In 2013, one of the Forex geniuses announced his betting sequence by which traders can beat the forex market. He announced this in a forex conference organized in Morocco. His idea is simple as this: Forex market is unpredictable; therefore, it is almost impossible for a retail trader to make money. The only way to win, according to him, is to use Mathematics to define a position sizing that allow traders to overcome their losing trades.
Before delving to talk about his sequence, let us first uncover why he considered forex market as unpredictable.
In fact, his view has some logic. Unlike 80s and 90s, in 2000, high-frequency trading invaded the forex market and traders start to use robots to take the edge over the market. Imagine a robot taking thousands of orders per second. Before even you think to move your hand to buy or to sell, the robot has already executed thousands of orders. As a result, forex market became so unpredictable and full of fake moves. Indeed, this doesn’t leave any chance for humans to succeed in Forex.
Mustapha Belkhayat believes that the only way to beat these robots is through the use of Mathematics.
In fact, Belkhayat’s system is not about entry/exit rules, but about the position sizing (martingale).
How does it work?
To make things easier, let us explain it this way.
Let suppose that you flip a coin once.
- The probability of a coin toss coming up head will be 50%, 1/2, or 0.5
- The probability of coming up nail will be 50%, 1/2, or 0.5
Therefore, the probabilities of having head and nail are equal.
You may wonder how can we make money in the financial market with such a probability? The answer is that we don’t need a certitude to make money. We only need to increase our chance of winning to up to 94%. We will clarify this in the following sections.
How to use this in the forex market?
Mustapha Belkhayat proposed that instead of dealing with each trade separately, it is better to deal with a row of trades. He suggested 12 trades.
- When you lose a trade, the next trade will be the same size of the lost trade
- When you win, the size of the following trade will be the size of the previous accumulated losses+1
Indeed, to be applicable, these two rules require having 2 consecutive winning trades.
The question we must ask here is: what is the probability of having two consecutive trades in a row? To answer this question, we need to go back to our coin toss game.
What is the probability to win if we flip a coin twice?
To know how much chance we have to win, we need to know the results that you can get.
We can win the first toss and the second,
or win the first and lose the second
or lose the first and win the second
or we lose both tosses.
Let assume that we have a trading strategy with the performance of 50%, like a coin toss. The results will be then as shown in the following picture.
*Remember: to win, you need to have two consecutive trades according to the rule.
As a result, we have two consecutive trades only in one sequence (in green). The probability of winning is, therefore, 1 out of 4 : 1/4 = 25%
In this situation, we have 8 sequences, we only won in three.
The probability is then : 3/8 = 37,5%
As you see, the probabilty of gain increases from 25% in the sequence of 2 trades to 37,5% in the sequence of 3 trades.
In the sequence of 4 trades, the probability of gain will be 9/16 = 56.25%
In the sequence of 12 trades, the probability will more than 94%
Risk associated with Martingale
Since Martingale is a dangerous system, we need to close the sequence as quickly as possible.
According to the rules, we can only close the sequence when we get two consecutive trades. That’s because when we have a winning trade, we double the size of the next trade to recover previous losses. Then, we close the sequence.
As we have seen previously, the more the sequence is long, the chances are to close it. In the sequence of 3, the probability of closing the sequence is 37,5%. In the sequence of 4, it is 56,25%. However, in the sequence of 12, the probability is 94%.
Alembex Betting system
The previous study shows the probability of closing a sequence in a row of trades. Now, let us discuss the betting system that we can adopt to beat the market, according to Mustapha Belkhayat.
Let give two examples for a demonstration
The first 3 trades are losing trades. Therefore, we didn’t double the bet in the sequence.
In the fourth trade, we have a winning trade; therefore, we doubled the bet in the fifth trade.
Let assume that we bet $1 in each trade, so in the three first trades, we have lost $3.
In the fourth trade, we bet $1. Since it is a winning trade, then the total amount lost is -3 + 1= -2.
In the fifth trade we bet $3. $2 that we’ve lost previously and $1 to win the sequence. Since the fifth trade is a winning trade, we closed the sequence and won $1
Unlike the first example, we didn’t have a winning trade in the 5th trade. Consequently, we didn’t close the sequence. However, we continued betting the same size, which is, in this case, $3. The losses start to accumulate until the 7th trade where we have the first winning trade.
The accumulative losses are $5, then we bet $6 in the 8th trade. We won the trade and we closed the sequence with $1 gain.
Final note about Alembex
To apply Alembex Martingal in your trading, you need to make sure of the following points:
- To succeed with Alembex, you need to have a big account. That is to say, your account should be big enough to support 12 losing trades, hopefully more, with their accumulated losses.
- To succeed with Alembex, you need a trading strategy with a performance of at least 50%. The more the performant the strategy is, the chances are to close the sequence quickly.
- The best trading style to apply Alembex is scalping. Alembex won’t work with swing trading or other long term trading styles. It is better to chase 15 to 20 pips in a trade. That’s mean you risk only a small amount of money and you can execute several trades daily.
- Avoid greed and fair. You must stick to the strategy when you lose and avoid being greedy when you make consistent profits.
- Alembex works well with ECN brokers since they offer low spread and fast execution.