Are signal providers useful in making profits?
This great question has done a remarkable job at baiting scam-artists
Whoever answered “Yes”, followed by just a link to some website is probably a scam-artist
The one-eyed scam-artist leading the blind
Everyone wants to gain this mysterious esoteric called trading edge. Well, trading edge is not a story, it is a number and here is its formula:
Expectancy = Win% * Avg Win% / Loss% * Avg Loss%
Tattoo it where you can be reminded throughout the day
There are two modules to any trading strategy:
- Signals: exits and entries
- Money management: position sizing
Those scam artists who will just answer yes, referred to hereafter as "Yes-men" will provide dummy statistics about entries, but conveniently forget everything thereafter. Entry is easy!
Then comes position sizing. Signal providers conveniently omit position sizing for a good reason. It is a function of win rate and stop loss, both of which are either omitted or optimistically manufactured
Implicit adoption of a trading system
Who does not like to wake up, receive a bunch of signals, pick one or two, open the trades and watch the money roll in?
I certainly would love that too, except it does not work like that
Even if signal providers are thorough enough to encompass all the necessary elements from entry to exit including risk, it still omits the most important: "following someone’s signal is adopting his/her belief system, formalised in a trading system."
For example: a professional trader who is naturally risk averse (prudent position sizing) but disciplined (take the trade, follow the system). Which may not jive with someone who likes big high conviction bets
The best example comes from the Market Wizards series
You can get this fantastic Market Wizards series on Amazon
Those wizards have completely different strategies that sometimes seem to contradict each other. Yet, they are profitable because they have a system that suits their personality
When we follow someone else’s system, remember that we half heartedly embrace someone else’s personality without fully understanding it
How to spot a scam artist?
First, those who answered Yes and just attached a link are likely scam artists
Here are classic red flags:
- No real money live track record = SCAM
- No clear details of how much starting capital is required = SCAM
- Entries only; no exit, no stop loss, no risk, no stats means SCAM
- Rosy stats; emphasis on high win rate means SCAM
- Promising easy money: Pros with decades of experience dream of achieving 15% - 20% depending on their approach. Whoever promise you easy quick 100% returns= SCAM
Conclusion
Basic rule of thumb: "we are in finance, assume everyone is a scam artist until proven wrong."
OTHER RELEVANT STORIES
Trading is a BUSINESS - Treat it as such!!
_______________________________NOTE: This page contains affiliate links. Which means I earn commissions for my recommendations. But NO, I don’t let that sway me from my primary Objective. You can see that on the About section of my Medium profile
