A high-yield tool in a volatile market, analyzing the OKX contract martingale strategy in three dimensions

It is seen horizontally as a peak on the side of the ridge, and the height of the distance is different. - Song Su Shi “Title of the Western Forest Wall”

Interestingly, financial markets are similar to quantum mechanics.

Whether it is the rise and fall of the market or the electronic movement, there is no exact trajectory or stable state, but it is described based on probability. From this logic, we can derive the basic market view and methodology:

First, the market is unpredictable. The second is that profits come from market fluctuations, that is, the switch between down, sideways and upward patterns, and the trading principle is to keep buying low and selling high. Third, the “holy grail of trading” that maintains a 100% winning rate for a long time does not exist at all, which is contrary to the objective law, but through multi-dimensional analysis such as trading strategy, risk control, data analysis, and project research, the winning rate of trading can be improved. These basic understandings are necessary for users to understand the market.

However, the emergence of the martingale strategy, which is known as the “trade must win”, the “holy grail of the market”, and the “100% win rate”, seems to have broken these objective laws that dominate the market. As a systematic contrarian investment strategy, the martingale strategy has been polarized for a long time, vividly reflecting the two sides of the return and risk of financial instruments, and is the most popular and controversial in financial foreign exchange trading.

This article will take the current OKX contract martingale strategy product as an example, focusing on the analysis of the underlying logic and characteristics, the application scenario and the differentiation of the same type of products, and the use of teaching and parameter explanations to deeply analyze the strategy, aiming to understand and learn to use the real martingale strategy.

Analysis of underlying logic and characteristics

From the perspective of probability and statistics, each dice roll is an independent event, which means that the first 99 dice rolls will not affect the 100th die, that is, the probability of each dice opening big and small is always 50%, which reflects the independence of each transaction. But many people think that as the number of orders opened, the win rate also increases, which is wrong.

Martingale logic first originated in small-town gambling in France in the eighteenth century, starting from the first roll of the dice, if you lose money, you will double the bet, because the probability of winning or losing each transaction is 50%, as long as you continue to gamble, there is always a time to win back all losses and earn the same amount of the first principal. For example, if the first bet is $1 and the fourth bet is successful, then the loss of the previous 3 trades will be made up and the profit will be $1.

That’s why martingale logic is known as the “100% win rate”, as long as the player has unlimited bankroll, unlimited bets, it doesn’t matter how many times they lose in between, they will eventually win back with a profit. But if you have unlimited funds, if you don’t have unlimited funds and bet an unlimited number of times, you will end up losing all your bankroll.

The martingale logic in the casino is too ideal, but this logic of multiple-raising has deeply inspired the financial industry participants, which gave birth to the martingale strategy Dollar Cost Averaging (DCA) with the goal of increasing the probability of winning trades by means of average position cost. To put it simply, in a two-sided market, users open positions to enter the market, and if they encounter a contrarian market, they will continue to increase the cost of holding positions until the market rebounds and reaches the profit target. Its essence is to increase the probability of users buying low and selling high.

In order to meet the diversified needs of users, OKX has inherited and optimized the traditional martingale strategy, and has now launched two versions of the martingale strategy, both spot and contract, thus providing users with a systematic investment strategy of increasing positions against the trend, that is, compressing the overall cost price by continuously increasing positions, and when the market reverses, all orders are closed to achieve profits. Compared with the spot martingale strategy, the OKX contract martingale strategy provides investors with the option of two-way trading and leverage to improve capital utilization, which is more flexible.

With the OKX martingale strategy, users do not need to judge and predict the development of the market, do not need to choose an entry time, or even study the fundamentals, etc., but only need to manage their positions through parameter settings, which is relatively simple and easy. Moreover, the winning rate of trading is extremely high, and the rise can be cashed out, and the decline within the preset range can reduce the cost of holding the position, and take profit and close the position after the rebound. Making a one-time investment in a rapidly changing market is easier to achieve “buy low and sell high” than before, and will reduce the loss caused by misprediction.

However, it is worth noting that the martingale strategy also has obvious shortcomings, if the rise is profitable and cashed out, part of the position is not utilized, which will lead to low capital utilization, and if the market has a unilateral decline and does not rebound to a profitable position, it will bring the corresponding risk of loss.

Applicable scenarios are different from products of the same type

Based on the above characteristics, it is very easy to get the applicable scenario of the martingale strategy, which is a volatile market or a swing bottom.

OKX spot martingale is characterized by building positions in batches and reducing costs, this strategy is very suitable for medium and long-term volatile markets, even if there may be a certain degree of floating losses, but after the rebound market, the profit will be closed. However, it should be noted that a unilateral decline in the market will bring a corresponding risk of loss.

The OKX contract martingale is more flexible than the spot martingale strategy, which can be used for two-way trading and leverage selection on the basis of building positions in batches and reducing costs, helping investors improve the utilization rate of funds, and is also applicable to the vast majority of markets except unilateral markets, especially medium and long-term volatile markets.

For example, when a user buys an underlying at price A, but the underlying starts to fall against the trend, through the OKX martingale strategy, the user can buy the underlying in batches, so that the holding cost is reduced to B, and once the underlying rebounds to the price D, then the system will sell the underlying at one time and realize the profit. Although D is less than A, users can still profit from this band due to the lower cost.

Diagram

Compared with grid trading, the martingale strategy does not need to predict the market trend, and can relatively quickly return to the cost, but there is a risk of liquidation. Grid strategies can effectively control market risks and have stable returns, but they need to monitor the market frequently and cannot cope with extreme market conditions.

