THE ‘REAL WORLD’
Understanding and using the material presented here is one of the true “holy grails” of trading. Most people won’t take the time to learn it and put it to use. There are many variables to a successful trading plan, and while there is no guarantee that implementing this information will make you a success, using it is a big step in the right direction. It could help you to be one of the 5% of traders who are successful for the long term!