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Introduction to Futures Martingale Bot

Toobit-Ivan

Introduction  

Dollar-Cost Averaging (DCA), also known as the Martingale Strategy, is a widely adopted investment technique commonly employed in the traditional financial market, particularly in the forex arena. This strategy revolves around the principle of consistently investing a fixed amount of capital into a particular asset at regular intervals, regardless of its prevailing market price.
The Martingale Strategy's underlying concept lies in placing directional bets in a double-sided market, where both long and short positions are permissible. In the event of an unfavorable outcome, the strategy dictates doubling down on the opposing direction. This process continues until the market undergoes a corrective phase, enabling investors to capitalize on the gains accrued from buying at lower prices and selling at higher ones.
Due to its inherent advantages, the Martingale Strategy has gained traction among a diverse range of investors. However, it is crucial to acknowledge, given the inherent risks associated with any market, that this strategy does not guarantee profitability. Therefore, investors must take the necessary actions towards risk management practices.
In response to evolving user demands, Toobit has introduced a groundbreaking iteration of the Martingale Strategy specifically tailored for crypto asset contract trading. Toobit's Contract Martingale Strategy empowers traders to engage in dual-directional trading, enabling users to both accumulate assets at lower prices and profit from market corrections.
 

Example

Let us assume that the current price of BTC is 28,000 USDT and a trader has enough margin to execute the maximum addition for this round. The trader decides to short BTCUSDT with an initial order size of 0.1 BTC, and configures the Futures Martingale with the following parameters:
  • Investment amount: 0.1 BTC
  • Trigger price：28,000 USDT
  • Derivatives pair: BTCUSDT
  • Price Increase: 2%
  • Position Multiplier: 1.2
  • Leverage: 10x
  • Max Addition per Round: 3
  • Profit Target per Round: 2%
  • Cycle times：3
If the market price continues to rise, for every 2% increase, the bot will automatically create another short order at the higher price point and repeat the process until the Profit Target for that round is reached. After the third round of addition, the position details are as follows:
The first cycle time:
Addition
Order Type
Order Price
(USDT)
Average Holding Cost
(USDT)
Order Quantity
(BTC)
Initial Entry
Open Position Order
28000
28000
0.1
1
Add Position Order
28560
28306
0.12
2
Add Position Order
29132
28633
0.144
3
Add Position Order
29714
28980
0.1728

 

Order Quantity
Order Quantity1= 0.1*1.2 = 0.12 BTC
 
Order Price
Order Price1= 28000*（1+2%）= 28560 USDT
 
For long positions: Next order price = Average holding cost × (1 - Percentage Decrease)
For short positions: Next order price = Average holding cost × (1 + Percentage Increase)
 
Short Position Take-Profit Price：
Average Holding Cost*（1-Profit Target）= 28980*（1-2%）= 28400.4 USDT
 
For Long Position Take-Profit Price：= Average Holding Cost*（1+Profit Target）
 
Scenario 1 - The current market price is 28400.4 USDT
The price has dropped back to 28400.4 USDT, the Take Profit order is triggered and executed at market price. As the trader enables the loop, when the market price reaches the Take Profit price, the bot will automatically close the current positions and start a new round of position building. Assuming the position is closed at 28400.4 USDT, the realized PnL for this round of the Martingale strategy is as follows:
PNL for this Round：（28980-28400.4）*0.1728 = 100.1548 USDT
Assume that the Funding Fees and Trading Fees are negligible.
 
Scenario 2 - The current market price is 28400.4 USDT
The current market price moves in the trader’s favor but remains above the Take Profit price. The bot will still be running, but it will not add any more short positions. Only when the market price reaches the Take Profit price level will the bot close existing positions and start a new round of trading.
Scenario 2.1 - The current market price continues to rise.
As the current market price continues to rise, for every 2% increase, the bot will automatically buy another short contract at the higher price point and repeat the process until the Maximum Addition per round is reached. After that, the bot will still be running, but it will no longer add short positions.
 
 
Initial Market Price
1st 2% Increase
2nd 2% Increase
3rd 2% Increase
4th 2% Increase
5th 2% Increase
Entry Price (USDT)
28000
 
28306
28633
28980
29560
30152
Order Size (BTC)
0.1
0.12
0.144
0.1728
0.2074
0.2488
 
In the worst-case scenario, assuming that the market does not reverse and continues to move in an unfavorable direction, there is a risk that the user’s position may be liquidated.
 
While the Martingale strategy offers simplicity and potential for recovery, it comes with inherent risks and limitations that require careful consideration. Toobit would like to advise our users to consider the risks of aiming for high profit targets within a single cycle, and instead target modest profits to reduce position risks. Implementing risk management tools like Stop Loss can further reduce liquidation risks in adverse market conditions.
 

Advantages and Disadvantages of the Futures Martingale Strategy

Advantages

  • Dual-Directional Trading
By adopting the Futures Martingale Strategy, traders gain the flexibility to capitalize on both upward and downward market movements. This strategy empowers them to pursue profitable opportunities through both long and short positions.
  • Personalized Risk-Managed Trading
The Futures Martingale Strategy offers traders the flexibility to customize its parameters to align with their individual trading preferences and risk tolerance. This empowers them to fine-tune the strategy to suit their unique trading style and risk appetite.
  • Long-Term Strategic Alignment
The Futures Martingale strategy can be a compelling choice for long-term investors with strong market convictions and significant capital. It allows them to strategically align larger positions with their long-term market outlook.
  • Easy to Grasp, Easy to Use
The Martingale strategy stands out for its inherent ease of understanding and implementation. This straightforward approach makes it accessible to a broad spectrum of traders, regardless of their experience level.
 

Disadvantages

  • Market Price Fluctuations
When engaging in futures trading, traders employing the Martingale strategy must carefully consider the potential impact of significant market price fluctuations. In scenarios where prices exhibit sustained one-sided movements contrary to open positions, the resulting floating losses on held positions can escalate, potentially leading to margin calls and forced liquidations.
  • Automatic Order Cancellations as a Risk Mitigation
In the event that the risk associated with open positions exceeds predefined thresholds within the Futures Martingale system, the system will automatically initiate order cancellations. This risk mitigation measure aims to reduce overall position risk and prevent potential margin calls or forced liquidations.
  • High Leverage
Although Future Martingale’s feature allows traders to set up to 50x leverage, in unfavorable market conditions, trading with high leverage can amplify losses. It is important to understand the risks associated with high-leverage trading.
 
Risk Warning: Futures Grid Bot is a strategic trading tool and not financial or investment advice from Toobit. Use Futures Grid Bot at your own discretion and assume all risks associated with it. Toobit will not be liable for any losses you may suffer as a result of using this feature. Users are strongly advised to read and fully understand the Futures Grid Bot Tutorial, take appropriate risk management measures and trade sensibly within your financial means.

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