elmira_seylabi@yahoo.com wrote:

hi
i am a student
i need an example about how to use martingale in real market
please send me an real example of use martingale in finance

    This is a very risky method of investing. The main idea behind the Martingale system is that statistically you cannot lose every time, and therefore you should (if a believer in Martingale) increase the amount allocated to your investments--even if they are declining in value--in anticipation of a future increase.

    The Martingale system is commonly compared to betting in a casino. When a gambler using this method loses, the next bet is doubled. By repeatedly doubling the bets, the gambler will (in theory) eventually even out with a win. Of course, this is assuming the gambler has an unlimited supply of money.

    The fallacy behind the system is that you can easily go broke when you encounter several consecutive losses.  Once you have lost all your money, there is no opportunity to recover.

    I hope you are asking about Martingale with an academic interest and that you have no intention of actually trying this with real money.

    A real example would simply be buying some stock and doubling your investment every time the stock price declined by a specific amount.  Thus buy 100 shares at $50 per share, paying $5,000.  If the stock drops, buy  125 shares at $40, again investing $5,000. Then buy $5,000 worth of stock at a lower price, perhaps $32 per share.  Do it again and again until you have invested all your money or until the stock rallies enough so that you have a profit.  This is a VERY bad idea.  Don't do it.

Mark