Let’s compare and contrast two different kinds of people, both presenting themselves as forex teachers.
The Mentor - We’ll define the mentor as a person who is genuinely interested in whether or not you learn how to trade forex and has the goal that each of their students become profitable.
The Miner - We’ll define the miner as a person who sees each student as a gold mine, an ever-replenishable crop of aspiring traders who can be mined for their own personal profit.
How can you tell the difference between the true forex mentor and the forex miner? Let’s take a look, point by point, so you can pick wisely before you sign up for your next course. Make sure you find out these things first:
1. Does this teacher currently trade forex?
This should be your first question. You will probably not get a straight answer if the teacher is a miner. If you do get an honest answer along the lines "No not now, I’m too busy teaching", then RUN, this is a miner. "No, I don’t have the disposition to trade, but I understand it well enough to teach it." - This too is a miner, keep running.
Why is this important to know? Because 'the strategies' are the easy part of trading forex. The hard part includes money management, psychology and developing the temperament needed to be a live trader. If someone is not trading live it shows you that they themselves haven't mastered these other components, so how can they possibly teach you how to pull it all together. If they've only figured out the easy part (the strategy), you'll be left high and dry when it comes time for you to make a business out of trading. Are you seriously going to pay someone who can't even do what they claim they will teach you to do?
How will you know if you're being lied to by a dishonest teacher if they say, "Yes, I'm trading" but they are actually only demo trading or manufacturing statements in Photoshop? (Click to see blog #1 on our site to see how we were royally duped by clever photoshopping.)
Don't rely on trust! Ask this:
2. Does this teacher trade a live or demo account?
Why is it important that your teacher trade a live account? Three reasons:
- Because there is no way to get around it… everyone does things differently on a demo account than they do on a live account. No matter how many times you tell yourself “I’m going to treat this like it’s real money”… you just don’t. You can’t - because you know it’s make-believe, so you can get away with anything you want to. You take risks that you wouldn’t take if it were real money.
- A demo account is almost always held on a different server by your broker than are their live accounts, so demo trades are always filled right away and stops are always honored. These demos make the trades work out better than they may with a live account. If you run a demo and a live account side by side, you’ll often find that you get into your demo account at a better fill and your stops are honored more closely than the corresponding live account. So if your teacher is using a demo account, they’re not showing you what a real outcome would look like. It's another way to get duped.
- It’s easy for the teacher to play the old shell game with you and change demo accounts without being caught.
We were in a class with a forex miner for several months who used a trading system with hedging. He opened up his demo account at the start of each session so we could see the trades he had taken and those he had closed since our last session with him. But every few weeks he seemed to have a ‘computer glitch’ and would have to load up a new demo account, or so he claimed. Pretty soon we started asking questions, like could he please scroll all the way down so we could see the equity, and could he please show us the account number. Instead he focused on showing us the sides of the hedges he closed for a profit but conveniently didn't scroll down enough to show us the open legs that were losing money.
We started applying enough heat that others in the group started getting suspicious too. Within a couple months his web site closed and he was nowhere to be found. Turns out that he was opening these new demos not because of computer problems but because he was blowing up each account with a margin call, then closing it due to his bad money management practices. But for everyone else in the group, they were just happy to see the profits the trades looked like they were making. Demo accounts make it too easy for a miner to pull the wool over your eyes and trick you.
3. Does this teacher make the trade statements from their account available to their students?
This information used to be harder to get from a teacher, but these days there is no excuse for a valid teacher with integrity (a true mentor) to withhold this kind of information. There are now many web-based programs available that make it easy for a live account to be monitored and reported upon by an independent service, such as Forex Factory’s Trade Explorer.
Several years ago we studied with a mentor - Henry Liu - who actually opened up a fresh live account for $4,000 with each new session of his class he taught. Everyone in his trading group was given a read-only investor password to the account, so you could see when Henry opened and closed each trade, what the position sizes he used were, and the resulting gain and loss. It was one of the most admirable methods we have ever seen for providing honesty in trade instruction. It can be done. Henry made no excuses and didn’t find it to be any inconvenience to his own trading or teaching - in fact it gave his teachings authenticity and his students could trust him because of it.
Think for a moment why a teacher would not want to use such a service:
- They are not really profitable, so they don’t really want you to see their results. They’d rather just talk about their positive results or allude to them and have you not question that any further.
- They are occasionally profitable - and those are the results and charts they choose to show you in class - but if the results were tallied over time, even a few months together - you’d see occasional drawdowns of such magnitude that they would scare you away - or worse, you’d discover those margin calls the teacher repeatedly had.
- They are so fabulously wealthy that they don’t want you to see their balance. OK, great. But all these services have a feature where the balance can be hidden and only the percent gained or lost is shown in the stats and charts, so that excuse doesn’t really hold up. Further, if they believed in transparency and were not afraid to let you see their results, they could establish a parallel secondary account with whatever amount they wanted that was a smaller portion of their own private, larger account. They could use a program like Trade Copier to automatically match each trade they took in their large private account over into their smaller account with the correct proportion, so they would only have to place trades once, but the smaller account could be monitored publicly by their students.
- They don’t want their strategy revealed. Hmmm - well, when have you been able to figure out what someone’s thought-process was by simply seeing where they bought or sold??!?! We’re darned smart and we have yet to be able to do that, just by looking at open and closed trade statements. So that's another excuse that doesn't hold up.
- They don’t want you to copy their trades as though they were a signal service. The teacher could choose a reporting service where the trade is recorded after it closes, so it’s too late for you to mimic their entry anyway.
If you’ve heard other excuses from your teachers as to why they don’t make their statements available to their own students, please share them with us. We believe there are NO acceptable excuses for a mentor not to post their actual trades and their win/loss record.
In the upcoming blogs we'll cover more important points that will help you differentiate even further between the mentors and the miners.
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