Martingale Technique and why to avoid it

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Martingale Technique and why to avoid it

Postby Gavin » Wed Feb 05, 2014 4:01 pm

The martingale staking technique is a betting technique that involves increasing your bet each time you lose, so that when you eventually win a bet you will recoup all prior loses plus win an amount equal to the initial bet. Of course this technique wont work in the long run because eventually there could be a sequence of consecutive losses that completely destroys the bankroll, unless you have an infinite bankroll. This is partly why casino tables have maximum bet limits, to nullify any martingale technique at an early stage.

As an example, lets looks at using the martingale staking technique for continuosly betting on the toss of a coin. The odds offered for heads (or tails if you prefer) always remain equal for each bet (i.e. 2.0 in decimal odds, 50% chance). We will use an initial betting stake is £2 and double it each time we lose. Supposing the coin lands on tails 5 times consecutively, then finally lands on heads on the 6th bet:

1st bet: stake £2, it loses, so cumulative losses so far are £2
2nd bet: stake £4, it loses, so cumulative losses so far are now £6
3rd bet: stake £8, it loses, so cumulative losses so far are now £14
4th bet: stake £16, it loses, so cumulative losses so far are now £30
5th bet: stake £32, it loses, so cumulative losses so far are now £62
6th bet: stake £64, it wins £64, so now all prior losses have been recouped and the trader has won £2 overall.

As you can see, in this example the plan fails if the trader only had a maximum betting bank of £62, he would have been unable to place the 6th bet and thus became bankrupt after the 5th bet.

Supposing a trader uses the martingale staking technique such that he will be bankrupt if he hits a run of 'n' consecutive losses. From a mathematical point of view, given certain information such as the traders historical win / loss ratio and the number of bets he makes per day, it is theoretically possbile to calculate the likelihood of n consecutive losses actually occuring in his trading lifetime. What cannot be certain is whether it will occur on his first day of trading, or his last, or not at all.

Anyone considering using a martingale technique would be well advised to avoid doing so. There is a well known phrase declared by the economist and investor John Maynard Keynes, "markets can remain irrational for far longer than you or I can remain solvent".

Happy trading,

Gavin
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Re: Martingale Technique and why to avoid it

Postby Gavin » Wed Mar 12, 2014 12:39 pm

There is also an excellent entry in Wikipedia, which explains in great detail why the martingale technique is best avoided:
http://en.wikipedia.org/wiki/Martingale_%28betting_system%29
Cheers,
Gavin
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Re: Martingale Technique and why to avoid it

Postby Gavin » Wed Mar 12, 2014 2:15 pm

Users should also be aware that in any random process such as a coin toss, baccarat, blackjack, etc that the future outcomes are always statistically independent of the previous outcomes. It is explained well in wikipedia:

http://en.wikipedia.org/wiki/Gamblers_fallacy

The gamblers fallacy can also give false confidence to users of the Martingale strategy. So don't be tempted to think that just because you are on a long run of losses (for example in horse racing), that you have a better chance of randomly picking the winner in the next event.

Regards,
Gavin
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Re: Martingale Technique and why to avoid it

Postby ouija » Sat Oct 27, 2018 3:04 pm

Gavin wrote:Anyone considering using a martingale technique would be well advised to avoid doing so. There is a well known phrase declared by the economist and investor John Maynard Keynes, "markets can remain irrational for far longer than you or I can remain solvent".


Hey!

It was used in one of my best moments in betfair!

You just need adaptation and a model to bet. Martingale in is pure and raw method is not viable. But you can adapt it very well.
Define a profit/loss like any other market or bet that u usually do and respect that. Apply the model and rock on.
I've used in lay overs for a long time in leagues that were poor in goals but with some money on it.

I've no doubt that martingale adapted for a market is a very good option. And its is good for a learning curve!

Loved the quote from John! Nice touch! :)
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