Another of the star services around the Internet is related to providing signals to buy or sell stocks. At first, it seems a good idea and, I have to admit that there are probably good signals providers out there.
The problem is that when you study the market of providers you find a lot of dubious ones.
There are a lot of signal providers that promise ridiculous returns and use the most “aggressive” marketing practices.
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The main characteristic of these guys is the way they use easy sentences to attract people. Sentences like “buy stocks without risk”, “you can make a 10% monthly return without risk”, or even worse things. All this, a good marketing strategy and the desire of winning easy money common to most investors, and you have a good business, a very good one for the providers at least.
To identify the dishonest providers we should be aware that:
- Honest providers to not offer investments without risk. There is no investment without risk. Not even when you use a stop loss order. There are webs which say they protect up to 99% of the account. Yes, of course!
- The systems should not involve day trading. If you are going to look for a signal provider, the best you can do is to look for someone with a medium term trading strategy. Someone that lets the profits run. Those guys do not promise incredible returns easily, but from moderate to high.
- Good providers do not promise to win 10% monthly. There are, and have been places that promise 20% monthly profits. I think that Madoff was more conservative. The truth is that if there is someone willing to invest in a place like that, he or she deserves to lose the money. Someone who can make 20% guaranteed profit per month can multiply his account by 8 annually. A guy like that would be trading a hedge fund. But no hedge fund can have a profit like that, just because it is a fantasy.
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In general, any honest provider should offer us a service with a moderate return and a system that uses swing and trend trading techniques.
If a trader tells us that he can make a 20% annually, it is more credible than a 20% monthly. The latter is realistic and the former is surrealistic.
In this sense, the best is to look for “the worst”. In other words, do not believe those who promise us the sky, but those who seem more moderate.
Besides, a lot of the signal providers are not precisely cheap. It is clear that some of these systems are designed for people with big accounts. People who can spend 500 or €1000 every year in those services. A guy with a $5.000 account will not pay a $1.000 service for signals.
In some respects, this works similarly to the forex Expert Advisors industry.
A lot of those companies work well for some time, even years, but eventually most of them end up crashing along our money.
Thanks for reading and sharing.