How to Trade with the Anti-Martingale

We often hear about anti-martingale strategies applied to trading. But what are these systems? Do they really work? In this article, we will dissect the anti-martingale system and explain the pros and cons of this approach. In addition, we will give you a practical example on MultiCharts applying the strategy to extreme market movements such as “Black Swans”.

What Is Anti-Martingale?

In trading, the term "anti-martingale" describes the strategy of decreasing the value of an investment after a losing trade and increasing it after a winning one.

The idea behind this strategy is to capitalize on positive periods by increasing exposure to the markets and to preserve your capital by decreasing the investment in the case of losing trades.

Unlike martingale systems, this approach allows for better risk management and greater protection of the trading account, in compliance with the principles of good money management.

However, if not applied correctly, even the anti-martingale can endanger your capital, so it is important to know how it works.

How Does the Anti-Martingale Work?

To understand how the anti-martingale works, let's briefly consider the opposite strategy from which it takes its name, the "martingale". The martingale is a "doubling" system, also used in gambling, that consists of doubling your investment even when you are losing. The idea behind this strategy is that a single successful trade can offset a bad streak.

The problem, however, is that we don't know when (and if) the "winning” trade will arrive. For this reason, the Martingale, as we explain in the link, can be a very dangerous system. Actually, the only real stop loss in a Martingale is the amount of money in your trading account.

The martingale, therefore, is an extremely risky strategy, more suitable for gambling (not surprisingly we are talking about "lottery trading") than for serious trading.

The anti-martingale does the opposite. By doubling or proportionally increasing the investment every time a positive result occurs (in the hope that the trade will continue to accrue profits), and halving it or decreasing it proportionally in the case of a losing trade, you maximize profits and minimize losses.

The fundamental aspect of this strategy is to correctly calculate the percentage of capital to invest in each operation. This amount is called your position sizing. It answers the question, “How much should I invest in each trade?”

In general, to avoid overexposure and properly manage your trading account, each operation should never exceed 2% of your available capital.

Anti-Martingale or Pyramiding: What Are the Risks?

Theoretically, anti-martingale systems allow you to increase your earnings by taking advantage of a movement that goes towards your position. The extra money obtained by taking advantage of this positive movement can allow for further exposure on the market and let you increase your position size.

The operation is quite simple: as you gain capital you increase your exposure. This way, when you close at the established point, you have a much higher position than what you could have obtained by trading "normally".

This type of mechanism is also referred to as "pyramiding a position in profit".

The problem, however, is that this “increased” position makes the account extremely vulnerable. In fact, every time you increase your exposure, losses are also increased, and a single retracement is enough to zero what was potentially earned.

You can obviously use stop losses to protect yourself, but the disappointment and the economic and psychological impact of a sudden loss are often difficult to bear.

It is a bit like hiking in the mountains. It takes time and effort to climb and "gain" the summit, and the higher you go the greater the risk of injury if you fall.

This is why it is important to carefully evaluate the risks inherent in this strategy before starting to trade with real money.

In Which Markets to Use Anti-Martingale Strategies

Generally, anti-martingale strategies are used in foreign currency markets but can also find application in other types of markets and, above all, in certain economic situations.

A typical example is the so-called "black swan". Black swans are unpredictable events, often negative and out of the ordinary, which can be very profitable to savvy traders.

In the video below, Andrea Unger demonstrates, with a practical example on MultiCharts, how to apply martingale and anti-martingale strategies in the case of black swans. As you will see in the video, both systems come with risks that you should never overlook.

Conclusions

Anti-martingale systems are based on a very simple logic: double the investment when the trade is good and halve it in the event of a losing position. In this way, any extra money obtained by pyramiding a profitable position can be used to increase exposure and the potential profit.

Conversely, in the event of a loss, the trading account will still be preserved.

By its nature, the anti-martingale approach allows for better risk management than the martingale strategy and also allows for better money management. In addition, this strategy can be applied during exceptional periods such as black swans.

However, the anti-martingale must also be used very carefully.

A retracement could not only eliminate potential profits but could also have a heavy economic and psychological impact on your trading.

The only way to avoid exposing yourself to these risks is to properly manage your trading activity based on a scientific method and rigorous money management.

Only in this way will you turn your trading into a serious professional activity and not some sort of lo