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The 3 (main) reasons that most if not all "system" vendors are scams


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The 3 (main) reasons that most if not all "system" vendors are scams

  #1 (permalink)
Austin, TX
 
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The 3 (main) reasons that most if not all "system" vendors are scams

There are 3 main reasons that a person with enough knowledge and skill required to CONSISTENTLY wrench money from the market would sell their "approach," "knowledge" or system. (including recurring payment indicators, platforms with canned methodologies already built in, etc.)

Bear in mind that any "system" worth buying would need to be flexible enough to make money IN THE LONG TERM, not just in the short term.

The three reasons are...

A) The system is either a neutral edge (long term) or slightly positive (but not enough to cover slippage and fees) and the vendor is simply trying to make money of subscription and membership fees, training fees, etc. Note: Type A is very common.

B) The system is either neutral or slightly positive and the vendor is simply trying to capitalize upon the added market effects trading as a group provides. This means, If I publish or dictate trade instructions, and I say "buy at $xx.xx, and I'm in a tick below that, before I issue the instruction, I'll benefit by the added market effects that my swarm of minions creates. A couple of ticks can mean the difference between very profitable and losing. Additionally, I get the effect on the backend for exits to my trades....if I'm long and I want to ensure that I don't get raped by slippage, I can issue counter-intuitive trade advice which eases my slippage on the way out.

Invariably, these types of scams work because the army of minions following trade instructions will have a few that are profitable, a few that are profitable SOMETIMES and a bunch that just aren't getting it....."yet." That's because depending how quick you are with your trigger finger, how much latency and lag time you have between you and the execution engine/exchange can mean the difference if you're in the front of the pack or the back. Those that are profitable will spread the word about how viable the system is.....kinda like the old casino adage..."A winner tells 10 people, a loser tells noone."

C) The "system" vendor is truly more interested in the education and vending business than the trading business. These are rare, but they are out there. If you took a sample of these tiny few (who simply prefer teaching and selling to trading for profits) one must wonder, why they prefer being a vendor instead of a full time trader? Is it because they're not profitable? Is trading too difficult or emotional or stressful for them? In any case, is this the sort of person you want developing your strategies or calling your shots for you? Only you can answer.

** There ARE vendors out there who are selling products, based more off their ability to code/package indicators than their efficacy. But these types of vendors are acting more as a code consultant than a "system" vendor and generally, they're providing or selling indicators that aren't really a secret, just difficult to code/package effectively.

At the end of the day, if it seems too good to be true, it usually is.

The proof is in the pudding.....ask YOURSELF the question...if YOU had a consistent and profitable edge would you sell it? Any idiot with a viable edge could make 1000's of times more money trading it than selling it.

I once saw a quote on futures.io (formerly BMT) that claimed "If you had a viable edge you wouldn't even tell your dog!" and there's truth to that.

So buyer beware, most "systems" and "training" programs are simply capitalizing on your contributions as specific/applied volume to the market (as a member of a group trade) OR training and educating you on things you could learn with a fraction of the price at the local Barnes/Noble or on futures.io (formerly BMT).

"A dumb man never learns. A smart man learns from his own failure and success. But a wise man learns from the failure and success of others."
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  #3 (permalink)
Austin, TX
 
Experience: Advanced
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Also bear in mind that there are other aspects at play.

Someone here on futures.io (formerly BMT) pointed out, and it was poignant, that if you started with 1000 financial advisors, all with a 50% (neutral) edge and they either made their profit for the year on one move, or lost for the year...here's what it would look like,

Year 1, 500 profitable, 500 in the red.
Year 2, 250 profitable, 500 neutral and 250 in the red.
year 3, 125 profitable, 250 somewhat profitable, 250 even, 250 slightly negative and 125 completely negative...
year 4, 62 profitable, 125 fairly profitable, 125 slightly profitable, 125 even, 125 slightly negative, etc.

By year 5,
There's still 31 firms who haven't lost yet,
Year 6, 15 firms,
Year 7, 8 firms,
By year 8, there's still 4 firms that haven't lost a year yet and a whole barrage of firms that are above .500 (and below 500).

