Improved Martingale Betting System- Does It Work?

The martingale betting system is a popular gambling strategy that involves doubling one's wager after each loss in the pursuit of recovering previous losses and securing a profit equal to the original bet. The underlying idea is that, statistically, a win will eventually occur, allowing the player to recoup losses and gain a net profit equal to the initial stake. While simple in concept, the martingale system carries inherent risks, as it assumes unlimited funds for doubling bets and disregards the fact that losing streaks can persist longer than expected. Thus, this system will eventually result in bankruptcy.

Reference [1] however argues that different perspectives exist regarding whether stock price movements adhere strictly to a random walk, often modeled as a geometric Brownian motion. This suggests a potential for enhancement in the martingale betting system. The author has subsequently introduced an enhanced martingale betting system that includes a stop policy. They pointed out,

This research shows that before a certain threshold is exceeded, as the leverage increases, the return will also increase, and the traditional MBS method of double betting after every loss will have high probability leading to bankruptcy.

The control of a, n and total leverage in IMBS has significant improvement over EWBS and MBS, whether there is a stop loss mechanism or not. Of course it would be better to set SL function. The test of TX historical data also shows that IMBS has a significant improvement compared to EWBS and MBS, especially in PBS. This implies that price breakout is the most profitable strategy in TX intraday trading.

This research shows that we may apply IMBS mechanism with appropriate settings on total leverage (an) to gain a better performance for intraday trading strategies in TX. Hence, we should put more attention on settings of a and n, since they have more impacts than other parameters.

In short, after testing on real data, the article concludes that

• The conventional martingale betting system inevitably leads to bankruptcy,
• With the integration of a stop policy, the new and improved martingale betting system demonstrates enhanced efficacy.

Let us know what you think in the comments below or in the discussion forum.

References

[1] Ting-Yuan Chen, and Szu-Lang Liao, Improved Martingale Betting System for Intraday Trading in Index Futures—Evidence of TAIEX Futures, Asian Journal of Economics and Business, Year:2023, Vol.4 (2), PP.339-366

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