The Martin strategy cannot achieve a 100% win rate.
The premise for this strategy to achieve a 100% win rate is to have an infinite amount of money and to keep increasing the bet size. Of course, this is just a theoretical statement. No one has an infinite amount of money, not even the richest person in the world, so the Martin strategy cannot achieve a 100% win rate.
Today, let's discuss the basic logic of the Martin strategy and how it is applied in trading, focusing mainly on its use in the stock market.
First, let's briefly explain the basic logic of the Martingale strategy:
This is a casino strategy. For example, when betting on the size of the dice in a casino.
The first time you bet on large, the amount is 1 yuan. If you win, you earn 1 yuan. If you lose, you continue to bet on large;
The second time you continue to bet on large, the amount is 2 yuan. If you win, you earn 2-1=1 yuan. If you lose, you continue to bet on large;
The third time you continue to bet on large, the amount is 4 yuan. If you win, you earn 4-2-1=1 yuan. If you lose, you continue to bet on large.
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In this way, as long as you lose, you double the bet amount. As long as you win once, you can cover all the previous losses and make a profit. The result of gambling cannot always be large or always small, there must be alternation. As long as there is enough money to keep betting, you will eventually make money.Having discussed the Martingale logic in casinos, let's now talk about the Martin logic in trading.
Suppose we currently hold a stock, and after experiencing a paper loss, we increase our position with a larger order at a technical level below, thereby lowering the average cost of our holdings. After the replenishment, if the market rebounds and we make a profit, we close the position. If the market does not rebound and the loss increases, we continue to replenish the second order (with an even larger position) at the technical level below the first replenishment to lower the average cost.
If the market rebounds and we make a profit, we close all positions; if we cannot make a profit and the paper loss increases, we replenish the third order (with an increased position) below, and this cycle continues. Each replenishment is with a heavier position than the previous one, until after replenishment, the market rebounds and we can make a profit, then we close all positions and start a new order. The method of operation is slightly complex, but the logic is similar to the Martingale casino strategy mentioned earlier.
In simple terms: enter orders, replenish on paper loss, and close positions on rebound profit. Many people will feel a sense of familiarity when they hear this.
This is similar to the way most retail investors operate in the stock market, but many retail investors fail to make profits using this method. Why is that? Because "enter orders, replenish on paper loss, and close positions on rebound profit" is a trading logic. To achieve profits, having a trading logic is not enough; you also need a trading system that fits this trading logic.
Let's analyze the main reasons why retail investors lose money using this logic:
1: The entry point is too high, the downside space is too large, and the number of replenishments is too many. After averaging the cost, the price is still high, and the market rebound cannot generate profit.
2: The position size is used unreasonably, with a heavy top and light bottom. The position size for the replenishment above is too heavy, and after the market falls, the position size at the lower level is too small to lower the average cost.
3: The replenishment intervals are unreasonable. If the replenishment intervals are too dense, it occupies the funds too early, and there is no money available for later use. If the intervals are too large, they are not enough to lower the average cost.
4: Stock selection issues. Selected stocks with fundamental problems, or even delisted stocks, are beyond recovery.Synthesizing the issues mentioned above, let's discuss the operational methods of using the Martingale strategy in the stock market.
1: Stock Selection.
Choose leading stocks with good fundamentals and low risk of delisting, or directly select ETF funds, such as Securities ETF, CSI 300 ETF, etc. These ETFs have low fundamental risks, and there are no stamp duty costs for buying and selling, making them a good choice.
2: Position Opening.
Select stocks that have experienced a wave of decline, are in a low-level consolidation pattern overall, and have good fundamentals.
3: Position Supplementing.
Supplement positions based on technical levels, for example, after the stock price falls to support, supplement in batches. Alternatively, supplement in batches according to a fixed decline space, such as supplementing once for every 1 yuan the stock price falls.
4: Position Sizing.
Allocate funds to more than 3 stocks or ETFs, and further divide the funds allocated to each stock into several parts, supplementing in batches, which helps to diversify risks.
5: Closing Positions.
This step involves closing positions to realize profits or cut losses. It is important to have a clear exit strategy based on predetermined profit targets or stop-loss levels to manage the risks associated with the Martingale strategy effectively.After replenishing the position, when the market retraces, it is crucial to close the profitable trades in a timely manner and wait for the market to fall again before re-entering.
This approach, because it involves selecting stocks or ETF funds with good fundamentals, carries a very low risk of delisting. Moreover, by starting from a low stock price and buying in planned batches, the risk of being stuck is minimal. Funds are also allocated across different stocks, further reducing risk, which can be understood as a stock strategy with a very high probability of profit.
However, the Martin strategy also has a significant drawback: since it always uses positions in batches and keeps funds for replenishment, the utilization rate of capital is not high, and the overall profit level is not high either. If you are not pursuing high returns in the stock market and have enough patience to hold positions, you can refine the method mentioned above and then implement it.
In conclusion: There is no 100% successful strategy in the world of trading; every strategy has its weaknesses, and black swan events in the financial market are unpredictable, with certain market conditions that will not cooperate. The essence of profit is to play to your strengths and avoid weaknesses, to control losses in uncooperative markets, and to make more money in cooperative markets, thereby achieving overall profitability.
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