Strategy Test 03 | OKX and AICoin Research Institute: Martingale Strategy

OKX, in collaboration with the high-quality data platform AICoin, has initiated a series of classic strategy studies aimed at helping users better understand and learn different strategies through core dimensions such as data testing and strategy characteristics, thereby avoiding blind usage.

The Martingale strategy, formally known as Dollar Cost Averaging (DCA), is a trading method that emphasizes position management. The core idea is "averaging down on losses and resetting on profits." Its main feature is to double the trading amount after each loss until a win is achieved. The basic assumption of this strategy is that as long as the capital is large enough, the eventual win will compensate for all previous losses and yield profits. As a higher-risk strategy, Martingale is suitable for traders with sufficient capital who can withstand potential significant losses.

This strategy is mainly divided into two application forms in the cryptocurrency market: spot Martingale and contract Martingale.

Issue 03 introduces the Martingale strategy, using three major data models to test [spot Martingale and contract Martingale]:

Model 1: Contract DCA and spot DCA under a rising market with a 5-minute running period.

Model 2: Contract DCA and spot DCA under a falling market with a 5-minute running period.

Model 3: Contract DCA and spot DCA under a sideways market with a 5-minute running period.

Current data testing operation standards:

Long DCA: Open a buy position when the market starts, and perform averaging down when the market declines, with a maximum of 5 averaging down operations, setting a stop-loss line on the 5th averaging down. When the market rebounds and rises to the target price, sell all at once to realize profits.

Contract DCA: Based on the logic of long DCA, it adds the operation of opening a sell position. Open a sell position when the market starts, and perform averaging down when the market rises, with a maximum of 5 averaging down operations, also setting a stop-loss line on the 5th averaging down. When the market retraces and falls to the target price, buy all at once to realize profits.

One-sentence summary of spot Martingale and contract Martingale: In a sideways market, contract DCA is more suitable; in a clearly upward trending market, spot DCA is more suitable, but both require vigilance against risks.

Pros and Cons Comparison

Both forms of the Martingale strategy follow the same basic principle: increasing the trading scale during losses to lower the average price, hoping that the eventual profit will cover previous losses. However, they have significant differences in specific operations, risk characteristics, and applicable scenarios. The choice of strategy should be dynamically adjusted based on the trader's risk tolerance and market trends, while also paying attention to reasonable risk control measures to reduce potential losses.

Whether spot or contract Martingale, both are considered strategies that focus on position management. The spot Martingale strategy lowers the average cost by doubling purchases, requiring caution against the risk of continuous declines; while the contract Martingale strategy amplifies profits and risks by doubling positions, necessitating caution against liquidation risks.

Model One

This model is: Contract DCA and spot DCA under a rising market with a 5-minute running period.

Image 1: Contract DCA under a rising market with a 5-minute running period; Source: AICoin

Image 2: Spot DCA under a rising market with a 5-minute running period; Source: AICoin

Model Two

This model is: Contract DCA and spot DCA under a falling market with a 5-minute running period.

Image 3: Contract DCA under a falling market with a 5-minute running period; Source: AICoin

Image 4: Spot DCA under a falling market with a 5-minute running period; Source: AICoin

Model Three

This model is: Contract DCA and spot DCA under a sideways market with a 5-minute running period.

Image 5: Contract DCA under a sideways market with a 5-minute running period; Source: AICoin

Image 6: Spot DCA under a sideways market with a 5-minute running period; Source: AICoin

Analysis and Summary

Sharp rises and falls are not conducive to the contract DCA strategy; it is suitable for sideways markets, where contract short DCA is suitable for sideways & falling markets, and contract long DCA is suitable for sideways & rising markets. Spot DCA can gain in rising markets.

The contract DCA strategy shows strong adaptability in different market environments, especially with clear advantages in sideways markets. Spot DCA performs well in rising markets but poorly in sideways and falling markets. Contract DCA gains through more frequent trading and higher win rates, but it may also bring higher risks. Spot DCA has a lower trading frequency, which may be more suitable for long-term traders or risk-averse traders.

Generally, when their averaging down parameters are set to 1, they behave similarly to grid trading. However, when the averaging down parameter is set to 2 (or larger), it may lead to a sharp increase in capital requirements and impose significant psychological pressure on traders. Particularly for contract Martingale, due to leverage, the risks are more pronounced and may lead to liquidation.

