Forex Mistake #8 – Trusting the Signal Provider

Why Trusting the Signal Providers could get you Broke?

Do you drive? I do, and let me tell you, it’s an adventure driving in Eastern Europe… not always a pleasant one. Most of the country’s roads are two-way because highways, well, are just too sci-fi for those countries people and this generates a rather common occurrence: when you want to pass the guy in front of you and you cannot see if other cars come towards you from the opposite direction but he can, he would use his right side turn signal to tell you it’s ok to pass. If he signals right, you’re good to go… according to him. However, I never pass when I see that turn signal. I bet you wanna know why and where the Forex trading mistake is.

 

How Signal Providers could Get you Broke: Turn Left, Turn Right, Buy, Sell – Just Follow My Lead

Most of my mistakes were made during the first part of my trading adventure (but that doesn’t mean I’m flawless now) so this story takes place a few years ago, when I still believed that you don’t need to learn in order to make money trading. I came across a signal-provider website which you could join for a couple of hundreds of dollars per month but which also allowed you to use a free trial access period of 7 days. It worked mostly like a trading room: you join the session and the signal provider/guru/mentor gives you signals to buy, sell, get out of bad trades, take profit on good ones, etc. The performance of their signal providers was posted on the website and it looked impressive so I thought to myself: Hey, it’s free for 7 days, they have good performance and for sure they trade better than I do so let’s make some money.

First day went without major flukes or problems, but the profits weren’t even close to what they showed on the website. Yea, I know that past performance is not indicative of future results, but I would have expected more pips. Doesn’t matter, green pips are good anyway. The next days were mostly breakeven, with some small losses and some small gains… all this until my final day with them. One of the signal providers tells us to get ready to sell EUR/USD. I took a quick look at the pair and saw it’s moving up… “Hmm, he wants me to sell but price is going up. Well, I guess he knows best”. In a couple of minutes he gave us the signal to sell it. Done! Next thing he says he is going to lunch. Wait man, what about profit taking, stop loss?! Too late, he was already out. Now I was faced with 2 decisions: get out of the trade while it was still very close to the entry price or wait until he eats his lunch and comes back to tell me where to place my take profit and stop loss orders. Of course, if I had any idea about trading I could have decided for myself where to put those orders, but that was clearly not the case. So I went for door number 2 and patiently waited for the guy to finish eating. In fact, “patient” is not at all the best word, because while he was eating his salad or whatever, I was eating my nails as the Euro kept going higher and higher and I was stuck in a bad trade without a Stop Loss. Sure, now I know that I should have closed the trade or placed a Stop Loss, but then I had too many doubts in my mind, the main one being: “What if price drops immediately after I close my trade?”. Anyway, for the entire duration of the guy’s lunch, I was like a deer in the lights of a speeding car: frozen. I couldn’t make any decision because I lacked experience and the proper mentality.

 

Thanks for a Good Lunch. Here are Some Tips

The guy came back from his lunch and the first thing he says is something along the lines of: Oh, what a huge rally, I hope you guys had a tight stop loss” … No dude, I didn’t because I don’t have any idea about where to put it… remember, I’m here because I don’t know how to trade! With my bad experience in mind, here are some tips on the matter:

  • Never assume something won’t cost you money only because it is free. Access to the trading room was free for 7 days, but the money I traded was gone.
  • The sooner you realize you are the only one who cares about your money, the better.
  • Learn to trade on your own. At least you’ll pay for your mistakes, not for the ones made by others
  • Don’t be lazy! The fact that I trusted signal providers was a consequence of my laziness because I thought there are shortcuts to trading success and I didn’t want to put in the work
  • Don’t be fooled by the performance sheets shown on the websites of most signal providers. Usually those do not show the real situation.
  • If you are a complete noob (like I was), not even a good signal provider will make you money in the long run. Don’t be a noob and start learning.

 

The Bottom Line: Trust Yourself

Maybe now you understand why I never trust signals coming from others whether we’re talking about trading or driving. When I pass the driver in front of me just because he tells me it’s OK and without seeing for myself if another car is coming, I trust his driving skills with my life. When I Buy or Sell because someone tells me to, I trust another trader’s judgment with my money and that’s simply not kosher to me.

 

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