Scam Strategy Providers - 8 warning signs

Do you buy or rent strategies from a provider? Do you plan doing so? Tons of emails are sent every day where companies market the last and best strategy. Make Money Now. Easy. Second income. Scam. Most of it – but what makes a serious provider? How can one rate whether a provider is making money or pretending to do so?

Greatest wealth-building system in history revealed..

Chuck Hughes is the Michael Phelps of International Trading Champions.

With a total of 10 trophies, and an 11th on the way… half-way through the year he’s in 2nd place with a 120% return… Chuck is the winningest trader in the 30-year history of the most prestigious wealth-building competition on the planet.

Yet, unlike record-breaking Olympians, duplicating Chuck’s success requires no particular skill and hardly any practice.

Who thinks something like this is real? This type of advertisings come daily to our inboxes.

It is easy to fake backtest results. Run an optimization, take the best backtest. It is a useless number. It has more value when the provider publishes how he chooses the best result. There are approaches that make the result a lot more stable than a simple “best number”. Robert Pardo has published an excellent book about it – “The Design and Optimization of Trading Strategies”. Many never read it – even in the business. So, here are our criteria to find a good provider for trading strategies.

He does sell the “one beats it all strategy

One strategy does not beat it all, and any sensible signal service will combine signals from multiple strategies. This is important. Not only have markets different characteristics, markets also go through phases – trending, not trending and just moving sideways. A good strategy service must handle all conditions and the only good way to get stable results in a scenario like this is to combine multiple signals and multiple markets.

A lot depends, though, what “a strategy” really is. Many combine multiple signals into one strategy. We prefer to isolate them and then combine the strategies into “portfolios”. This gives us a much easier way to debug them as well as a cleaner way to backtest them.

There is no explanation how optimization is done

A graph of a single parameter combination is useless – it would never have traded like that in real life. Hindsight makes everyone a winner. A serious provider will explain his parameter update strategy and will be able to provide walk forward tests for these timef rames. Yes, it may take some energy to read on the documentation and find out whether it makes logical sense – but the absence of any optimization logbook and guidelines points in a strong indication towards a fake optimal optimization result.

The best way to do optimizations that are somehow stable, though, is the Walk Forward Optimization (or: Walk Forward Analysis). It is not supported by any standard retail platform in any sensible way. And many strategy developers develop on one of those “standard” platforms.

There are no near real time updates

This rules out most providers. A trade is a trade – there is nothing against publishing short to real time updates for a provider. Make entries with 15 minutes delay, or when the trade is closed. Do not publish stops and targets. But make the rest available in near real time to a prospect for a limited time. Plus post factum on the internet. Then, after a month or two you can compare the trades you got with the official marketing material. Not matching? Something is really odd – he is marketing signals he never gave. Fraud. It happens. Accusations about this approach go around strategies and trading rooms all of the time.

There is no independent tracking

Collective2. Any provider can publish his trades there and they will track profit and loss. Not wanting to have anyone subscribe? Easy. Just put the price high. But the auditing is still there and valid. He can in his marketing material point anyone to this place and have him look up the trading history.

At least this is an approach we consider taking (once the new trading program is finished that has much improved capabilities, including the one to publish trades to services such as Collective2. Or any of the other comparable services.

There is no legal background information given

Many signal providers out there are no business. No address. Warning flags for any serious business. I know whom I deal with when I order a pizza. I please want to know whom I rent a strategy from, get signals from.

There is a new strategy every month

This point really goes in the direction of certain marketing newsletters. Last one did not work? Here is another one, and please 99 USD. Strategies do change, do get better over time. But if you get a new email every other month, that is not serious. A strategy is a serious investment. It takes time to develop.

Note that this is not the same as selling updates (in parameters) through a subscription. It may be valid to sell a strategy for 99 USD – and then ask for (possibly a larger sum) every month after some initial “trial” period – for the updates to the strategy code and parameters.

The price is too cheap

Seriously. 99 USD, one-time payment, for a million dollar making strategy? As an EA that I can run as much volume with as I want? What is the business plan? Throwing your development work away? A good strategy will cost – either through a decent monthly price, often attached to a certain trading size. Or through a profit split. It is work and effort to make a good strategy. Giving it away for a low price shows that the target is “selling bulk” not “being serious”. An outright scammer. Or someone trying to manipulate the market – a strategy sold to many people is a nice instrument to trade against.

Strategies have serious value, and there are a lot of investors – private as well as funds and trading companies – willing to provide trading capital. There is no reason to sell out a strategy for a really low price without a profit cut.

At the end, it is common sense

If something sounds too good to be true, then it likely is. There are valid and legit strategy providers out in the world, and there are a ton of scammers. People that betray the trust investors have in them. Many of them lack an understanding of actual trading and are pure scam operators, others are making money for some time and then disappear when their risk management blows the accounts down to zero.

With some common sense, most of the untrustworthy and even badly designed and managed systems can the eliminated before losing real money.

And obviously, when will start to offer signals or strategies or look for investors to trade, we will make sure that we will not fall into any of these stupid traps. We are here to stay – and take trading as a serious business.