A trading strategy where the position size is increased after each losing trade, with the expectation that the next winning trade will recover all previous losses plus a profit. This is a prohibited strategy at most prop firms.
Why It Matters
- 1Martingale is banned at most prop firms because it creates exponentially growing risk exposure.
- 2While it can appear profitable in the short term, a streak of losing trades can rapidly blow through any drawdown limit.
- 3A trader doubling down after 5 consecutive losses is trading 32x their original size — a single additional loss at that point would be catastrophic.
- 4Prop firms specifically monitor for position size escalation patterns that indicate martingale behavior.
Example
- 1A trader starts with 1 contract and loses $500. They double to 2 contracts and lose another $1,000. They double to 4 contracts and lose $2,000. Now down $3,500 total, they trade 8 contracts.
- 2Even if this trade wins $4,000, they've only netted $500 — but if it loses, they're down $7,500, likely breaching the max drawdown on a $100,000 account.
Common Mistakes
- ✖Using a 'soft' martingale (increasing size by 50% instead of doubling) and thinking it's safe
- ✖Not realizing that any pattern of increasing position sizes after losses looks like martingale to the firm
- ✖Confusing martingale with legitimate scaling into positions based on technical analysis