Martingale is normally worked out in fixed capital amounts. It is commonly used for doubling up (averaging) or increasing position sizes when you are on the losing end of a trade.
You may also have heard of the Martingale system in connection with gambling. It’s the one where you “can’t lose”, by doubling your stake every time you lose to make back your losses. It’s usually used with betting on red or black on a roulette table. Say you bet one euro on red. If it comes up, good, you walk away with a win of one euro. If it doesn’t win, and black comes up, then you’re down one euro. So the next bet you place will be for two euros, again on an even chance.
This time if you win, you win two euros, one that replaces the one you lost originally, and another one which is profit. So you can walk away with a win of one euro. If you lose again, you’re down a total of three euros. Obviously roulette tables have limits, especially online tables, and so you could find that you are limited to the amount of money you can bet – which means if you have a really unlucky streak, you will have no chance of winning your money back.
When applied to the stock market this particular method of trading responds to losses by doubling a bet and this ‘system’ has been around for a long time and remains a controversial point of contention among trading purists. This system can lead to considerable losses, as it can be nothing more than throwing good money after bad. One example would be going long predicting the market to move up. However, the trade moves further down and believe it to be cheap so you buy more; then the market moves further south and you buy even more. By doubling every time, you are increasing your financial exposure. If you have deep pockets you may get away with this a few times, but one day you might end up stretching yourself too far. This method works better in even money systems where your probability of getting a trade right is close to 50% or better. But of course this is one major way that beginners tend to lose money. You definitely have to be prepared to take a number of significant losses prior to the point of profit for a martingal system to work.
Anti-Martingale is essentially working with percentages. You increase your position trade size when you’re winning, according to risk parameters, and decrease your position trade size when you are losing.
“Martingale strategies are when you increase the amount you are risking whenever you lose. Anti-martingale strategies in contrast mean you risk less on each subsequent losing trade. Utilising martingale strategies in the markets is very risky and will likely end up blowing your account in the end, whereas anti-martingale strategies permit you to survive a prolonged losing streak.”