I am splitting my newbie account so that 50% will be allocated to following and copying signals generated by a signal service, while the other 50% will be for learning Forex on my own, meaning I will research setups and trade unassisted so I will learn Forex from the ground up.
The signal service I selected based solely on their impressive advertising is FX Market Leaders. In the few weeks that I have been copying their signals, I have done pretty good - my account has grown by 5%, although not without some hair-raising close calls with the price almost touching their unusually wide stop loss limit. What is unusual about this service’s methodology is that they employ an inverse risk/reward ratio. Their average stop loss is 40 pips while their reward limit is 20 pips.
So my newbie question is - can they sustain their winning streak with such a large stop loss, or is this a disaster waiting to happen? Are there better, as in less risky, signal service providers out there?
Statistically, it’s highly[I] likely[/I] to be a disaster waiting to happen at some unspecified and incalculable time, in my opinion, and there are reasons for that.
Most likely, but the ones that are best and safest-performing now will be completely different from the ones that are best and safest-performing in three months’ time - and again, there are reasons for that, too.
About those “reasons”: there are thousands of signal services “out there” (and unfortunately quite a few of them “in here” as well!), and at any one time, out of those thousands, it follows that there will always be a small number who happen, simply by the laws of chance, to have had a run of a few good months.
There’s also a process at work which statisticians call “selection bias”, which predicates that [I][U]those few are usually the ones you see advertising and promoting and being recommended most prominently[/U][/I].
Unfortunately, the fact that they happen just to have a few good months has very little (or “no”) bearing at all on their chances of having a good few months [B][U]again[/U][/B] when you subscribe, because they had it by luck and “because someone has to”, not by skill. They’re successful [U]marketers[/U], not successful traders.
That’s the “hidden reason” why it’s so common to join a successful service with a great record, and for it all to turn sour at some point after you’ve started paying for it.
