Many people have heard of the so-called "Martingale" strategy, traditionally used games of speculation. Take Sic Bo as an example — If you lose in one round, you will double your chips in the next round until you win.

According to probability theory, if the win rate of each guess is an independent event, then the probability to finally profit is 1-0.5^n. In other words, the more times you participate in a row, the higher the probability to profit. For example, the win rate of the 1st, 2nd, 3rd, 4th, and 5th guess is 50%, 75%, 87.5%, 93.75%, and 96.875% respectively.

As the chips you bet in the last winning round are double those you bet in the preceding round, the winning round can cover the losses in the previous rounds, ensuring that you make an overall profit. Assuming that you bet $10, $20, $40, $80, and $160 for the 1st, 2nd, 3rd, 4th, and 5th round respectively, and you win in the 5th round, the final profit will be 160 - 80 - 40 - 20 - 10 = $10.

The martingale strategy is believed by some to ensure guaranteed profits so long as you can bet with enough money. But reality is never so simple, and no one has unlimited funds. Even with a win rate of 99.99%, there is still a chance to get unlucky and lose all of your principal.

So how can we apply the Martingale strategy in an optimized manner to ensure a high win rate and high capital utilization? Let's take a look.

HTX Martingale Bot

The HTX Martingale Bot adopts the core principle of the traditional Martingale strategy, that is, searching for bulk bargains and selling one at a time, then allocating increased funds for each bargain to significantly reduce the average cost of positions held.

The HTX Martingale Bot buys coins of varying amounts after the price drops by a fixed percentage, specifically in a sequence of 1, 1, 2, 4, 8, 16... shares.

If configured to buy each time the coin price drops by 1%, the bot will make bulk bargain purchases when the coin price drops to 99%, 98%, 97%, 96%, 95% ... of the order price. When the price drops by 5%, the average price will be 95.97% of the initial price. In this situation, an increase of just 1.02% in the coin price will be sufficient to cover your costs, thus significantly reducing your risk. But in the case of the grid strategy, the coin price must increase by 4.2% to 99% of the initial price to cover your costs.

As such, the underlying logic of the Martingale strategy is clear. First, you must select high-quality assets. As long as the asset price fluctuates and does not keep falling to zero, the HTX Martingale Bot is able to profit. Second, the requirements for timing will be much lower. The Martingale Bot is highly likely to profit as long as the coin price does not keep falling after it is turned on.

In light of these reasons, users are recommended to choose a popular crypto asset where possible, then enable the Martingale Bot when the asset price has lowered to earn returns from volatility, control the possibility of losses from volatility, balance the risk of the asset falling further, and reduce capital drawdown.

HTX Martingale Bot is safer since it does not use leverage, and the percentage of price drop at which bulk bargains are bought can be configured freely. As long as selected asset is high-quality, the strategy should be profitable when the asset price rebounds, even if there is a certain drawdown in the short term.

We also back-tested the BTC/USDT Martingale Bot from Apr 1, 2020 - Jul 1, 2021 (a period of 15 months):

When using the default AI configuration, the Martingale Bot achieved an annualized return of 205.68% in a complete cycle of 1.5 years, performing 623 instances of arbitrage in total. When experiencing a bullish market (such as the May 19 period), the maximum drawdown was -52.84%, slightly lower than -55.44% of holding BTC without any strategy.

Increase for take profit	Decrease for increase position	Annualized yield	Rounds completed	Maximum drawdown	Maximum drawdown of Holding BTC without any strategy
1%	1%	205.68%	623	-52.84%	-55.44%

If the strategy is made more conservative by raising the price drop required to increase the position, the Martingale Bot can deliver more stable returns and smaller drawdowns. As shown in the table below, if we increase the position for every 10% drop, the maximum drawdown of the Martingale Bot will only be -16.37%, (far below the -55.44% of holding the coin without any strategy) while the annualized return will reach 122.12%, a solid balance of returns and risk control.

