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The Martingale system is a probability theory that’s been popular in gambling since the eighteenth century, and more recently in forex trading. The strategy can be used in any situation where there is an even money (or close to even money) outcome – for example, a coin toss, or red/black on a roulette board. The idea of the Martingale System is to double the bet after every losing bet, so that when a win eventually comes, all losses are recouped, along with a small profit from the initial bet. Of course, for the system to work, a very large bankroll is required to counter the possibility of long losing streaks. The Martingale system originated in France during the eighteenth century, it wasn’t until the twentieth century, however, that the theory was examined more closely by probability theorist and mathematician Paul Lévy. However Lévy did not use the term “Martingale” – this was introduced in 1939 by Ville, who saw the similarities between Levy’s research and the earlier French betting strategies of the same name. The Martingale System is often applied in forex trading either manually or through expert advisors run on the MT4 trader platform. The system is attractive to new investors because on the surface it seems like a failsafe method for making decisions. But as the Investopedia definition of the Martingale system describes, it’s a “very risky method of investing” because of the inherent risk of a losing run that’s long enough to bankrupt the investor. Unlike forex trading, where more control can be exercised in the system’s use, in roulette the Martingale system actually has a negative expectation because of the house edge in the form of the zero (and in some variations the double zero). This house edge adds the extra chance of a loss every 36 spins. Using roulette as an example of the inherent risk of the system, in 73 spins there is a 50.3% chance that you will lose 6 “coin flip” (e.g. red vs black) spins in a row. This means that if your initial wager is $10, you would need to be placing a wager of $640 (after $10 + $20 + $40 + $80 + $160 + $320) on the seventh spin just to win back your original $10 bet. Of course, losing streaks even greater than six are also frequent. See this article for more information about the Martingale system in roulette. There’s really no such thing as a free lunch when it comes to systems like this, and the Martingale system is deceptively risky. The expected value is zero, and actually less than zero when it is being used on something that’s 50-50 yet the house is taking a percentage, such as in roulette. The zero expected value is just not very apparent because the downside seems so improbable, and yet is so catastrophic when it actually occurs. Whilst it may seem on the surface to be an infallible strategy, the Martingale system is inherently flawed because of the huge bank required and the inherent risk of losing that bank. Long losing streaks are far more common than intuition would suggest, and the small rewards from winning the vast majority of the time are quickly offset when a long losing streak occurs. In contrast to roulette the Martingale system is less risky when used in forex trading than in gambling. This is for several reasons, including: • Expert advisors can be configured to incorporate stop losses • Unlike the pure randomness of a coin toss, outcomes in the world of forex trading will to some extent depend on previous outcomes, making very long losing streaks less likely • The system can be adapted to be more sophisticated in order to deal with the greater complexities of the forex world, making it more of a variation on the traditional Martingale, and potentially profitable. One of the main downsides of using the Martingale system in forex trading is ending up on the wrong side of a down-trending market. Without proper stop losses in place to protect your position, the trades could continue to be executed by the expert advisor with the market experiencing a downswing, which could quickly put you in a position where a small starting trade has grown by several thousand per cent. If you’d like to experiment with some variations of the Martingale system in your own trading, it’s a good idea to try it with a demo account first and let it run over a large sample size so you can get a good idea for the potential for long streaks. Even after getting a firm understanding of how the Martingale system can work for forex trading, it’s still a good idea to make sure you are well leveraged before trying anything automated using an EA. Thanks to www.MapleLeafCasino.ca for their help with this article.

Crossovers are an indication of a change in the trend of an asset and they are used by investors to predict future movements in the price of a stock.

This is a contrarian trade strategy sometimes used to trade retracements. They can be used as a risk reduction strategy.

Investors use it to forecast future price movements.

Corrective waves move contrary to the trend and are seen when the price of the asset is retracing

This indicator which is based on Edwin Coppock's formula shows a buy signal when the curve on the chart shows an upturn from recent lows, and a sell signal when the peak in the curve is lower than the peak in the asset price.

A continuation pattern can be used by traders to make re-entries into an asset after taking profits during the brief retracement, or to take position afresh if the initial move was missed.

There are several patterns that appear on charts to indicate consolidation: horizontal channels, the flag/pennant component of the respective flag/pennant patterns, Doji candles, etc. They can be used as an exit point for those who got in early into the initial trend, or used as points of re-evaluation of trade positions.

Chart confirmations are used by technical traders to confirm trade entry and exit points. Many indicators used for technical analysis are imperfect and usually move ahead of time, give fakeouts or lag behind the market. Using a confirmation on a chart combines indicators and chart data to validate any alerts to a trade that have been generated.

In technical analysis, confirmation is used to ensure that the signal used is the correct one so as to prevent fakeouts or entering trades too late.

Common gaps are usually filled very quickly and are transient in nature.

High volatility with a strong trend are the characteristic sought after by short term traders. The CSI is the indicator that is able to identify assets with high volatility and which are strongly trending.

It is used in detecting trends that occur in a cycle as well as identifying price highs and lows of an asset.

It is also used in calculating the accummulation distribution line.

It signals the end of a trend and can be used to indicate when a trend is about to change or when price movements are about to get more volatile.

The trend is considered to be bullish if the Chikou span crosses above the closing price, and bearish if it crosses below the closing price.

Chartists use chart patterns to make a prediction on what the future price movement of an asset will be based on the exact pattern formed.

It is required for the holder of this designation to have passed a proficiency test that is conducted by the MTA. This title is used to indicate that the holder has been tested and found to have a level of proficiency in technical analysis.

It is used by charting analysts to determine the future price direction of an asset.

There are three forms of channels. If a channel is formed by downward moving prices, this is a descending channel. If it is formed by upward moving prices, this is an ascending channel. If it is formed by prices formed in a range so that the highs and lows that form the parallel lines are equal, then this is a horizontal channel.

This is an overbought/oversold indicator with levels above +50 showing overbought assets while levels below -50 show that the asset is oversold. This indicator is also used to produce crossover signals by the addition of a signal line, with a cross of the indicator line above the signal line being interpreted as a bullish signal and a downward cross as bearish.

This indicator created by Marc Chaikin aims to use the accummulation distribution line of the MACD indicator to determine the momentum of the asset and form a basis of a trade decision based on this.

Candlesticks are used by analysts to establish when to enter and exit trades. Patterns formed by candlesticks also form the basis of a form of technical analysis.

Investors who adopt this trading strategy hope for a possible reversal of the downward movement of the price of the stock that is being traded, and for it to move against the trader.

Investors use it as a sign to close short positions and enter into long positions.