Forward and Reverse Martingale Position Sizing in Trading
Summary
The document introduces two stake-sizing schemes through coin-toss examples and simple simulations. Forward Martingale doubles the position after each loss and resets it after a win, aiming for a small gain per completed sequence. Reverse Martingale instead increases the position after wins and resets after a loss, which the text considers more suited to trending conditions. The examples track capital and streaks using a nominal 50% win probability.
The article then considers adapting Martingale to futures, where there is no casino-style fixed bet cap but adverse price movement can compound exposure. It identifies initial position size, the scaling multiple, and the distance between additions as key design choices. The simulations are illustrative rather than evidence of a reliable edge, and the discussion does not quantify margin, fees, slippage, or liquidation risk. Exponential sizing means a sufficiently long losing streak can overwhelm finite capital, while reverse sizing remains dependent on the persistence of favorable moves.
Key ideas
- Forward Martingale raises position size after losses and resets it after a win.
- Reverse Martingale increases size after wins and resets after a loss.
- The examples illustrate sizing behavior under a coin-toss assumption, not market profitability.
- Futures implementations must choose starting size, scaling multiple, and spacing between additions.
- Compounding exposure can make adverse streaks financially unsustainable.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.