Martingale Betting System

The Martingale Betting System is one in which a gambler doubles his bet and adds one unit (of the original stake) each time he loses in an even betting game such as the toss of a coin. The effect of this is that when the gambler eventually wins he will have won his original stake for each game that he has played.

For example, in a coin toss where I win or lose $1 if heads comes up and tails comes up 4 times in a row before a head I would bet $1, $3 ($1 x 2 + $1), $7 ($3 x 2 + $1), $15 ($7 x 2 + $1), $31 ($15 x 2 + 1). I would have lost $26 ($1 + $3 + $7 +15) and won $31 giving me a profit of $5 ($31 - $26) which is $1 for each time I played the game.

The Martingale Betting System assumes that the gambler has infinite wealth (available funds) and that the game can continue to infinity.

Martingale Betting System when applied to futures day trading can be seen in trading systems that advocate the doubling down of trades that go against them. This system frequently works for short periods of time and traders recover from the losing trades but eventually this type of trading will wipe out a trader's account.

Another form of the Martingale Betting System seen in futures day trading is when the target after a losing trade is doubled to make back the initial previous losing trade and capture the original goal. This rarely works as the target that is being set has been dictated by the amount lost during the trading session and not by the risk reward potential of the trade.