Introduction:
Discover how a Martingale trading bot turned a $200 investment into a remarkable $137 profit in just 90 days, representing a staggering 68% increase in a mere 3 months. This article provides valuable insights and strategies for implementing the Martingale strategy on KuCoin.
What is Martingale strategy?
Originally used in gambling, the Martingale strategy has made its way into the world of cryptocurrencies, offering a unique approach to trading and risk management. This strategy involves increasing the position size after a loss, aiming to recover previous losses and secure a profit when a winning trade occurs. The underlying belief is that market conditions will eventually shift in favor of the trader, allowing them to recoup losses and emerge with a profit.
For example:
Suppose I place a $10 bet in the initial round and experience a loss. In the subsequent round, I would wager $20. If I succeed in the second round, I would not only recoup the $10 I lost previously but also earn a profit equal to my initial $10 bet. Nevertheless, if I were to lose in the second round, I would then bet $40 in the third round… and so on. As long as I eventually win at least once, I would not only recover all previous losses but also secure a $10 profit. Once a profit is achieved, the same process can be repeated.
Advantages of the Martingale strategy
The Martingale strategy reduces average position costs through continual position increases. By doubling (or substantially increasing) the position size after each losing trade, traders can effectively average down the entry price. This approach appeals to crypto enthusiasts who have long-term faith in a particular cryptocurrency but expect short-term price fluctuations. Increasing positions during dips enables traders to capitalize on price reversals and ultimately benefit from the cryptocurrency’s upward movement.
Limitations and risks of the Martingale strategy
While the Martingale strategy offers potential advantages, it also carries inherent risks. As the position size grows with each successive loss, the potential for substantial losses increases.
Martingale Strategy for investing?
It is important to distinguish between investing and gambling. When gambling, the loss of the entire wager is immediate upon losing. However, in the investment market, declines occur gradually and in percentages. Therefore, one can choose to increase their positions whenever prices fall by certain percentages. Additionally, profits can be taken when a specific profit threshold is reached.
For example:
If I were to program the bot to increase my position by 1% whenever the cryptocurrency price drops, and set it to increase the position four times, with a profit-taking rate of 2%, my initial investment amount would be divided into 31 shares, with one share initially invested.
If the cryptocurrency price were to fall by 1%, another 2 shares would be used to increase my position. If the price were to drop by an additional 1%, another 4 shares would be utilized to further increase my position.
Following this pattern, the next position increase would involve 8 shares. When the cryptocurrency price decreases by 4%, a total of 16 shares would be used to increase my position, resulting in a sum of 31 shares.
Throughout this process, whenever a profit of 2% is achieved, regardless of whether all funds have been utilized, the bot will execute a take profit action and initiate a new round of buying and selling.
The Martingale Strategy has the advantage of reducing average position costs by gradually increasing positions and selling the entire position when the price reaches the desired level. This can lead to lower overall costs and potentially higher profits.
To effectively implement the Martingale Strategy, it is important to select mainstream cryptocurrencies with good liquidity and upward trending prices with significant ups and downs. Cryptocurrencies that continuously decline with weak rebounds may lead to the depletion of allocated funds without ever reaching a take profit situation, resulting in prolonged periods of stagnation.
It is also crucial to set appropriate percentages for position increases and a suitable number of increases, considering that nobody has unlimited capital. The strategy involves splitting capital into multiple shares to increase positions at different points in time, and the number of total shares will vary based on the position increase multiple of 2. This can significantly impact capital utilization efficiency.
Setting up a Martingale bot on Kucoin
- Visit KuCoin and click on Trading Bot.
2. Next after logging in you’ll see the following screen.
You’ll see Spot Grid, this is a traditional grid bot for more info check out this article I wrote some time ago on grid bots. Here’s an article specifically on Grid bots:
Futures Grid is similar but with futures rather than spot trading. This allows for more leverage and more impressive gains but also the risk to lose everything. I do not advice this type of bot when you’re starting with crypto or bot trading.
Smart Rebalance is a way to rebalance your portfolio when one or more of your coins significantly increases or decreases in value. For more info about the idea behind rebalancing you can check out this article I wrote:
Infinity Grid is basically a spot grid without a predefined range this can be handy when there’s more volatility and less ranging but generally it has a lower return over a short period of time.
With DCA or Dollar Cost Averaging you set up a schedule and allow the bot the purchase at certain times thus averaging your cost throughout the year.
Martingale strategy is what we’re going to focus on for the purpose of this article.
First thing to do is select a coin pair, ideally you look for a coin that has good liquidity whose price is trending upward with a lot of ups and downs. The one I picked was FLOKI/USDT.
note: if market conditions change, close the bot and start another one with a more favorable coin pair.
Select you coin pair by clicking on the arrow next to KCS/USDT or the pairs listed in the table.
After selecting a coin pair you’ll be presented by a screen that offers a suggestion for settings, just click Create at this point
Next you’ll see an interface with the suggested standard settings pre-filled. At this point you can adjust the settings based on your preferences or use the suggested standard settings provided
- Percentage Drop for Position Increase:
Determine the desired price drop percentage before a new buy order is issued. - Max Position Increases:
Specify the number of desired buy levels, considering available funds. - Multiple for Position Increases:
Determine the factor by which the position should increase after each drop (e.g., 2 for doubling the position). - Take Profit Percentage:
Set the profit percentage at which you would like to exit the position.
Under Advanced Settings you’ll find extra options such as
- Condition for the Initial Position
- Subsequent Positions
- Price Range for Position Opening
- Stop Loss
You can select conditions based on a predefined parameter eg. the RSI(7,1 hour) < 30, this means when the 7 day RSI on the 1 hour chart is lower than 30 it opens the bot for buying. If you don’t know what RSI means I suggest to read my intro to crypto for beginners.
The settings I’ve used for this Martingale Bot :
- Percentage Drop for Position Increase: 2.5%
- Max Position Increases: 10
- Multiple for Position Increases: 1.6x
- Take Profit Percentage: 3%
Conclusion:
The Martingale strategy, when implemented effectively, can lead to lower overall costs and potentially higher profits by gradually increasing positions and selling the entire position when the price reaches the desired level. However, it is vital to consider the associated risks and limitations, choose cryptocurrencies wisely, and set appropriate percentages and position increase levels. By following these insights and strategies, you can maximize your chances of success when applying the Martingale strategy on KuCoin.
Alternatively you can set up a Martingale Bot on Pionex
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The above references an opinion and is for information purposes only. It is not intended to be investment advice and may contain affiliate links. Seek a duly licensed professional for investment advice.
