Lately, many self-proclaimed market gurus are sharing fake portfolios or trading positions on social media platforms to sell their trading courses or subscription services to gullible investors.
It usually begins with a rag to riches story of an individual who rose from poverty to become a multi-millionaire trader. They’re now driving Lamborghinis, living in luxury mansions, and amassing vast fortunes through trading.
Now, they want to help people trade actively in markets by revealing their secret trading strategy by selling online courses worth thousands of dollars.
And then, there are people who claim to offer a FREE book that will teach you a step-by-step method to make 300% a year, and all you have to do is pay for shipping!
These so-called trading gurus, or fraudsters, for lack of a better word, act as professional traders looking to sell their online courses to the increasing tribe of individual investors.
However, online courses can be an efficient source of knowledge when chosen correctly. But when they are offered by someone whose intentions are far from teaching, it might lead to the individual’s financial and psychological demise.
So, we’ve put together a list of top 5 questions you should ask any trading guru before you hand over your hard-earned dollars to join.
1. Do institutional or big funds work with you?
Most trading gurus claim to have turned a small account into a large one in a short period. They might state something like, “How I turned a $1000 account into a $100,000 in six months,” or “How to make $100,000 in day trading.”
If these trading gurus are already performing so well and even outperforming pros like Warren Buffet, George Soros, Jim Simmons, and other well-known investors or traders, why doesn’t it make sense for the wealthy, powerful, and influential funds to want these strategies?
Why aren’t they making those strategies exclusive instead of revealing them to the general public for a few hundred dollars?
So, before you start following any trading guru, verify whether your trading guru works with any reputable institutional fund or if it’s just another guru teaching a moving average strategy to make 300% a year.
2. How much profit do you make trading stocks, and do you have an audited performance of your historical trades?
As we’ve seen, the claims made by so-called trading gurus are too good to be true. So, the main question is whether they’re actually making such returns or are just exhibiting fake dollar emojis.
Generally speaking, if your trading guru makes such lofty claims, like making 300% every single year, you’re better off looking for other coaches.
When you ask such trading gurus to provide audited proof of their trading history, they almost always refuse to answer or attempt to skirt around such questions.
3. Do you trade live, or post your trades live to your community members?
Do you know what separates the credible and the non-credible guru?
Our answer?
Of course, one must be profitable. Otherwise, nobody will learn or even follow him in the first place. However, this is not the only crucial part. One also needs to show proof of his profits and actions that one takes.
Why transparency? It is as simple as “what he says, is what he does”. Does your mentor apply the strategy they have taught you on their own live trading account? Can they prove it? If yes, then there is a higher chance that you have found a credible trading mentor/guru.
It means that your mentor is honest and not playing his followers with suggestions or knowledge that he is not taking.
When you start to study from a mentor/guru, you begin to learn their approach, then their strategies, but they do not tell you whether or not they have done it with proof, then this is a red flag.
Because, unlike many of these less-than-credible gurus, a credible guru should be PROFITABLE, always take his trades LIVE and always publish his portfolio to his community.
4. What are your trading performance statistics?
A trustworthy trading guru should be able to justify his trading performance with the following statistics:
- How much are you willing to risk per trade?
- What is the risk-reward ratio you aim for?
- What is the maximum drawdown of your strategy?
- What is your average win rate?
- What is your holding period?
- How do you determine the size of your position?
By comparing and analysing the performance statistics of various trading gurus, you can avoid those:
- Who trade without risk management,
- Who take too much risk in a single trade,
- Whose equity curve swings wildly from time to time.
And finally, choose the one who best fits your personality.
5. Do you have a systematic money management strategy?
When it comes to trade size allocation, have you ever been told with a broad brush to size every trade between 10-20%, depending on your risk preference?
Please beware of ‘trading gurus’ that are so vague about how they apply their money management strategies!
Such trainers often don’t trade or have skin in the game because if they do and are successful, they will have a systematic method to determine how much capital to deploy to each trade opportunity!
When it comes to profiting off the stock market, it all boils down to 2 main pillars.
Just like everyone attempting to clap, you’ll not only need two hands but also need them to move in unison towards each other at the same time.
All successful traders and investors in the trading business must have a winning strategy (first hand) and a systematic trade size management strategy (second hand). For traders and investors to clap their way to success, these two hands must be present, and they must also comprehend and complement one another.
Even if you have the world’s best-winning strategy, you are not guaranteed to generate consistent profits unless you know how to place your bets. If you can’t optimise your capital to capture all signals from your strategy, you will get into a situation where your actual performance deviates from the theoretical performance.
Going all in and being highly concentrated increases your risks and may result in portfolio losses or, in the worst case, lead to total ruin (entire capital loss).While being extremely cautious and under-deploying capital reduces risk, it can also result in a limited portfolio profit performance.
Thus, knowing how much to bet each time is the key to unlocking the value of winning strategies. This is exactly why the 2 hand clap is the best analogy to explain the dependency between winning strategies and the money management approach.
Any trading guru that doesn’t have a credible answer to money management is mostly not a credible trader!
Finally, what should you expect from a trading guru?
Unfortunately, the trading industry is full of false promises. Every other trading guru or salesman makes lofty claims of exorbitant returns to sell courses or trading systems promising to make traders rich.
In turn, expectations are to become overnight millionaires after watching catchy YouTube ads, which creates a significant discrepancy between “trading expectations” and “the reality” among newbies and aspiring traders.
Here are a few things that every trader needs to understand:
- Returns that consistently outperform benchmark indices are what world-class traders aim for rather than one-time “rags to riches” gains in a short period.
- No trader wins on every trade. The best traders in the world only have a 50%-70% win rate.
- Trying to get rich quickly requires so much risk that the probability of ending up poor is far greater than your chances of becoming rich.
- If you risk a significant percentage of your trading capital on every trade, you significantly increase the risk of ruin in the long term.
- Finally, it’s not just the returns that matter. The consistency in getting those returns compounded year after year will help you make a fortune.
Consistently profitable trading requires a winning system coupled with a systematic money management approach, and they must have the discipline to follow it diligently.
Final Words
- “Secondary income”, “living the life of your dreams”, “being financially independent”, or “making 300% returns from the comfort of your home” are some of the most common phrases used by so-called trading gurus.
- If these individuals are so wealthy that they’re living on a yacht and having fun as they trade, why would they prefer to deal with online students in exchange for a few hundred dollars when they’re already making millions in trading?
- On the other hand, if your trading guru has satisfactory answers to the questions discussed above, they are likely to be legit and may help you get on the road to consistent profits much faster than if you go it alone.
Please note that all the information contained in this article is intended for illustration and educational purposes only. It does not constitute any financial advice/recommendation to buy/sell any investment products or services.
