Before you sign up for your next Forex class, know all you can about the teacher. Unfortunately the Forex industry is filled with snake oil salespeople ready to take your money and leave you with a dwindling account and a trading strategy that doesn't hold up over time.
We just couldn't resist including one of our favorite songs by Holly Figueroa from her great album 'Gifts and Burdens', which reminds us of what we've been saying in this multi-part checklist… Enjoy:
(If you missed our prior blogs on this same subject, click here to go back and read the first 9 questions that you need to know before signing up for your next Forex class.)
9. Google the teacher and see if there are any pending class action lawsuits or criminal investigations against him or her.
(Yes, more than one of our past ‘teachers’ served time in jail. No, we won’t be going to visit. And yes, one of them is out of jail and already teaching again! All he's changed is the name of his website.)
10. Go to the the NFA website and do a BASIC search for this teacher and look for complaints registered.
Click here to go to the NFA website: nfa.futures.org/basicnet However, most of the teachers are not CTA's (Commodity Trade Advisors), so they probably have never registered with the NFA and are not under its watch.
11. Look for reviews of the class that are not on the teacher's website.
Check Forex Peace Army and other forums for information posted about the teacher and their classes. Remember that you have no proof that the reviews on the teacher's own site are authentic.
12. Does the teacher demonstrate with the Forex Tester?
Why wouldn't a teacher use the Forex Tester in their classes to do a simulation of what it's like to trade their strategy live? We've taken lots of classes that boldly advertised "live trading" during the seminar and guess how many trades we took? ZERO!, because there were no set ups for that particular strategy during the seminar.
The time we spent in class waiting for the setup could have been used to zip through a year of data in a very short time if we had been using the Forex Tester. We could have seen how the teacher interpreted the market in the light of their strategy as price action unfolded candle by candle. One of the most important things about any trading plan is the decision-making process that goes on before making the trade. You can't get this from a teacher as he reviews finished chart patterns (cherry-picking). The decision-making is long over by that time.
The only reason we can think of for a teacher to NOT use a simulator is because they fear making a wrong decision in front of a group of students or their decision-making process only works in hindsight, or maybe the strategy itself is not robust enough to demonstrate it over any length of time.
One of our good trading buddies, David from Perth, was in a course with us years ago. He said he showed the strategy we had been studying to his son using the Forex Tester and his son was able to understand more about the strategy in the 3 hours they sat together on the Tester than David had learned in 6 months of the class with our teacher. That's how powerful using a simulator could be in the hands of a good teacher.
13. Does your teacher exit trades at an "ideal price" when the chat room is closed and then tell you about it afterwards?
This happened to us countless times when we used to subscribe to teachers who called out trades in chat rooms. We stayed in the trade while our so-called "teacher" exited at the perfect time during off hours and made full profit, while we sat there holding on to a languishing trade or got stopped out. This kind of behavior is often a mask used by a scammer who doesn't want to admit that he also took that loss.
If your teacher texts you or puts a note in the chat room at the moment he is exiting, then that's fair and honest. Just beware of exits called behind your back.
14. Does your teacher manage stops on their own trades the same way they instruct you to?
Or does he tell you to go to break even and then your trade goes out but his miraculously goes to full profit? Yes, maybe you have different brokers and your stop was taken out but his wasn't. But come on, every time??? Did he maybe move his stop and not tell you?
15. Don't be deceived by a teacher's claim about how many pips they made.
We've actually studied with teachers who have been pips-positive and profit-negative. Think it can't happen?? Not all pips are created equal. We've seen statements of these pip claims only to find out that the total dollars earned were net negative. If they vary their risk on each trade, i.e. they've used a bigger risk on smaller wins and a smaller risk on larger wins, then it's very possible that they can be showing a lot of pips and yet have actually lost money.
We've also been in classes where teachers count the pips of each leg of a trade independently and then add them all together. For instance, you might go into a trade with them and both of you make 20 pips, but if they scaled out in two parts, they might show it as though they made 40 pips, giving a very false reading of what was really going on.
By the way, we've created a concept we call "working pips", which you'll find automatically reported with each trade you enter in your Forex Smart Tools Trade Log. Working pips provide a measurement of how many real pips you made on a trade regardless of whether you scaled in, scaled out or cost averaged, so you can compare one trade with another in a useful and honest way.
16. Carefully check the statements you are given to see what time period they cover.
Check that the statements you see from the instructor cover no less than 6 months of live trading. Anyone can open multiple demo accounts and have phenomenal short term success on one or two of them and use those to brag about without revealing all the demo accounts they blew up along the way. We know this because in another class we were in, the teacher handed out his statement showing phenomenal returns but it covered a two day "lucky streak". What else happened in that account that he didn't show us?
We'll finish our checklist in our next issue. Be sure to tune in. Thanks for leaving us feedback.