If you lose money in the stock market, do you double down? That’s called a martingale strategy, and it’s dangerous
Bigger bets can make anyone look brilliant for a season, but the Martingale Index reminds us that flashier numbers are often just payment for taking greater risks.Nuthawut Somsuk/iStockPhoto / Getty Images
You buy a handful of dividend stocks, promise to stay disciplined, then markets sag. The itch to “buy the dip” wins, so you find more money to invest.
A quick rebound follows, and your account shows a double-digit short-term gain. It feels like skill, yet nothing magical happened. You simply took a bigger risk the moment prices went against you.
Behavioural finance researchers have a term for that: a martingale strategy. A new study published in the Judgment and Decision Making journal quantifies how much…
