Forex signal providing services - Facts and myths

[vergis92]

I'm rather keen on learning to trade myself and handle my own trades, at my own risk, but people often ask about signal providing services, and using more than one providers (certainly I cannot match the performance of 3 good providers, even if I traded very well).

Following the Meta Trader trading signals service, MetaTrader 4 and MetaTrader 5 Trading Signals - Social Trading often seems as an easy way for busy people to profit from the forex market without doing much work or not any work at all. It may sound ridiculous and kind of reminds me of those trading robots (I certainly don't believe in robots and expert advisor codes), but a human that makes trading decisions, and either trades your account or just sends you trade recommendations by email or SMS, is a totally different story.

It has been proven that humans are better analysts than computers, this is why the best chess players beat the best chess playing computers, sooner or later! The robots on the other hand are of little sophistication, at least to this day, and cannot catch up to the complexity of the markets. Especially when it comes to news driven trends, humans can trade them much better.


But even following trading signals, generated by real traders is complicated, most signal followers don't understand how an unexpected drawdown can lead to insufficient account margin, and problems, such as margin calls or inability to follow profitable trades from another signal provider.
Worse yet, they fail to understand market risk, that past performance is not guarantee of future success, and as a result some popular, profitable signal providers with a history of many months, suddenly start suffering big losses because their system has failed somehow, it has failed to adapt to the new market. Most signal followers lose money this way, while most followers who make money foresee these events, and keep changing signal providers.


So the question is whether signal providing services work, and if they can exceed the performance of a single trader. The answer is that yes they can work if you choose signal providers very carefully, and several good traders exceed the performance of a single trader, but you should choose just a few. People who made $100,000 or more, following Meta Trader signals ( How to Subscribe to Trading Signals - MQL5 Articles), chose few good signal providers, usually 3-5 providers, and of different trading style each. And above all knew how to read and understand trader statistics in great depth, remember that trader rating and percentage gain can be somewhat manipulated by some providers, the question is how do you find those that truly can deliver sustained profitability, usually I would expect less than 20% per month... anything close to or above 20% I fail to take seriously.



Facts and Myths about signal providers:


Following 2 different swing traders will eliminate false signals, if two good traders trade in opposite directions one of them will lose. - Myth! 2 Signal providers can have excellent history and still suddenly fail at the same time, also trading in opposite directions doesn't mean that one of them has to be wrong, if volatility is sufficient enough they both can end up with a profit!


''You should not use signal providers with above average drawdown''. - Myth! Drawdown alone tells you nothing about profitability.


''You should use the same broker as the signal provider''. - Myth! You can use any different reputable broker.


''You should only use signal providers who trade from live accounts'' – Myth! Live accounts that are less than $10,000 in size, are not any different from demo accounts, serious liquidity issues appear on larger trading size. If the trading style used is day trading or scalping, then followers accounts may have problems following the trades from the providers' accounts, it depends on technical issues, but the problems are identical to both demo and live provider accounts. Then it's the psychological aspect of trading, but once again many experienced providers treat small live accounts the same way they treat a demo account, equally you cannot expect a provider trading from a live, under $10,000 account to put enormous effort to his decisions as if his life is on the line, it's only $10,000 or less, and considering most traders past losses and past blown accounts, blowing one more account is not the end of the world!


''You can still suffer big losses even by following 3-5 most profitable signal providers'' – True! No combination of signal providers, or any kind of trading advisory sources can guarantee success, you can still suffer big losses, but it is still less risky when compared to someone who attempts to trade on their own, a single inexperienced trader can blow his account much faster. The statistics are not clear enough on the followers, but on people who trade on their own, about 60% of them usually blow their accounts within 6 months of active trading.