OKX Contract Martingale Strategy Tutorial and Parameter Explanation

The OKX futures martingale strategy is one of the most versatile and playable strategies in the current industry strategy trading market. Through rich cycle trigger conditions, flexible risk control management tools, etc., users can customize advanced parameters such as the maximum number of position increases, position increase spreads and amount magnifications, and can also choose to trigger immediately or RSI technical indicators, etc., making it easier to grasp the gain scenario.

Therefore, how to scientifically set the martingale strategy parameters of OKX contracts and balance high returns and low risks is what every user needs to focus on. The same tool can be used by different users to produce a variety of different results.

For example, if the interval is too small, it is easy to cause the bullet in the hand to run out quickly and the income to become narrower. If the range is too large, it is easy to cause the funds in hand to be unable to be effectively used, and the profit is limited. In addition, the martingale strategy belongs to a kind of position increase logic, and when encountering a unilateral non-callback market, it will face the risk of liquidation, so it is necessary to manually set risk control parameters such as stop-loss targets. However, if the market and technical indicators are combined to determine the timing of the strategy entry, and the contract martingale plus warehouse orders continue to absorb chips at a low level to reduce the overall holding cost, you can maximize the return as much as possible.

After completing the initial understanding of the OKX contract martingale strategy, you can experience it. First of all, users can select the “Strategy” product they want to trade through the OKX App or the official website, select “Contract Martingale” under the “Average Cost” module, and select the currency and direction in which they want to open the contract Martingale. Currently, OKX supports all U-margined perpetual contracts to open the martingale.

There are two different modes of creation for the OKX Contract Martingale strategy: manual creation and smart creation. Manual creation is suitable for investors who are experienced in trading, while the smart creation mode is recommended for regular users. According to the user’s risk preference, the intelligent creation mode selects the parameters recommended by the system to set the investment amount and buying rhythm. The parameters recommended by the system will be calculated with the help of OKX’s back-end algorithm based on historical market and asset fluctuations, which is quite authoritative. In addition, the intelligent creation mode will also recommend parameters with different risk levels for users according to the user’s asset status and tolerance, according to the three levels of conservative, balanced and aggressive.

Next, I will give a brief introduction to the main parameters of the OKX contract martingale strategy manual creation pattern in the most popular language. Because the essence of the contract martingale strategy is to reduce the average cost, how many times to increase the position, how much to add each time, and take profit, etc., these are done through the following parameters.

The trigger parameters include two settings: how much to increase the position and the target of a single take-profit. Among them, the key parameter of “how much to fall and increase the position” is related to the interval of each additional position, that is, the cost of adding a position. For example, if the interval is larger, but the market fluctuation is small, it is easy to cause only some positions to successfully get on the bus, reducing the utilization rate of funds. In addition, compared with other similar products in the industry, the OKX contract martingale strategy also has two exclusive highlights, one is that users can manually modify the take-profit trigger price at any time to ensure profits. The other is to support users to manually increase positions anytime and anywhere to increase profits.

Set the leverage and investment amount, including leverage, initial order margin, margin for additional orders, and the maximum number of additional positions. Leverage is easier to understand, in which the initial order margin is the initial position, and the additional position margin is the number of positions added each time, and the maximum number of positions is how many positions are added.

Through the above two parameters, you can set the position and amount of additional positions. In addition, you can also set many parameters such as start conditions, position increase settings, stop conditions, and stop loss conditions through advanced settings to further complete refined operations.

The starting condition is simple, that is, when the strategy starts to execute, you can choose to trigger immediately, price, RSI technical indicator or webhook (such as TradingView signal).

The multiple of the additional position amount refers to the multiple of the next additional position amount compared with the previous one, and the additional position difference multiple refers to the multiple of the next additional position distance compared with the previous one, that is, the position and amount of the additional position mentioned above are set.

The stop condition refers to when the strategy stops, and if the policy is not set, it will continue forever. For example, the user can choose to stop the strategy at the end of the current period, or set the trigger price to end it.

The stop-loss condition is relatively simple, when the loss exceeds expectations, the user can stop the loss at any time through the market price or the limit price.

After checking that the settings are correct, you can click Create Policy. Of course, you can also choose OKX’s built-in strategy and copy martingale on Strategy Square. However, it is worth noting that the funds invested after the creation of the OKX contract martingale will be segregated from the trading account and used independently in the contract martingale strategy. Therefore, users need to pay attention to the risk of the overall position in the trading account after the funds are transferred out. In addition, the market price fluctuates greatly, and if the price continues to move unilaterally in the opposite direction, the position held at this time may suffer floating losses and even have the risk of forced liquidation. Therefore, it is recommended to set a stop-loss price at a reasonable position for market judgment when creating a strategy, so as to stop losses in time.

Conclusion

As a leading crypto asset exchange and Web3 technology company, in order to meet the diversified needs of the growing global crypto users, OKX has launched 14 advanced strategies, including contract martingale, and continues to innovate and upgrade more advanced and differentiated investment strategies and tools, receiving and meeting the needs of users as soon as possible, and sparing no effort to build future financial instruments.

But there is no 100% successful strategy in the trading world, and strategy trading can be affected by market conditions, execution delays, technical issues, and other factors. Successful strategy trading often requires deep market understanding, a strong technical foundation, and effective risk management. The high success rate of the martingale strategy depends on many conditions, such as characteristic scenarios and accurate judgment. Before using any trading instrument, it is necessary to have a good understanding of it.

The volatility of the crypto market presents both opportunities and risks, and investors should be cautious when pursuing these opportunities and ensure that the profitability of the investment strategy is balanced with the risk tolerance. In a chaotic trading environment, you need to learn to block out the noise, find and use tools wisely, and always be in awe of the market, because everyone’s perspective is always one-sided. As Song Su Shi said in “The West Forest Wall”, it is seen horizontally as a peak on the side of the ridge, and the height is different from far and near.