Martingale

The martingale is the oldest recovery system: after each loss, increase the stake so that the next win recovers all previous losses plus a small profit. In fixed-payout trading the stake must grow even faster than doubling, because a win pays less than 100%.

It feels safe because most sequences end with a win and a small gain. The problem is the rare long losing streak. Stakes grow exponentially, and either the balance or the maximum stake runs out before the win arrives. The system converts many small wins into an occasional catastrophic loss, while the expected value of each trade stays exactly what it was.

With a $10 start and an 80% payout, each stake must be roughly 2.25 times the previous one. After six losses in a row the next stake is about $1,300, and more than $1,000 is already lost — all to come out $8 ahead.

The word has a second, unrelated meaning in probability theory: a process whose next move is unpredictable on average. Sky Trade's OTC price model is a martingale in that statistical sense, which is exactly why a betting martingale has no edge there. See why martingale fails.