No one thinks for a second, that they will end up in the 60% majority of blown account holders category, it is these traders mostly who should investigate further whether they could be better off following trading signals, or a full trading signals emulation service. Personally, I did blow many accounts in my trading experience, trading on my own, each account being around $500 to $3000. it is clear that a signal providing service, with 3-5 providers, trading few different currency pairs, would have worked much better for me. There's no guarantee of any success, but the probability of failure is much much greater when a new trader embarks on solo trading without any insights into the markets and without a mentor. I dislike trading signal services for the fact that they cannot help you gain experience predicting markets, but if it takes 5-10 years, and $5,000 - $30,000, and so many hours worth even more money, to make it as a self made independent trader, you really have to think twice about not using these services, and not wanting to admit that other people trade better, and that it makes sense to profit from their trades.


Finally beware of the percentage gain and overall profitability figures of signal providers, some signal providing services allow manipulation to take place, such as making deposits of funds appear as profits, and as a result boost the final percentage gain to ridiculous, unrealistic levels, while it might also be possible to create a seemingly perfect trading history, even with a live account, using these deposit techniques, as well as trading multiple trades for each single trade set up, resulting in a higher but fake winning / losing trades ratio. Beware of signal providers using these tactics and of their overall monthly profitability, good, real traders usually make less than 20% a month. With all these factors taken into account, it is possible to find signal providers that can trade your account realistically, the next thing to consider is capital allocation, how much money should be allocated to each good signal provider, and this is a task for a money management specialist.


What are your thoughts, experiences with these signal providing services?

and how can you find good providers, and allocate capital the right way over say
2-3 providers??

 

[The Leopard]

You do understand that basic logic will tell you that there is no such thing as a signal provider worth following, don't you?

If you are a successful and honest trader, capable of providing good signals in which you have justifiable confidence, IT MAKES NO SENSE UNDER ANY CIRCUMSTANCES to sell those signals.

The only time it makes any sense to sell signals is if they will lose money.

That really is the end of it. There is nothing more to be said on the subject.

To anyone wishing to disagree, please think about the matter for a while before posting. It is tiresome having to explain the blindingly obvious.

 

[vergis92]

You do understand that basic logic will tell you that there is no such thing as a signal provider worth following, don't you?

If you are a successful and honest trader, capable of providing good signals in which you have justifiable confidence, IT MAKES NO SENSE UNDER ANY CIRCUMSTANCES to sell those signals.

The only time it makes any sense to sell signals is if they will lose money.

That really is the end of it. There is nothing more to be said on the subject.

To anyone wishing to disagree, please think about the matter for a while before posting. It is tiresome having to explain the blindingly obvious.

that is not necessarily true, I have been watching signal providers, mostly on Zulutrade, not so much on MQL5, yet, there are high frequency traders that have nothing to lose selling their signals, and a lot to gain, because no one can copy them in order to re-sell them, or even trade on them independently.

As far as longer term trading goes, I agree , no one likes seeing their trades copied, (Zulutrade pays these providers too little commission, ridiculously little, but those that have 1000s of followers do make serious money.)


Also, you must realize that even signal providers, also have follower accounts, if one is an expert on EUR/USD it makes sense to trade only that on their own, and they can allocate a portion of available funds, in a follower account to follow a successful trader of a completely different, uncorrelated pair, this way the probability of long term big success increases dramatically.

the vast majority of followers are risk-averse people, with tiny accounts, around $250 or so, looking to make few pennies every day, and it makes them happy, but some do have big accounts and trade big (like $10 a pip).

Like I said, these services don't match my investment profile, I prefer trading EUR/USD all on my own, but if I later want to scale down and diversify into 1-2 uncorrelated currency pairs, I will need good signal providers for these currencies. The problem is I don't know much about risk assessment, money management, and how to even choose those extra currency pairs.

 

[wackypete2]

Fact: They will sell you signals.
Myth: You will make money.

 

[Brumby]

If you are a successful and honest trader, capable of providing good signals in which you have justifiable confidence, IT MAKES NO SENSE UNDER ANY CIRCUMSTANCES to sell those signals.