Increase for take profit	Decrease for increase position	Annualized yield	Rounds completed	Maximum drawdown	Maximum drawdown of Holding BTC without any strategy
1%	Increase the position for every 1% drop	205.68%	623	-52.84%	-55.44%
1%	Increase the position for every 2% drop	166.58%	852	-51.50%	-55.44%
1%	Increase the position for every 3% drop	133.97%	846	-46.35%	-55.44%
1%	Increase the position for every 5% drop	106.38%	684	-43.89%	-55.44%
1%	Increase the position for every 10% drop	122.12%	497	-16.37%	-55.44%
1%	Increase the position for every 15% drop	113.95%	361	-27.43%	-55.44%
1%	Increase the position for every 20% drop	110.29%	267	-17.22%	-55.44%

 

Martingale Bot Parameter Configuration

The HTX Martingale Bot follows HTX's always easy-to-use and convenient user experience.

Just as with regular trading bots, the Martingale Bot allows to you configure parameters manually or according to the AI strategy. The AI strategy is further divided into steady and balanced. The steady strategy reduces the maximum drawdown, but at the potential of slightly lower returns. The balanced style attempt to control returns and risk in a balanced manner. If you don’t know how to configure the parameters, the balanced style can be selected for popular cryptocurrencies, while the steady style is suggested for volatile altcoins.

AI Strategy

The Martingale AI strategy is currently in a relatively basic state, without any parameters customized based on the volatility of each coin. The balanced style increases the position for every 1% drop and takes profit for every 1% increase, while the steady style increases the position for every 5% drop and takes profit for every 1% increase.

The balanced style is moderate in both return and risk, while the steady style has lower risks and accordingly lower returns.

 

Manual Setting

There are 4 parameters in total for manual settings, further divided into common parameters and advanced parameters.

There are 3 common parameters, namely the decrease for increase position, increase for take profit, and investment amount. The advanced setting is the max position increases.

 

HTX Martingale Bot uses automatic cycle mode, meaning that after each bulk bargain purchase and sale to take the profit, it will automatically enter the next round. The following parameter settings apply to each round.

Decrease for increase position: After the first buy order in each round, if there is a decrease matching the decrease for increase position, an order will be filled in accordance with a proportion or an absolute value. If proportion is selected, a percentage shall be filled in. If absolute value is selected, a spread shall be filled in.

Increase for take profit: After batch bargain purchase and rebounds in each found, a sale to take profit is triggered if there is an increase for take profit.

Investment amount: The total investment amount of the Martingale Bot.

Max position increases: How many shares funds are divided into for bulk bargain purchases. Each time, coins will be bought in a sequence of 1, 1, 2, 4, 8, 16, 32… shares.

For example, assuming that the max position increases is set to 3, the funds will be divided into 8 shares to buy 1 share (i.e. 1/8 of the investment amount) at the beginning of each round. The bot will then buy 1 more share when it falls by a certain percentage (i.e. 1/8 of the investment amount), buy 2 shares when it falls by another certain percentage (i.e. 1/4 of the investment amount), then buy 4 shares when it falls by a certain percentage for the third time (i.e. 1/2 of the investment amount). If the asset continues to drop, the bot will increase its position further, but wait until the coin price rises back to a price that meets the increase for take profit, then sell all the 8 shares.

 

Martingale Bot vs. Trading Bot

The biggest difference between the Martingale Bot and Trading Bot is that Martingale Bot buys in batches and sells one by one, while the trading bot buys in batches and sells in batches. The Martingale Bot holds less assets when opening a position for the first time as it buys more and more coins as the price falls, while grid trading will hold a large amount of assets when closing a position as per the parameters configured by the user, averaging about half of the initial investment. In the event of a market rise, grid trading will earn more returns than the Martingale Bot. But in the event of a market drop, grid trading will also result in larger drawdowns.

The Martingale Bot will only divide funds into 32 shares by default, while grid trading will usually divide funds into more than 100 shares in order to realize more frequent arbitrage. As such, the capital utilization rate of the Martingale Bot will be higher than that of grid trading, and earn higher returns during high volatility.

The advantages and disadvantages of Martingale and Grid Trading can be summarized as follows:

Return from market trend	Martingale < Grid Trading
Arbitrage return from volatility	Martingale > Grid Trading
Risk	Martingale < Grid Trading