So in essence, if you want to make a pile of money, start 2 firms and simply have each take opposite (hedging) positions, chances are, one of them will end up profitable and able to sell a boatload of commissions and the other you just chalk up to being sunk cost....after a few years, you start the whole process over.

Combine this with the what I call the "Barry Switzer" phenomenon. Barry Switzer won a Super Bowl with the Dallas Cowboys. With little exaggeration, you or I or anyone with a basic knowledge of football could have won the Super Bowl as the head coach of the Cowboys that year. He inhereted a team with MULTIPLE hall of famers on offense and defense...in one year, they had 8 (EIGHT) pro bowlers on defense.

This is also what garnered Clinton so much misguided fame as an economic genius. Anyone could have been President during the technology/communications revolution of the early-mid 1990's and had virtually ANY policies and still looked like a hero, the markets and the economy and jobs growth with new products, productivity, etc were just that strong. This is why I always tell some idiot liberal who likes to quote Clinton era policies....if you can guarantee the next cellular/communications/internet revolution will accompany it, most people are all in favor of raising taxes.

In some markets, it's difficult to impossible to be a loser. There were periods during the .com boom that you'd be hard pressed to end up a loser.

The real difficulty is finding traders and people who have been successful in all weather, all conditions. Finding a vendor/stragey/approach for sale that's able to show you decades worth of back history and a tried and true track record for most of the years/months...is a unicorn among vendors.

"A dumb man never learns. A smart man learns from his own failure and success. But a wise man learns from the failure and success of others."
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  #4 (permalink)
Maharashtra/India
 
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Hi RM99,
Regarding your first post, I agree that the vendors in the 3 category are very, very few. The only reason that I believe they go on to sell systems/courses is because they don't have their emotional/psychological issues handled. However, I repeat that profitable system/course vendors are few and far between.....or should I say very, very, very few and far between.

I think Mark Douglas mentioned in one of his books/videos that he had a client who was extremely good at analyzing charts. However, he kept losing money consistently in spite of his consultation sessions with Mark. Finally Mark told him to stop trading and look for a job as an analyst. That's what he did.

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  #5 (permalink)
desert CA
 
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Are you referring to B) as all kinds of trading including stock newsletters? I'm not sure this would affect futures or intraday trading. Even in a live room with 50 participants the shadowtrading from these retail players would most likely not even be enough to move the market 1 tick. Some of these vendor rooms pretend to have "members" when there are staff actually acting as the extra shill "members" and the totality of trial or new members in the room may only be actually five or so that they are trying to sell the $5k "package". At best, the market effects from shadowtrading could be only good enough for a small scalp.

Yes, there are supposed "high profile" pump and dump traders such as Tim Sykes who get folks in his newsletter or blog to push a worthless penny stock short or long for him.

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  #6 (permalink)
Maharashtra/India
 
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Cloudy View Post
Are you referring to B) as all kinds of trading including stock newsletters? I'm not sure this would affect futures or intraday trading. Even in a live room with 50 participants the shadowtrading from these retail players would most likely not even be enough to move the market 1 tick. Some of these vendor rooms pretend to have "members" when there are staff actually acting as the extra shill "members" and the totality of trial or new members in the room may only be actually five or so that they are trying to sell the $5k "package". At best, the market effects from shadowtrading could be only good enough for a small scalp.

Yes, there are supposed "high profile" pump and dump traders such as Tim Sykes who get folks in his newsletter or blog to push a worthless penny stock short or long for him.

I was talking about point C in the first post. The "system" vendors. There may be some who have profitable systems, but don't have the mindset to trade the system profitably (skipping trades, not obeying stops, position sizing, etc.). Of course, they either sell those systems or go look for jobs as analysts.

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  #7 (permalink)
Detroit, Michigan
 
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Nice thread. I think using a system as a starting point is a good way to start the journey. However, ultimately one must create their own system through trial and error and error and error until one finds what works for them consistently.

The "edge" is born from that trial and error (not the original system itself) imho, but the starting block could helps cut down the time spent getting to the "edge".

During the trial and error process the other very important elements start to coalesce as well (hopefully before the trading account is empty) - money management and psychology.

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