Last Updated on 17 November, 2020 by Samuelsson
Trading strategies are the core of every trader’s business. For beginners, finding a trading strategy is often challenging, and requires a lot of research and preferably access to backtesting software.
You can find many trading strategies in books and on trading forums. Strategies can also be bought from trading vendors. Just keep in mind that the trading industry is full of fake vendors and that a purchase of a trading strategy requires rigid research to verify the trustworthiness of the strategy provider. In fact, this applies to all information you find, be it on trading forums or in trading books.
So, how do you know if a trading vendor is fake, and how should you go about using trading strategies from forums?
Methods To Debunk Fake Trading Vendor
As mentioned, the Internet is flooded with fake trading vendors who try to sell overly curve fit trading strategies, often at ridiculously low prices. For somebody who is new to trading, it can be hard to see through the polished surface of the so-called “trading gurus” who in reality know very little about what works in trading. Therefore it is important to be vigilant and keep in mind that anyone can study the theory behind indicators and trading patterns, and make an eye-catching presentation out of it!
Traders who have managed to become profitable and consistent winners in the markets, know that commonplace trading knowledge known by the large masses is not enough to succeed in the markets. Instead, you need to innovate and come up with approaches that the large herd is not using. Once an idea becomes commonplace, it tends to stop working or at least works less well.
Still, there are good trading vendors and here are three different questions to know if you are dealing with a scam or not:
1. Does the Trading Vendor Offer You the Holy Grail?
Many traders search for the holy grail in trading. They believe that they can find one strategy or approach that effortlessly will provide them with all the money they can think of. This erroneous belief is taken advantage of by people with less chivalrous motives through the selling of scam products.
Have you ever seen a trading vendor offer a system like this?
Well, it is most likely the result of massive curve fitting. Going forward it will probably just turn around and start to produce losses instead.
If you ever stumble upon a trading vendor who claims to have such a trading strategy and expresses no doubt that the trading strategy will continue like in the backtest, then you can be certain that you are dealing with a fake trading vendor. Markets change constantly, and somebody who claims to have a trading strategy that is guaranteed to work either is inexperienced, or deceitful.[bctt tweet=”Never engage with a trading vendor who claims to have the perfect strategy with guaranteed future performance.
Such trading strategies simply do not exist.” username=”robusttrader”]
2. Is the Trading Vendor Actually Trading His Own Account
Many of the so-called “trading gurus” do not trade their own account, because they do not know how to do it. Regardless of how many hours you have spent reading everything you can find on trading, you cannot learn trading if you have not traded yourself. There are many small quirks and practical things that need to be experienced first hand.
Knowing whether a trader actually trades or not can be hard to find out. Even if you request him to show his account history, you might be presented with false proof. A long history of reported trades does not suffice either since it can easily be manipulated.
To know with certainty that a trader trades his own account, you will have to ask for externally verified result through services like Collective2.
3. Is the Service/Product Offer Reasonable
Before buying something trading related, always ask yourself if the offer is reasonable. Good trading strategies cost a lot of money. If somebody is giving away such a trading strategy for very little money, you should start to smell a rat.
Can You Trust Strategies From Trading Forums?
In trading forums, you can find a lot of discussions about trading strategies and what seems to work and not. Trading forums indeed contain a lot of valuable trading information, but there is one thing that you must remember:
Most forum participants are not profitable traders.
Just like the majority of market participants, traders on forums are struggling to carve out profits in the market. They are there to find information about trading strategies and trading, and happen to share their own discoveries and questions along the way.
Trading forums are valuable resources, but you cannot trust the trading strategies or anything else that comes from them. Still, trading forums are great inspirational sources and can certainly contain good advice. It is just important to keep in mind that every claim made in a forum post should not be taken as truth.
See our list of the 20 best trading forums!
Can You Trust Strategies From Trading Books?
In the case with trading books and the trading strategies you can find there, it is a little different. The threshold of writing and releasing a book is much higher than writing a forum post. Still, the issue of incompetent writers exists also with trading books.
We recommend you to read our list of the best trading books. If a trading book is on our list, you can be sure that it is worth reading!
Never trade a Strategy Right Away!
Keep in mind that no strategy that is mentioned online or in a book should be traded as is. You always need to backtest the strategy yourself on historical data to know if it holds any merit or not. Even if a trading strategy worked when a book was released, It is no guarantee that it will hold up a few years later. Trading strategies stop working eventually, and that is why you need to be able to determine yourself if a strategy still is working or not. By the way, since you are backtesting strategies, why not start creating your own?
Building Your Own Strategy
The best way of finding a trading strategy is to build it yourself. Then you know where it came from and how it was developed.
In order to build a trading strategy, you first need to come up with an idea. You may use trading forums and trading books or platforms like Tradestation or Ninja Trader for inspiration, and start coding and tweaking the ideas you find. Once you start backtesting what you find online, you will quite soon realize that very little of what you thought was going to work actually works. At first, this insight might be somewhat discouraging, but keep on testing! Every trading strategy you manage to filter out is one less for you to lose money on in live trading!
Once you find something that seems promising, you may try to add more filters and conditions to enhance the strategy. However, try to keep the strategy as simple as you can. In trading, overly complicated logics tend to produce curve fit trading strategies that fall apart in live trading.
The last step is to employ your robustness testing procedures. This is one of the most important steps, where you will make sure that the trading strategy you have produced holds for the future.
In the second part of our article on curve fitting, we look at different methods to determine the robustness of a strategy.