Specifically:

Choose strategies based on risk tolerance

High risk tolerance: Consider contract DCA, especially in sideways markets.

Low risk tolerance: Choose spot DCA, particularly in clearly upward trending markets.

Combine with market trends

Upward trend: Both strategies can be considered, but be cautious about timely profit-taking.

Downward trend: Use cautiously, may need to adjust strategies or temporarily observe.

Sideways: Contract DCA may have an advantage.

Dynamic Adjustment
Flexibly adjust strategies based on market changes, do not stick to a single model.

Risk Management
Set stop-loss points, control the capital amount for each trade, and diversify trades to reduce risk.

Combination Strategy
Consider combining contract DCA and spot DCA to balance risk and reward.

Continuous Learning and Optimization
Regularly backtest and evaluate strategy effectiveness, continuously optimize trading strategies based on new market data.

Pay Attention to External Factors
In addition to technical analysis, also pay attention to macroeconomic factors, industry news, and other external factors that may affect the market.

By reasonably applying these strategies and adjusting based on personal circumstances and market environments, traders can better manage risks and increase the likelihood of profits. However, always remember that the cryptocurrency market is highly volatile, and traders should only invest funds they can afford to lose.

OKX & AICoin Martingale Strategy

Currently, OKX strategy trading offers convenient and diverse strategy varieties. The OKX spot version and contract version of the Martingale strategy have been optimized to a greater extent, taking into account the habits and characteristics of cryptocurrency users. Two different creation modes have been set for users with varying experience: manual creation and intelligent creation.

Manual creation allows traders to set parameters based on their personal market judgments. This is mainly suitable for experienced traders with strong capital. Ordinary users are advised to use the intelligent creation mode. Intelligent creation allows users to set trading amounts and buying rhythms based on their risk preferences by selecting parameters recommended by the OKX system.

It is worth mentioning that the parameters recommended by the system are derived from historical market data and asset volatility, calculated using the OKX backend algorithms, which have a considerable degree of authority and can provide reliable trading references for traders. Additionally, drawing on the layered approach used in traditional securities trading, the intelligent creation mode aims to control risks as much as possible, recommending parameters of varying risk levels based on users' asset conditions and risk tolerance, categorized into conservative, balanced, and aggressive levels.

How to access more strategy trading on OKX? Users can enter the "Trading" section of the OKX APP or official website, then click on the strategy trading mode to start the experience by clicking on the strategy square or creating a strategy. In addition to creating strategies themselves, the strategy square also offers "high-quality strategies" and "high-quality strategies from strategy leaders," allowing users to copy strategies or follow strategies.

OKX strategy trading has multiple core advantages, including ease of operation, low fees, and security guarantees. In terms of operation, OKX provides intelligent parameters to assist users in setting trading parameters more scientifically; it also offers graphic and video tutorials to help users quickly get started and master the platform. Regarding fees, OKX has comprehensively upgraded its fee rate system, significantly reducing trading fees for users. In terms of security, OKX has a security team composed of top global experts, providing bank-level security protection.

How to access AICoin's DCA strategies?

All-Coin DCA Strategy: Users can find the "All-Coin DCA" option in the "Strategy" section of the left sidebar in the AICoin product. Click here, and on this interface, there are all-coin DCA strategies recommended by AICoin based on the current market conditions.

Spot DCA Strategy: Users can find the "Spot DCA" option in the "Market" section of the left sidebar in the AICoin product. Click here, and on this interface, there are spot DCA strategies recommended by AICoin based on the trading pairs currently selected by the user. Contract DCA Strategy: Users can find the "Custom Indicators/Backtesting/Live Trading" option in the "Market" section of the left sidebar in the AICoin product. Click here, and search for "Contract DCA" in the "Community Indicators" to find the code for the investment strategy.

Disclaimer

This article is for reference only and represents the author's views, not the position of OKX. This article does not intend to provide (i) trading advice or recommendations; (ii) offers or solicitations to buy, sell, or hold digital assets; (iii) financial, accounting, legal, or tax advice. We do not guarantee the accuracy, completeness, or usefulness of such information. Holding digital assets (including stablecoins and NFTs) involves high risks and may fluctuate significantly. You should carefully consider whether trading or holding digital assets is suitable for you based on your financial situation. Please consult your legal/tax/trading professionals regarding your specific circumstances. You are solely responsible for understanding and complying with applicable local laws and regulations.