4 ms·

Let's say I'm applying martingale on an index like SPY or QQQ, which I plan to hold otherwise in a tax free retirement account. If I run out of cash to double

Let's say I'm applying martingale on an index like SPY or QQQ, which I plan to hold otherwise in a tax free retirement account. If I run out of cash to double down, I'm in the same position as I would be otherwise, except I've averaged down my entry price. When the index eventually comes back up, you profit, and resume martingale. How could this be a losing strategy on an asset you plan to hold otherwise?

pilarphosol 4y ago
I’d look into the Kelly criterion to get more color on this.
- lordnacho 4y ago
  Plug the numbers into the Kelly criterion. The fraction of your wealth you should bet when the coin is fair and you get paid evens is zero.
- chasebank 4y ago
  Kelly criterion is applicable to betting / trading, where you're winning / losing. If you never 'lose', ie., stay in the market, martingale seems really promising. For instance, SPY will never go to 0. The FED / US govt will never let it. In fact, it can't - it would destroy the US economy. So when you're playing a game where you know the graph will always to up and to the right, eventually, martingale seems appropriate. FWIW, I trade futures on the side and have always been interested in DCA or martingale long strategies.
  - mempko 4y ago
    And yet in the history of the world, countries and economies get destroyed all the time.
    - chasebank 4y ago
      True. But if the US equities market fails, there will be more to worry about than your stock portfolio.
throwaway81523 4y ago
This has nothing to do with martingales as a term used in gambling. A martingale in probability theory is just a type of stochastic process with certain mathematical characteristics, and this article is about using them on certain types of math problems where their usefulness is not otherwise obvious.