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I know it can be tempting to subscribe to Forex signal services.
You can profit from the markets without looking at the charts.
But will you really become a winning trader from using these services?
Well, that’s what you’re about to discover in today’s episode, listen now…
Resources
Forex Signals Provider: This is What They Hope You Never Find Out
The 4 Stages of the Market Every Serious Trader Must Know
Transcript
Yo, what’s up!
In today’s episode, I want to talk about Forex signals service – can you make a living from Forex signal service?
So for those of you who are not familiar with Forex signal service, how it works is that you pay a monthly subscription usually. And you’ll get Forex signals, in the form of SMS or email alerts or telegram group channels etc.
They’ll tell you where to enter, where to take profit, stop loss and stuff like that. And that’s how Forex signals service works.
It’s very appealing to a lot of traders, especially new traders because it kind of takes the work off them. All they need to do is just follow the Forex signals and they can make money.
But the thing is…
Can you make a living with Forex signal service?
My straight answer to you is no. And I have a few reasons for it.
1. Forex signal service provider is like a black box
Most Forex signal service providers don’t tell you the system, the algorithm, or the strategy behind it. They just spoon-feed you the signals.
The problem is you’ll have no idea how this strategy works. Market conditions change. It moves from an uptrend to a downtrend, to range market, from low volatility to high volatility, etc.
If a certain strategy or system is only able to profit in certain market conditions, what happens when market conditions change? Well, that system will go into a drawdown.
That’s where things get tricky. Because if you sign up for Forex signal service, at the back of your mind, you’ll always be wondering, “Are we in a drawdown or has the trading system stopped working altogether?
And you’ll never know because it’s a black box. You’ve no idea how the system even makes money to start with.
Trust me, when you go through a drawdown, you won’t have the conviction to take any more trades. Just imagine 6 or 7 losing trades in a row. Will you have the confidence to take the 8th or 9th trade? Unlikely.
Especially when you don’t even know how the system makes money to start with. And that’s the first problem you’ll face when you are signing up for Forex signal service.
2. Forex signal service providers’ backtest results can be misleading
A number of these Forex signals service providers design their system in a way where the backtest results look very good. And that’s very beneficial to them because it’s very easy to market.
Imagine that you have a system with an equity curve that goes up consistently over time from left to right, it’s just upward sloping and there’s no drawdown.
This system will be used to sell the Forex signals subscriptions easily because he can just tell most traders, “Hey, look at this backtest results over the last 6 months of trading. You would have made 1,200 pips.”
The problem with this is the backtest results do not take into consideration the future events that could cost the system to lose a huge chunk of money.
Let me explain how this system works.
They have a very large stop loss and a very small target profit.
For example, you have a 5 pips target profit and a 200 pips stop loss. Clearly, your win rate is going to be very high, more than 90%.
But when 200 pips stop loss is hit, it’s going to wipe out, a huge chunk of capital. And for those of you who are subscribing to this Forex signals service, if you don’t have proper risk management, that one trade is enough to wipe out all your gains.
I won’t say all Forex signals service provider does this, but a number of them adopt this method of selling their subscriptions.
So you have to be aware:
Just because the backtest results look good so far, does not mean that it’ll continue to be good in the future. All you need is that one loss, to ruin right the entire equity curve.
That’s reason number two.
3. Forex signal service provider’s subscription fees can erode your capital
Think about the subscription fees relative to your account size.
So let’s say you have a $5,000 trading account that you want to trade with, and you pay $100 a month in Forex signals service subscription. If you think about this, that’s about 24% a year.
You’ll need to make 24% a year just to breakeven on a subscription. So if that signals service makes, 20% a year you’re still in the red – you still lose 4% for the year.
Because even if the service makes you 20% a year, after you consider the subscription costs which is 24% a year, you’ll still lose 4% for a year.
And that’s still not taking into consideration the spread, commission and transaction costs etc.
So this is the third thing that you need to be aware of.
And that’s why if you ask me, can you make a living from Forex signals service, my answer is no.
The first reason is enough to break everything down because you won’t have the conviction to take the trades after a few losing trades.
So with that said, I hope it gives you my perspective on things.
I hope you’ve enjoyed today’s episode and I’ll talk to you soon.