Martingale Strategy

The Martingale strategy is a betting system where a trader doubles their position size after every loss, with the intent that a single win will recover all previous losses plus a profit equal to the original bet. While theoretically sound in a game with infinite capital and no bet limits, it is a catastrophic strategy in financial markets.

Because crypto and options markets involve finite capital and leverage limits, the Martingale strategy almost guarantees an encounter with the Gambler's Ruin. A series of consecutive losses can quickly exceed a trader's margin, leading to liquidation.

It is often cited as a prime example of poor risk management, where the probability of a total wipeout is high despite the allure of guaranteed recovery. Professional traders avoid this approach entirely, favoring consistent risk management over recovery-based betting.