A lot of people show their forex trading activity in public for free through some of the platforms that exist in the market.
Other people try to sell their signals by promoting them and charging a monthly subscription. Those traders show us their “incredibly good” systems through their channels.
Many of these offerings are dubious, and a lot of people fall prey to them paying for something that is worse than worthless.
Do Forex signals work?
Other signal providers offer their services through social trading channels. They usually get paid by commission and volume there. Normally they will get paid by every winning trade, meaning that the more trades they win, the more money they will make. And that is a very dangerous thing, since it can lead to overtrading.
By the way, the easiest way to do that is by doing day trading. But we will not likely go rich by doing it.
When I saw the performance of some of the best signal providers out there, I found outstanding results.
One trader had thousands of people following him. His return was 757% after 58 weeks. After six months, his return was only 134%. It means that any trader that tried to follow its system from the moment I saw it first time would have lost more than 75% of his account.
The drawdown was about 5.000 pips, which is a very significant amount in forex.
The other popular trader had more than one million $ following him in April. His return was 440% after 59 weeks.
After six months, his return was -29% and 3.318 pips of loss. His drawdown was about twelve thousand pips. That is, a certain death in forex.
This guy had 1.269 trades after 82 weeks, which means that he was trading a lot. Probably doing day trading with the objective of winning a lot of commissions. And considering the number of people that followed him, he surely did.
Popular Forex traders
Another popular trader had a return of 312% and a lot of people following him. This trader stopped trading in September after a 5.000 pips drawdown. He tried to buy €$ without stop loss just when the € collapsed. He bought more € all the way down, hoping for a price reversal that never came. The guys who followed him went bust as well surely.
Another trader had more than one million $ following his trades. His return was an impressive 902% after 25 weeks. Too good to be true in fact.
Six months later he had a -120% return.
What did he do?
Finally, he had 15 losses with 500 pips loss for every trade approximately.
These and other similar cases were some of the most popular signal providers in may of this year. If you tried to follow them by that time, you would have lost 100% of your account.
These accounts had something in common: they would take small profits and big losses. And they were doing day trading. But it is not the worst part.
Non stop loss Forex?
The worst is that they tried to trade without stop loss orders. By doing it, they can have great winning-losing ratios of more than 90% of winning trades. Some of them managed to win even 100% of the trades, till they lost all. They did that hoping that the price would always reverse if the trade were wrong.
You could see that by analyzing his history.
Many trades were down 50, 100 or 200 pips before being closing the trades for a ten pips win.
That way of trading is quite effective when you want to maximize your short term commissions based on volume. When you win more than 90% of trades, you get a lot of commissions. As you win a lot at first, a lot of traders are attracted.
But finally there comes the big loss, and all of them lose. Except the signal provider that has won a lot of commissions.
And last but not least. We should not trust any provider that promises us returns of 300 or 500% after 30 or 40 weeks, because it will almost certainly end in disaster. That is why we should not fall in love with those fanciful returns.