The general definition of Martingale and Aggressive averaging:
In the realm of investing and trading, strategies range widely in their approach to risk, reward, and market philosophy. While we strive to educate and foster better decision-making among traders, our stance on aggressive averaging trading techniques versus normal price averaging is rooted in a desire to promote sustainable and thoughtful trading behaviors. Aggressive averaging like martingale, which involves opening positions with increasing amounts of money in the hopes of recovering losses and eventually securing a profit, embodies a high-risk, high-reward strategy. This method assumes a win is ultimately guaranteed, yet it overlooks the significant risk of incurring large losses, potentially leading to financial distress and poor investment decisions.
On the other hand, investing equal amounts of money at regular intervals regardless of the asset's price represents a methodical and risk-managed approach to trading. By utilizing this technique, traders aim to mitigate the impact of market volatility. This strategy does not attempt to time the market or predict future price movements but rather focuses on long-term strategy through a disciplined and steady trading plan. We aim to steer traders towards strategies that foster patience, reduce the likelihood of emotional trading decisions, and ultimately contribute to a more stable and prosperous financial future both for the trader and for Fintokei.
How do we calculate it?
The methodology is simple. We will compare your trades to what a periodic, linear averaging would look like. To accomplish this, we will take the highest and the lowest prices of your grouped trades and calculate the average. We will then add a 10% buffer to this value, derived from the highest and lowest prices, to allow for some flexibility. This serves as our baseline.
Next, we will calculate the weighted average of your grouped trades. If this value is lower than the baseline and your trade direction is buy, we will consider the trades to be too aggressive in terms of averaging and therefore not ok. For the group of trades in sell direction, if your weighted average is higher than the baseline, the trades are not ok.
Additional rules
The “group of trades” is defined as opening more than one position on a certain instrument and in the same direction whilst the first position opened on the same instrument is in drawdown.
Even the “group of trades” that ends up in loss altogether will be assessed for aggressive averaging.
We will start assessing this after you open more than 5 trades on your account.
It is prohibited to open more than 10% of all your cumulative trading volume in lots as part of “too aggressive averaging”.
In case we identify such behavior you will get the first warning.
From the following day, if we identify that more than 10% of all your cumulative trading volume in lots after the first warning are again being opened as part of “too aggressive averaging”, your account will be breached.
In case we identify that more than 50% of all your cumulative trading volume in lots are part of “too aggressive averaging” at any time, your account will be breached right away, without any warning.
The above does not constitute the full list of possible trading combinations deemed too aggressive. Any variations of the above with intent to average a group of trades in too aggressive manner irrespective of their individual open/close times will be evaluated as well.
Kindly be advised that this definition applies to general instances and explanation, and the company retains the privilege to assess each case on an individual basis.
If you are interested in checking your trades, if you feel that you have broken the rules with your trading or if you just want to check before starting trading that your setup is not considered a prohibited Martingale or Aggressive averaging practice, please download this calculator, fill in your data and calculate the result.
This general definition is valid for accounts with a purchase date of May 6th 2024 00:00 UTC or later.