Are Forex Expert Advisors a Scam?

I never used or purchased one of those signals. What I am going to say is based on common sense and my experience in the markets. I am not saying that all Expert Advisors are a scam, but those that work well, are one in every one thousand. And even so, I do not think that those who work will do it indefinitely.

Expert Advisors Forex

The world of forex signals and the famous Expert Advisors (EA) has had a tremendous growth in the last ten years, all along the impressive growth of the forex retail market.

All of this comes with all the charlatans who go together with all human speculative action.

The broker’s scams are countless.

There are a lot of people who opened accounts with brokerages in tax havens of reckless countries that never saw their money back when requested.

The brokerages in EEUU and Europe also had their tricks. Their strategies were stop hunting and similar practices. Nevertheless, we can find decent brokers in both sides of the Atlantic, above all if we have a considerable amount of money. But most forex brokers are still Bucket Shops.

As in every human activity, people want to make an easy buck. It is a very old story, as old as Wall Street, and more.

That is the reason for which it was only a matter of time before thousands of supposed experts appeared wanting to sell their amazing system to everybody at a hefty price. That attracted people like honey. As in Jesse Livermore times, people always wanted to make money without effort. As Livermore said almost all traders that he knew were always looking for tips or forecasts. Everybody wants to be told what to do: to buy A, or to buy B. Nobody wants to think too much. As usual, Livermore betted against tips.

Profitable trading system?

I have never understood why people think that someone who has a very profitable system will share it with them so easily.

If a trader has a profitable system based on technical analysis, it is because he has been trading the markets with that system for many years successfully (and I do not mean paper profits). A trader that may win 60% per year, year after year, should have capitalized his account a lot.

Why would I sell my system, if I make a living with it?

Well, the answer is obvious: that “trader” does not make a living by trading the markets with his system but by selling the system. And, I do not say that any system may win for a considerable amount of time, even years. But the conditions change, and the system that was valid for the nineties, for instance, may not be valid for the 2000s. There are lots of systems that had fantastic results in the past and awful results in the present.

I remember one book (Long-term secrets to short term trading, from Larry Williams), where the author talked about many systems that he studied during his years in the futures markets. And he said that some systems that worked well in the SP500 for some years, eventually would crash due to different market conditions.

The markets and their conditions change over time. Volatility is not always the same, and the day trading patterns differ a lot from one year to other. Trading in 2006 had nothing to do with trading in 2008. That makes very difficult for the system to win all the time. It may win with low volatility, but it may crash when volatility grows.

There is also the case when a trader or arbitrageur, discovers an inefficiency in the price structure of an instrument and takes advantage of it during a certain period. The problem is that that inefficiency will not pass to be unnoticed by everyone else. Other arbitrageurs will see it and will take proper action. That fact will make that arbitrage unworkable with time. So this is another reason we should not trust “systems” for the long run.

Expert Advisor System

Let us say that I have a great method that has given profits many years in a road. Why would I sell a system that makes me win 100 or 400 thousand $ per year for 300$? A true professional trader would never sell his system.

I remember in one of those old forex forums that many people had the same EAs and also used the same brokers that those EAs recommended. That is to say, “you” and 300 hundred more people were using the same EA in the same broker. And that meant that you had those 300 hundred guys making the same operation day after day. As most of those brokers are bucket shops, the slippage to expect in those cases should be brutal; and it was brutal. That was too much for those brokers. I even remembered that many of those traders would show their myfxbook account in their profile. Eventually most of them, if not all, would lose money. You could see it on the forum, and also you could see how many of them would take off the link from their profiles after big losses came.

Expert Advisors reviews

I also remember a web on EA reviews, where the guy reviewed the best EAs in the market where he described the best of them in very good articles.

The guy recognized that most of the EAs were rubbish, and he would only include those he thought that were good. Everything looked great.

There was one EA, WindFall, where the guy said that making backtesting he had a 70% profit per year during a period of ten years. That system was recommended by a lot of people as well. Perfect. You pay some hundreds of €, and you have a “machine” that will make you rich without the necessity of thinking. Well, the same guy who reviewed the EA opened a real account in mid-2011, and let his fxbook profile available in his web.

Two years and a half later, the system was unprofitable. A 10% accumulated loss on 9 of January 2014.

What happened to this marvelous system? And it was meant to be one of the star EAs some years ago.

There were also a lot of people complaining about this system by 2012, and the vendor did not even answer the messages in his web. It was too late. The vendor had made his killing. If he could sell his system to 2000 guys at 300$ each pack, he would have made 600.000$. Not bad at all.

Forex signals scams

I do not want to say that all forex systems and signals are a scam, but I do say that you are not going to get rich in the long term by buying those systems. Only the one who sells them gets “rich”. You may make some money in the beginning, and there are better systems than others, but I doubt that there is a system that will give profits every year in the long run. And if there is one, you will not be able to get it for 300 $; it will most probably not be for sale.

The best thing we can do is to study very hard and apply strict money management and try not to risk too much in the beginning. And one personal advice: try not to do day trading using 1 or 5 minute’s graphics. Most who have tried it have lost; myself included. It is best to operate in longer timeframes and doing swing or trend trading. If you trade a lot every day the only one who is profiting from it is the broker.

P.S. This is a personal translation from my spanish blog

Thanks for reading and sharing.