The Martingale Strategy reduces average position costs through continual position increases, which is somewhat similar to the DCA (Dollar Cost Averaging) method. However, while DCA increases positions periodically in fixed amounts and in fixed time intervals, the Martingale Strategy increases positions when prices fall. When prices rise to desired levels, the Martingale Strategy will sell the entire position.
In the long term, economies always tend to grow and market prices always tend to increase. Therefore, as long as you choose the right mainstream cryptocurrencies that have long-term potential, you will have a good chance of profiting using the Martingale Strategy.
1. What is the Martingale Strategy?
Initially developed by Mr. and Mrs. Martingale in a casino, the Martingale Strategy originated as a gambling strategy:
Assuming that the probability of winning a gambling round is 50%, by doubling the wager after each loss, the gambler would recover all previous losses and win a profit equal to the initial stake when a win occurs.
If I were to bet 10 dollars in the first round and lose, then I would bet 20 dollars in the second round. If I win the second round, I would recover the 10 dollars I lost in the first round plus win a profit equal to the initial 10 dollars that I wagered in the first round. However, if I were to lose the second round, I would bet 40 dollars in the third round ... and so on and so forth. As long as I win once in the end, I would not only recover all losses, but also win a profit of 10 dollars. After making a profit, the same process can be repeated.
2. How does the Martingale Strategy work?
Investing is different from gambling. When gambling, if you lose, you lose the entire wager. But in the investment market, declines occur slowly and in percentages. Therefore, you can choose to increase your positions whenever prices fall by certain percentages. You can also choose to take profit whenever a certain amount of profit is made.
If I were to set the bot to increase my position whenever the cryptocurrency price drops by 1%, to increase my position 4 times, and to take profit at a profit rate of 2%, then my investment amount would be divided into 31 shares, with 1 share being initially invested. If the cryptocurrency price were to fall by 1%, another 2 shares would be used to increase my position. If the price were to fall by another 1%, then another 4 shares would be used to further increase my position. Using this mechanism, the next position increase would use 8 shares. When the cryptocurrency price drops by 4%, 16 shares would be used to increase my position. This amounts to a total of 31 shares. During this process, whenever a profit of 2% is reached, regardless of whether all of the funds have been put in yet, the bot will execute a take profit and then initiate a new round of buying and selling.
3. Advantages of the Martingale Strategy
- Reduction of average position costs through continual increasing of positions.
The Martingale Strategy reduces average position costs through continually increasing positions and sells the entire position when the price rises to a desired level.
4. Limitations of the Martingale Strategy
- Select mainstream cryptocurrencies with good liquidity whose prices are trending upward with a lot of ups and downs.
If you choose a cryptocurrency that continually declines with only very weak rebounds, you may end up using up all of the funds allocated for position increases without ever reaching a take profit situation, in which case you may get stuck for prolonged periods of time.
- Kind in mind that in reality, nobody has unlimited capital. It is therefore important to set the proper percentages for increasing positions as well as a suitable number of position increases.
The Martingale Strategy splits your capital into multiple shares, allowing you to increase your position at different points in time. The following table shows the number of total shares for various position increase settings when the position increase multiple is 2. This ultimately affects your capital utilization efficiency:
5. How do you use KuCoin’s Martingale bot?
Step 1: Create a Martingale bot. In the trading bot menu, select and create a Martingale bot.
Step 2: Select a trading pair. We recommend selecting a mainstream cryptocurrency with good liquidity whose price is trending upward with a lot of ups and downs.
Step 3: Enter the investment amount and create the bot. You also have the option of adjusting parameters such as price drop for position increases, maximum number of position increases, etc.
Step 4: Enjoy the profits the Martingale bot makes for you.