The "Vanilla Martingale" Strategy

Hello, fellow traders!

Every trader deep down dreams of a "break-even" strategy that will provide only positive emotions, without the pain of losing trades.

In this post, we will try to create such a trading system by combining a fundamental strategy with an averaging tactic. Meet the "Vanilla Martingale."

The topic of Martingale does not lose popularity in the Forex market. The strategy of averaging losing positions attracts traders by:

The last thesis is an indisputable fact that makes it easy to identify Martingale by the equity line. If in Myfxbook statistics or PAMM reports you see a smooth rise in the return curve, this is a 100% sign of using the tactic of averaging and increasing losing positions.

In the figure above, the reason for the main criticism of Martingale is visually evident. Averaging losing positions in order to speed up loss recovery can bring an account closer to a blowout if the trader:

Besides the two problems named above, there are others as well. Martingale is more correctly called a tactic rather than a strategy; it is only a rule for averaging losses and increasing positions. The trader will additionally have to develop or choose from ready-made strategies the methods of:

The result is such a complex trading system with many settings and rules that Martingale is rarely traded manually, using instead expert advisors, which are available in sufficient quantity on the Tlap website and forum.

Martingale attracts beginners in the Forex market, but so-called "vanilla" strategies are more suitable for novice traders. They are trading by simple and understandable rules - moving average crossovers, signals of oscillators.

Two or three sets of filters - no more, to avoid mistakes. The low accuracy of signals is compensated by the absence of mistakes, which are the main cause of losing a deposit. The ideal option for a beginner is arrow indicators.

Martingale in Forex cannot be classified as a vanilla strategy, but that is only at first glance. The correct selection of instruments, visualization of entry levels on the chart, and a compensatory loss mechanism simplify trading with averaging and increasing the position.

Moreover, vanilla Martingale makes it possible to build a pyramid, turning into a deposit acceleration strategy.

Choosing currency pairs with a one-way trend is the easiest way to simplify Martingale trading. In this case, the trader will trade only in one direction, and the long-term nature of the trend guarantees the eventual closing of all hanging trades.

Please note: the EURCHF pair has had a clear downward trend for 50 years. Part of this historical chart is an approximation of the curve into the past for clarity; the euro appeared only in 2002.

Now we need to select an instrument with a rising long-term trend to compensate for losses during positive rebounds of the EURCHF pair. This task turned out to be difficult: over a 50-year span, a more or less clear upward trend was observed in the SGDUSD pair.

Entry points at pivots - levels calculated using the day's opening, closing, and high prices - will significantly simplify the Martingale strategy.

The lines are applied to the chart automatically using an indicator. The trader can place three pending orders at R1, R2, and R3 for shorts, and S1, S2, and S3 for longs in advance at the beginning of the session.

According to statistics, the price touching the first lines R1 and S1 leads to a correction in 60% of cases, R2 and S2 in 80% of cases, and the price almost always pulls back from R3 and S3. It is logical to assume that at each level except R1 and S1, the trader can increase the lot size by a coefficient selected with the help of money management.

The EURUSD currency pair, which has the dominant trading volume in Forex, will significantly simplify vanilla Martingale by acting as a benchmark.

Trading is carried out only on one of these instruments while the local EURUSD trend is developing.

The Forex currency market rate largely depends on the monetary policy of the ECB and Fed financial regulators. US rates are of great importance; forecasts of their growth and actual hikes are directly reflected in the yield of Treasuries - government bonds of the Treasury.

The chart of ten-year bonds is ideally suited to the role of an indicator of the Forex market trend. Only you need to take their price - price, not the yield curve.

As long as US10Y Treasuries on the 10-day period are below zero, the dollar will strengthen, which means trading is done only on EURCHF. A rise in price above relative zero on the 10-day period will force a switch to shorting USDSGD.

Three-hour candles will reduce the number of false signals. When the trend direction changes, you need to wait for the moment when the price holds above/below zero during the daily session.

Platform: Metatrader 4, 5

Currency pairs: EURCHF and USDSGD, or AUDCAD and EURGBP, or AUDCHF and EURSEK

Timeframe: any intraday

Indicators: Pivot Points, US10Y chart

Trading time: around the clock

Recommended brokers: Alpari, RoboForex, TickMill

1. Determine the trend direction from the US10Y three-hour candle chart. If Treasuries on the ten-day period are above zero for more than a day, open the USDSGD pair for trades; if they are below zero - prepare to open positions on EURCHF.

2. All positions on the pairs are opened only in one direction, matching the global trend. In this sense, trading on EURCHF and USDSGD is conducted only from the short side (SELL).

3. On the pair that fits the US10Y bond trend conditions, place pending orders at the start of the session. To do this, apply the Pivot Points indicator to the chart, which draws the intraday resistance lines R1, R2, R3 and support lines S1, S2, S3.

4. We are interested in the R-levels because of the condition of trading only from the short side. Sequentially place three Sell Limit orders on the corresponding lines. The first is one trading lot in size, the second with a coefficient of 1.2, the third 1.5.

The strategy has no stop-losses.

The historical chart of the selected currency pairs shows a maximum correction level of 30%. The trader will have to leave a reserve for the losses of the second pair as well, whose rate may diverge and fail to cover the loss of the first position.

Ideally, we get 0.01 lot per $500 of deposit. We allow the opening of 6 legs, and the amount increases to $ 3000. It is clear that for the vanilla Martingale strategy, a cent account is more suitable.

The long-term nature of the trends of the selected instruments guarantees that trades will reach the profit zone. In this case, it makes sense for the trader to open new positions, increasing the overall leverage and profitability of the strategy.

A pyramid requires the mandatory presence of a breakeven stop-loss on all already active orders so that an unexpected "spike" does not "kill" the deposit.

Despite the name "vanilla Martingale," the presented strategy requires the trader to have sufficient experience when working with order grids. 

The tactic of averaging and increasing losses is dangerous with improper money management. One negative piece of news is enough to blow a deposit in a day or in several hours of very strong fluctuations.

Forum thread

Sincerely, Ivan Petrov
Tlap.io