As I say time and time again, my number one priority as a stock trainer is to keep you trading safely.
I talked about all of this in a recent blog post…but it all bears repeating.
If you trade too aggressively or fall for many of the seemingly foolproof strategies out there, you’ll eventually lose everything, and your trading goes kaput.
I get it, trading safely seems pretty boring and it’s not at all sexy… taking small wins here and there, sticking to your trading plan, sticking to your stops…
But the point is, you need to be boring to minimize your losses and survive another day in the wild world of trading.
The market doesn’t care about gunslinging trading cowboys. It doesn’t care about you. In reality, it’s a war zone and you need to employ the best risk management techniques you know to live and grow your account.
And as your account gets bigger, more opportunities become available to you.
As a trading mentor, I go live every morning at 8:30 am Eastern during my Premarket Prep.
I do this so I can get you ready the trading day ahead — with the setups I’m seeing, whether to trade them or not, and how to trade them with the least amount of risk…
All so you can trade another day and be as successful as possible.
Premarket Prep is part of my Daily Income Trader system. As a subscriber, you get five daily webinars, my weekly Squeeze Report, access to our proprietary trading tools, including Oracle, our algorithmic system, and much more.
Check out the Daily Income Trader system here.
Anyway, let’s discuss a trading approach that fools many traders. It seems like a sure thing, but believe me, it isn’t!
If you’ve ever taken a stroll through a casino, you’ve probably heard of the Martingale Strategy.
It originated as a betting system for roulette, but like most betting approaches, it can also apply to trading.
And the results? Let’s just say the Martingale Strategy has led more people to ruin than riches.
Table of Contents
Where It All Began: A Gambling System with High Stakes
The Martingale Strategy started in 18th-century France. Back then, it was a betting system gamblers used for games of chance, especially those with even-money outcomes, like betting on red or black in roulette.
The idea is simple: after every loss, you double your bet, and when you finally win, you recover all your previous losses and make a profit equal to your initial wager.
Wow, that doesn’t sound suspect, does it? [sarcastic voice]
After all, if you keep doubling down, you’re bound to hit a win eventually. It looks promising to many people because every new bet gives you a chance to wipe out your losses.
But there’s one huge catch: infinite losses require infinite capital—something no trader or gambler has.
In fact, casinos caught onto this a long time ago and introduced betting limits so players couldn’t continue doubling down forever.
The Temptation of Certainty
The appeal of the Martingale Strategy comes down to one thing: the promise of eventual success.
When people experience losses, there’s a natural tendency to want to “make it back.” Martingale offers what seems like a logical path to recovery—just double your bet after every loss, and eventually, the market (or the game) will swing in your favor.
This is why Martingale is so dangerous. It lures people in by making them believe they can control randomness.
But let’s be real—nobody can control randomness, especially in something as volatile as the stock market. And that’s why applying Martingale to stock trading is a trap.
How Traders Try to Apply Martingale
In trading, Martingale means buying more shares of a stock after the price drops. The logic is the same as in gambling: if you increase your position at a lower price, when the stock rebounds, you’ll not only make up for your earlier losses but also end up with a profit.
For example, say you buy 100 shares of a stock at $50, but it drops to $45. Using Martingale, you’d buy another 200 shares at $45. If it drops again to $40, you buy 400 shares.
You hope that when the stock bounces back to $50 or higher, you’ll be back in the green. But this assumes the stock will recover quickly…and you know what I say about the word “assume”, especially in trading.
Doubling down on your position after every loss is the opposite of risk management. It’s reckless.
Stocks don’t behave like roulette wheels or dice. They’re influenced by countless factors, including earnings, market sentiment, external events like geopolitical tensions or economic downturns.
And by the way, stocks can go to zero. I don’t care how good you think the company is, or how much you believe in the “buy the dip” mindset. Enron went to zero. Lehman Brothers went to zero. It happens.
If you’re doubling your position in a company that’s in a death spiral, you’re also doubling your losses.
And in day trading, thinking this way can be even more fatal since these stocks tend to be extremely volatile and unpredictable by nature.
Betting on a stock to bounce back just because you want it to? That’s not a strategy. That’s gambling, plain and simple.
As I like to say, “Hey, if this, ie, Martingale, is your strategy, go to the casino with your significant other, enjoy a nice steak, and practice your approach there. But it has no place in the stock market.”
The Problem with Martingale: The Risks Pile Up
The core flaw in the Martingale Strategy—whether you’re using it in a casino or in the stock market—is that it assumes you have unlimited funds to keep doubling your bets. But let’s be honest: no one has infinite money, and trading accounts are especially limited by margin, buying power, and emotional stress.
If you hit a streak of losses, the strategy quickly turns into a disaster.
We’ve all been there. You make a trade, it goes against you, and you start convincing yourself that it has to turn around.
And with Martingale, as you continue to double down, the deeper you go into the trade. And the farther into the hole you dig, the more desperate you become to be right, and the harder it is to stay rational. That’s called loss aversion and it’s a perilous mindset that leads to poor decision-making.
My Final Thoughts
The Martingale Strategy promises eventual success—but at a cost that most traders simply can’t afford.
What started as a simple betting system in 18th-century gambling halls has evolved into something far riskier when applied to the stock market. This strategy only belongs in the casino.
Martingale ignores the most important part of successful trading: risk management. Trading is not about always being right; it’s about managing your risk and living to trade another day.
Instead of relying on a flawed system like Martingale, focus on managing your risk, taking calculated positions, and continue learning.
Here at StocksToTrade, we offer many resources to keep your trading skills fresh and your trading safe.
Tune in to one of our free live webinars.
They run all day and offer trading tips and tricks, information about how we use our proprietary Oracle system, and other valuable training.
Or register for my StocksToTrade Advisory service…
Every STT Advisory member gets a monthly newsletter with my stock picks, three weekly videos, and more.
Have a great day, everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade