The Chimp’s Guide to Forex (2) 8th March 07

Subscription services.

First the small print, please read it.

I’m not recommending any of the services or giving any form of advice. All I’m trying to do is offer some of my experiences of the good, the bad and the ugly of paying someone else to make me money. Oh, and I’m still not getting paid by any of the services I mention.

 Subscription services have a use, though not necessarily as a ‘get rich quick’ scheme. Over the past sixteen months I’ve given a few services a try, initially in the forlorn hope that someone else would help me to pay my bills, but after a dark menacing figure snatched off my rose-tinted glasses, crushed them with his Doc Marten boots and slapped me round the face with a wet fish telling me to grow up I gave up this idea. I changed my philosophy, subscribing to a few sights in order to understand the mindset of professional traders. To start with, I’m not sure what sort of quality control there is on the people behind the services? Some offer historical performance figures, some a potted history of the trader and some a 3-month money back guarantee (FSP certainly do and they honour it). I haven’t looked into it but I’m not sure what would prevent the Chimp from setting up such a service.
I’ve tried two such services from FSP; the first because I actually knew of the trader by reputation and his service, trading FTSE, was very profitable. I noted with interest that this winning trader decided to stop the service to pursue other interests, which confirmed my suspicion as to why successful traders need to waste their time with such services that must distract from their main aim of trading? I only cancelled that service because the trader left.

The other forex service which I followed whilst it was free, and I’m in two minds about subscribing for a further trial month, is Kathy and Boris, which I know sounds like an Eastern European porno set-up but it’s not. They’re a couple of Americans, with links to the FXCM dealing platform but have their own forex service. Kathy focuses more on technical trades, perhaps with a fundamental trigger, whilst Boris’s trades are more news driven.
What I found more useful than paying some one else to make me rich, was the insight into the mind of professional traders. Yes it’s all there in the books, love your losses, run your profits, etc, etc and it’s good advice, but it’s like reading a coaching manual on how to play second row, but then having a chat down the pub with Martin Johnson- he’ll tell you what you should do and you’ll believe him, because he’s been there and done it better than any-one. He may lose a line out, or drop a ball, but he’ll accept that it happens and get on with doing lots of other things very well.

Ah yes back to forex, the insight. Reading the way professional traders cut their losses to preserve their capital was more illuminating than their entry strategies. The two forex services that I looked at were similar in that neither was totally reliant on the dark arts. They didn’t sell £$ because a Witch’s bra-strap pattern coincided with an overbought indicator, 3 toads and a triple moving average crossover. They would comment on when major technical factors might be influential, but a lot of their trades were triggered by fundamentals ranging from forthcoming central bank or economic announcements to commodity related news. What I’m really saying is that neither relied on a hard and fast method, but both were disciplined in their approach. There were lots of variables: entering the trade above or below the current level; using wide or tight stop losses, the number of lots to run and proposed time scale of trades, but the constant factor in both cases was preservation of capital, “OK, it might be the fourth duff trade in a row, but that isn’t a reason to run with it. Close it down, say sorry and keep most of your capital intact.”

I can’t say that I’ve extensively researched the many subscription services available; on the equity front I’ve treated all the tipster services like a date with Britney Spears, something good might come out of it, but plenty of people have already been there and at some point it’s going to get very ugly. I did free trial a couple of ‘signal’ services, but to be honest it seemed like the ‘buys’ made money because the underlying market was going up and the ‘sells’ didn’t. One service that I do quite like and receive two daily messages from is Lite Trading. I think that I’ve now been ‘grand fathered’ on to their list as they are now a subscription service. They offer an early morning news mail, and a daily commentary posting various technical signals, with only occasional recommendations, on equities. I don’t follow the individual recommendations but do find their comments on the FTSE 100 useful for my option trading.

My semi-naked gardener/trader mate subscribed to the ‘80% success rate’ Vantage package. I don’t think either of us would dispute their results, but would comment that though it may be mechanical it isn’t a guaranteed cash cow. Within the signals there is massive scope for human error on the entry/exit points. I’m sure many traders swear by it, and I’m not going to argue, but the initial outlay runs to a few thousand pounds to see whether it suits or not.

One thing that most of us seem to have in common is that we want something for nothing. There’s nothing wrong with that, in fact it probably makes economic sense until we’re knowledgeable enough to recognise what is worth paying for. At the beginning I was constantly opening kind offers of help from ex-vets, ex ski instructors, ex warehousemen and Robin Hood with an inside secret from the City’s dealing desks, “ Dear Mr F-T, we’re after 100 volunteers to try out this new system of making a fortune and want to offer you, yes you, the chance to participate.” The offers all followed a similar format: if they had been on paper they would have been called a book; first comes the enticing drivel, then the client testimonies and somewhere just before the back cover there’s the price, “ I’ve spoken to (my agent/ partner/ some-one in the City/ gay lover) and they say that I should be charging £3,000 a year for this product/service/offer. Well, I might do to people that join next year, but I’m only doing this to help others become as rich as me so I’m offering this now for a quarterly subscription of £180.” Wow! That’s cheap, that’s err, only £720 a year instead of £3,000. WRONG! That’s £720 you’ve got to cover before you start making a profit. Don’t get me wrong, that could be a worthwhile business investment* if the information/ strategy works and produces ongoing profits, it’s just that a lot of it looks to me like an extension of pyramid selling where the only gains come from selling a plausible, but average, service to hopeful novices.

*This is a general comment and doesn’t constitute tax advice.
My trader mate has found many free samples and strategies by whiling away the hours, trawling through different bulletin boards or threads on the Internet and I guess that some of those are just as useful an introduction as buying an expensive system. As with most of it the trick is separating some genuinely helpful threads from quite a lot of crap. One of the web sites that I signed up to for a bit of commentary, ActionForex.com, provides probably 2 offers a day of systems, manuals or various help in trading. I have no view on any of these offers, they all involve money and I’ve no idea if they’re produced by experts or people like me!

I have turned down several offers after careful consideration purely for techno phobic reasons. There have been a few trading manuals, offered by ‘traders’ who at least have fairly convincing web sites, at a price where I didn’t stand to lose too much- except they were E books. I’m sure that E books are the future, but I like to carry a book around to read, underline, outline, highlight salient points and turn over a page. I just struggle to read E books.

I’ve been set a challenge by Steve (on the bulletin Board) to answer 36 questions in these articles. Sadly not many of them fit into this theme, except to say that the Bunny Girl thread will disappoint a lot of men. It has nothing to do with long-tanned legs and skimpy outfits and is a thread by a successful female trader, who was happy to discuss the merits of a system that worked for her. On the other question about the E book called Master the Markets, sorry don’t know, it was an E-book. I downloaded it for free, never read it then it died with all my other folders a few weeks back.

Hopefully the next article will feature a few trading platforms, comparing forex broking platforms to spread betting alternatives.

forextrader@proactiveinvestors.com