For the last 4 weeks I have been executing trades from the www.investingbetter.com “Newsletter Pro Forex Opportunities”. (I came across this by attending a traders networking day). This is an email-based service available for £30/month and they give daily entries/stops/targets for Cable, FTSE, EURUSD and Gold. Since 9th Feb I have opened and closed 20 trades. The performance has been less than stellar and the newsletter has made a special note apologizing for their drop in performance. That’s ok – you can always catch a bad month!
In any case, I wanted to give a review of the service. I noted the good solid points on the T2W forum.
I now also wanted to point out my worries/concerns about the service.
Performance Measurement – winning trades are overstated
Many of the trades have one stop loss but two targets. Once T1 is reached, half of the position is closed and the stop is moved to entry and then the remaining half of the position is either closed at T2 or at entry level.
On 10th Feb a Cable trade was entered with a stop of 85 pips. T1 was at +30, T2 was at +100. Note that all the stops and target levels are of course set at technical levels. So this trade was a winner. The newsletter counts this trade as a 100 pip winner, because the bigger target was for 100 pips. In my book I would count this as a win of 65 pips since 1/2 the position made 30 pips, and the other half made 100. For losing trades, the entire position is closed at the stop level.
On 23rd Feb there was another Cable trade for which the stop was hit 65 pips from the entry. So adding these two trades (Feb23 and Feb10) together the trader is overall in the same financial position. 65 gained (i.e. 30 on 1st half plus 100 on 2nd half = average of 65) on the 1st trade and 65 lost on the 2nd one. However the newsletter would say that the trader is up by 35 pips!
The newsletter staff confirmed to me that this is in fact how they measure the performance.
The effect of this is that the performance is inflated by all trades closed out at T1 & T2 (counted as if entirely closed at T2) and those closed at T1 & entry level (counted as if entirely closed at T1). So if i understand that correctly, then every losing trade is stated accurately, but the performance of every winning trade is overstated. Note there are some cases where only a single target is set and the entire position is exited at that target – those are counted accurately (in my opinion).
The newsletter claims that it is up 6,165 pips for a 12 month – or an average of 25 pips a day. This implies that following the trade tips would be a highly profitable move. But measuring the actual money lost/gained would produce a drastically different result because of this manner of measuring performance!!!
Does the newsletter actually take its own trades?
One trade in particular made me think of this – on 17th Feb there was a short Cable trade – the short position was, for me, triggered during a spike at 9.30am UK news). The low of the spike hit 1.5310. which was just below the T1 level and then price just jumped. This took place literally within one second – I would think this was just due to a widening of spreads – and would highly doubt that the newsletter could have closed its position at 1.5315 as it claimed. The newsletter says 1/2 the position was closed at T1, stop moved to entry – and thus it was a winning trade. Never mind the real traders who got triggered and got stopped out as price rallied all the way to 1.54. It makes it sound a little as if the newsletter is paper-trading – but of course I might be wrong on that! A similar situation happened with a Gold trade on 23rd Feb.
Partial Position Sizing not accounted for
The results also don’t adjust for cases where smaller position sizes are advised. On quite a few of the gold trades, it was advised to take 1/4 or 1/3 of the normal position size. However the pips gained/lost on these are just added with the pips gained/lost on the full size trades. This also makes the overall results less accurate, though it could understate the results in some cases, or overstate them in other cases – over a longer period of time this would just even out.
Putting it all together…..
It seems that I have caught about the worst month possible (it’s worse than any of the months on record as per the investingbetter website).
From the period between 9th Feb and today I have opened and closed a total of 20 trades. I have followed all of the short and long entires. I would think the newsletter would claim a net gain of 57 pips (based on their notes on how each of the positions were closed).
I have a loss of 256 pips because of two trades where I had losers and they had winners because of the Feb17 Cable trade and the Feb23 gold trade. This 256 is based on how the newsletter would calculate my performance in pips.
But using my ususal method of measuring performance by weighting the pips gained by the relevant position sizing, I have a loss of 553 pis, so roughly twice as bad as using the newsletter performance measurement.
So my gut feel is that this service could be significantly overstating their performance record, despite them claiming a gain of 6000+ pips in 12 months. But those are just my thoughts….. It would be great to get more feedback from the investingbetter website so I have emailed them a link of this blog post.