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How to Analyze the
Veracity of Investment Newsletters
By John McKeon
When trying to analyze whether a promotional ad for an investment newsletter
or a market timing investment trading system is worthy of investigation, the
following questions should be asked:
Does the strategy have a track record? Without this you are really allowing
your emotions to be in play. All of us want to believe that if someone says
something it must be true. Yet the sad fact is the truth is probably just
the opposite. Most ads and promotions are put in print for self interests
first, and all else second. One has to view anything on the web with a
skeptical eye. The minimum that an investment strategy should give you is a
previous track record. The longer the track record is the better. Something
that has worked for a matter of months is usually not long enough in the
trading world to be considered successful. Some promoters do not release
their track records because they say that “past performance is not an
indication of future results? This is true but certainly no performance is
not an indication of future results either. Some promoters do not release
their track records because they say “we used to do a track record but
subscribers got upset if the strategy lost money when they subscribed even
though it made money over a yearly period.?That may also be true but it is
also part of the game. Subscribers can not expect to make money from day one
when trading a long term strategy. However, that should be self evident in
the track record. And some promoters do not release their track records
simply because they don’t have one or they have a bad one. It’s as simple as
that no matter what they say.
Is the track record that they are promoting in real time or was it simulated
in a computer based on past data? What does this really mean? Real time
means that the trading signals that were used to produce the track record
results were actually generated at that specific moment in time. In reality.
Most track records on the investment web sites are not real time even when
they say they are. Even if they did not use a computer and it was done by
hand, if the data taken from the last five years but the web site is only a
year old then it can’t be so. Why is this so important? Because trading is
not trading if human emotions are removed. No greed, no complacency, no
panic, no hysteria. Almost all computer-generated trading programs fail
miserably when actually implemented because either the data was too short a
time period or the human factor was ignored. That is assuming the human that
input the data did it without human emotion. I once had an acquaintance who
told me he had a system that returned 80% per month for the last 6 months.
He said he implemented it 6 months in real time. I asked how much he had
invested in this strategy. He said nothing because he was paper trading. I
said that there is no such thing. He proceeded to tell me what paper trading
was. I replied that I knew what he thought paper trading was but it is not
trading because when you paper trade your emotions are not in play. Human
greed and ego has a way of making you believe something to be real without
looking objectively at the data. But once actual real money is at risk the
complexion of the situation dramatically changes.
How can you tell if the track is in real time if they lie about it being in
real time? This is not always easy but there are some basic tell tale signs.
If it is a short term system that risks very little and trades often, say
10-50 times per month. Yet it has an 80-90% trade success ratio, which is
almost impossible statistically. Most day traders and position traders are
doing well if they are winning 40-50% of the time. If they risk more and do
not use tight stops, then the win loss ratio goes up but the size of the
drawdowns or the size of the largest loss has to go up. Longer term trader
may have a slightly better win loss ratio but only if their risk is also
larger. To make a general statement, the larger the win loss ratio is the
more I would be skeptical.
What if the track record is a combination of partly historically back tested
signals and partly real time signals. How should I analyze that? The first
thing to look at is if the win loss ratio has changed dramatically over the
track record time period. For example, if it is a 5 year time period, and
the promoter claims that the trade signals went live 2 years ago yet the win
loss ratio changed dramatically only 6 months ago, beware. The hardest thing
to detect on the web is when you’re being conned about a hypothetical track
record because there is no real way to tell when a web sites track record
was edited deleted or revised. Some web sites use an independent tracking
site but there are no real ways for a consumer to know other than that.
I hope that the previous ideas will help to determine fact from fiction in
the world of investment newsletter promotions.
John McKeon
Rye,NH
info@buypanic.com
http://www.buypanic.com
Article Source: http://EzineArticles.com/
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