I disagree. It is common knowledge that traders who also manage accounts especially for a fee plus performance bonus has a distinct advantage over those who only trades. This has to do with draw down and everyone goes through cycles regardless of how good a long term profitable trader they may be. The recurring income from managed accounts smooth out the income stream. The same principle apply when they provide signals for a fee.

 

[vergis92]

Fact: They will sell you signals.
Myth: You will make money.

I strongly believe anyone who provides signals on many pairs, is doomed to fail big, sooner or later, this indicates a superficial strategy, traders who trade just one pair, and are specialists in that alone, can offer sustain profitability, if you watch closely at Zulutrade, MQL5 or elsewhere, it is specialists that do make money, there's no myth in that.

1) the motive is there, they get paid good money from commission

2) they don't necessarily have the best rating, the crowds of followers tend to rate 5 stars anyone who makes them happy for a while


as with most things in life public opinion polls doesn't lead to the truth, but the 'peer syndrome' of follower traders makes them follow one another, it somehow makes them feel safer.


My advice to new followers is to choose 2 different currency pairs, and one specialist trader for each one! traders who trade many pairs will fail for sure, traders who trade one pair may or may not fail.


the cost of following a signal provider is negligible, Zulutrade charges a tiny amount, half a pip I think, MQL5 works different, some kind of subscription based system but also has many that are currently free of charge.

so the question is to the new trader who is bound to fail within 6 months, if he trades on his own, could he be better off with some kind of signal provider?


Most new traders have read a few books, or have attended a seminar, or a ridiculous training course, then expect to make part time income on forex, I find that to be much bigger myth than signal providers

 

[NVP]

You do understand that basic logic will tell you that there is no such thing as a signal provider worth following, don't you?

If you are a successful and honest trader, capable of providing good signals in which you have justifiable confidence, IT MAKES NO SENSE UNDER ANY CIRCUMSTANCES to sell those signals.

The only time it makes any sense to sell signals is if they will lose money.

That really is the end of it. There is nothing more to be said on the subject.

To anyone wishing to disagree, please think about the matter for a while before posting. It is tiresome having to explain the blindingly obvious.

what if your capital base is insufficient to generate decent annual profits L ?

surely a little seed income from selling signals helps ?

I do place a caveat though that the system is suitable protected/camoflaged and not sold alongside the signal service

N
N

 

[NVP]

I strongly believe anyone who provides signals on many pairs, is doomed to fail big, sooner or later, this indicates a superficial strategy, traders who trade just one pair, and are specialists in that alone, can offer sustain profitability, if you watch closely at Zulutrade, MQL5 or elsewhere, it is specialists that do make money, there's no myth in that.

1) the motive is there, they get paid good money from commission

2) they don't necessarily have the best rating, the crowds of followers tend to rate 5 stars anyone who makes them happy for a while


as with most things in life public opinion polls doesn't lead to the truth, but the 'peer syndrome' of follower traders makes them follow one another, it somehow makes them feel safer.


My advice to new followers is to choose 2 different currency pairs, and one specialist trader for each one! traders who trade many pairs will fail for sure, traders who trade one pair may or may not fail.


the cost of following a signal provider is negligible, Zulutrade charges a tiny amount, half a pip I think, MQL5 works different, some kind of subscription based system but also has many that are currently free of charge.

so the question is to the new trader who is bound to fail within 6 months, if he trades on his own, could he be better off with some kind of signal provider?


Most new traders have read a few books, or have attended a seminar, or a ridiculous training course, then expect to make part time income on forex, I find that to be much bigger myth than signal providers

but why restrict yourself during the average Forex Trading day to just 1 pair ?......surely you are missing a whole lot of trades and have a small % chance of being the biggest move on the pairing you are watching......in fact if you go on the G8 currencies thats a 1/28th chance that the pair you are trading will achieve the best performance in the G8 selections

(ok it probably wont be that bad if you start to filter and use common sence but you know what I mean)

N :smart:

 

[The Leopard]

I'll respond to the errors above when I have time and if I can be bothered.