Read below and I guarantee I’ll change your mind about Martingale. At the very least, I’ll give you some ideas to apply to your risk management in trading. I’ll also share the exact setup I’ve been using for the last 9 years, which has returned an average of 1.32% ROI per week. It doesn’t sound like a lot, but because it compounds, I’ve been doubling my account roughly every 13 months, with an average annual return of 94%.
Martingale money management and risk management systems have a bad reputation for being an extreme version of risk management. Sellers of Martingale algos love to show those smooth equity curves, but they gloss over the massive amount of risk you’re taking on when it gets pushed to its limits. Oftentimes, this results in blowing up an account.
Using a Martingale system where you simply double down after every loss, without proper risk management or understanding the tolerance of your setup, is a recipe for disaster. I can virtually guarantee you’ll blow your account unless you make your money quickly and get out.
If you haven’t taken every precaution and opportunity to learn about the market you are entering, and haven’t properly assessed the risk of your setup before entering, then you’ve crossed the line from a professional trader or investor into a gambler. That’s really the dividing line between the two.
I’ll tell you a nearly foolproof way to use Martingale right now. I say “nearly” because it all depends on your backtesting, and how good you are at it. Even the most robust backtests can break or change over time.
Step 1: Get a mechanical setup that is at least 1:1, or slightly higher (like 1.3:1), to offset fees, slippage, spreads, etc.
Step 2: Run a backtest and get the largest sample size possible—at least a few thousand trades. The bigger, the better. Try to get the highest win rate you can, but it isn’t the most important factor.
Step 3: Look at the extremes of the backtest, especially consecutive losses and wins. Plan your Martingale strategy around those extremes.
For example, if your system has a 50% win rate and shows up to 12 consecutive losses, wait until the setup has at least 5 consecutive losses before entering. In this case, you’re planning for up to 7 more losses (assuming your account can handle it). You could also flip this and bet on a loss after a streak of wins, but you’d need to reverse the risk/reward. This is similar to the high-low card counting technique, which actually works.
Step 4: Understand that markets always change, and backtests can break over time. Diversify across multiple setups. They won’t all fail at once, and ideally you’ve made enough and rotated into safer strategies before that happens. Also diversify across uncorrelated instruments and markets.
How I’ve Been Using It Successfully for 9 Years
First off, even though I’m saying Martingale can work, it isn’t necessarily the best approach for everyone. If you are risk-sensitive or new to trading, I would not recommend this. If you’re a professional trader with better setups that outperform this with less risk, stick with those. You may be better off using a consistent position-sizing strategy.
That said, here’s what I’ve been doing.
I’ve been using Martingale on ETFs for indices, taking long-only trades. The setup looks for bottoms using RSI oversold signals. Since you’re only going long, you’re essentially buying the dip and waiting for a rebound.
The win rate is around 60–70%, depending on the asset. It uses roughly a 1.1:1 reward-to-risk ratio. The 70% win rate comes from a backtest of over 7,000 trades on one particular index ETF, so I focused heavily on that.
You could also use leveraged ETFs, but then you need to consider the lack of dividends and volatility decay, which can erode your position over time.
Another way to manage risk is to avoid strict doubling. Instead of a 2x multiplier, you could use something like 1.5x. This lowers returns but also reduces risk, and allows you to keep more cash available to diversify or extend your drawdown tolerance (e.g., handling 6 losses instead of 5).
There has only been one period in the last 9 years where I experienced an extended drawdown. This was during the COVID crash, when prices dropped very quickly. I ended up holding the position for just over a month before it hit my take profit. I didn’t even hold long enough to collect a dividend, although sometimes you’ll accidentally capture one if you enter near an ex-dividend date.
My system was designed for 7 consecutive losses. When I hit the 8th, I held the position and continued dollar-cost averaging when new signals appeared. I wasn’t using margin, so there were no margin-related risks. Essentially, I was buying a significant dip—about 25–30% off the highs—in a strong, long-term uptrending asset.
The idea is to use dividends, if necessary, to help dollar-cost average until the price eventually hits your take profit. This way, you’re getting paid to hold.
This strategy would not work well in futures, forex, or CFDs due to holding fees and the lack of dividends. It could work in crypto since there are no holding fees, but I personally don’t trust holding crypto long-term, and again, there are no dividends.
You could also focus on high-dividend stocks (5–10% yield), ideally monthly payers, so you can DCA faster than with quarterly dividends. The key is to focus on fundamentally strong assets—blue chips, mega caps like Google or Coca-Cola, or broad index ETFs. Avoid assets in long-term downtrends, even if they pay dividends. Also avoid commodity ETFs, as they can remain in drawdowns for years.
Example Rules (Trading VOO Since 2018)
Using RSI (14) on a 15-minute chart with a 1.1:1 reward-to-risk:
Entry Rules:
RSI must go below 30 (oversold).
When RSI closes back above 30, enter the trade.
Stop Rules:
Stop is based on the nearest swing low.
I typically use the wick of the candle where RSI was below 30, but using the candle body produces similar results (test this yourself).
Take Profit Rules:
Calculate the distance between entry and stop.
Set take profit at 1.1x that distance (1.1:1 reward-to-risk).
Position Sizing (Martingale)
Because each trade has a different stop distance, you’ll need to adjust share size accordingly. And because the share price changes from trade to trade it needs to be adjusted as well.
If your broker allows fractional shares, this is easier. If not, you can start small and scale:
1, 2, 4, 8, 16, etc.
Conclusion
That’s it. You don’t need anything overly complicated to make money with this approach. The only real barriers are starting capital and an account.
If you have any questions, let me know in the comments or reach out on StockTwits: https://stocktwits.com/J2sun
And when you become a millionaire, let me know.
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