THE MARKET DOESN’T slit our throats — we do it to ourselves. The Martingale, gambling lingo for what experienced traders call “doubling down,” is perhaps the quickest means to a bloody end. I got my first gray hair the day I understood why the Martingale system, despite all its attractions, simply doesn’t work.
The gambling system, which dates back to a London gaming house in the late 1700s, is completely irrational, yet incredibly seductive. The thinking: If you keep doubling your losing bets, eventually a winning trade will make up for the losses. Like making a deal with the devil, the Martingale system will always comes back to haunt you — and often more quickly than you might expect. (For a more detailed history of the Martingale, I’d recommend Nicholas Dunbar’s wonderful book, “Inventing Money.”)
Unlike Jim Cramer or Arch Crawford, I don’t give out a list of stock picks each week. My philosophy is that trading technique, not security selection, is what ultimately determines success. We of the Tradecraft prefer not to give a man a fish so that he may eat for a day, but to teach a man to fish so that he may eat everyday. (more…)