Peter Brandt explains:
"There is a statistical concept known as the “underwater curve.” The underwater curve plots the time periods when new all-time high NAV levels are being registered (represented by “0” on an underwater curve) and the time periods in which drawdowns are either underway or in recovery back toward new all-time NAV levels.
Most successful long-term traders are underwater the majority of time. Welcome to trading!"
You are in a drawdown state 80% of the time and of that, you are in a severe drawdown state (greater than -20%) 67% of the time
Did you know that Warren Buffett has had multiple 30-50% drawdowns in his career? Yet he is considered one of the greatest investors of all times.
False claims by wolves in sheep’s clothing
"Successful market speculation is one of the most challenging endeavors one can pursue. Yet, promoters of get-rich- quick-and-easy schemes run rampant in the email and internet worlds. If they are not registered with the SEC, FINRA or the CFTC/NFA or are not personally managing assets of investors they are free to make exaggerated claims. Their advertising is extremely appealing and enticing. Many of these training and trade signaling services claim to have REAL trading track records. But, as far as I am able to determine, none are willing to provide an attestation or audit letter from a national or regional auditing firm that has reconciled their IRS tax payments for trading profits, brokerage statements and bank deposits with their public claims."
This is so true. Here are some of the claims I have seen from those promoters:
- I turned $12,415 Into $4,155,000 trading penny stocks.
- 2,062% Weekly Option Gain.
- Turn $3,000 Into $100,000 in 4 months.
- I made 29,233% in 12 months trading high flying Internet stocks.
- We averaged 127.16% Per Month trading credit spreads.
- We guarantee that our options trading strategies will make you profitable every month.
- 99% of my recent 326 stock picks have been winners.
- Trading $150,000 into $650,000 in 8 months.
- How Jack turned $250 into $16,000 in Just One Month.
- +9,651.04% day trading return since Jan. 4 2016.
Of course none of them has ever provided any proof of those returns. As Bloomberg article correctly concluded, their self-promotional strategies have made them richer than trading ever did.
Some of those guys claim they live in mansions worth tens of millions, trade tens of millions in their personal account, but at the same time sell trading advisories for $50-100/month. Does it make sense to you? Many times they specifically mention (in fine print) that their performance based on "HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS". Does it mean anything when they don't actually trade?
Red flags to Watch in Alert Services
Moneyshow listed 10 Red Flags to Watch in an Options Alert Service. Here are some of them:
- The service doesn’t have any losing trades.
- The service won’t show you their closed trades.
- The trades have huge risk.
- The service inflates their ROI numbers.
- No detailed track record is posted.
- The performance is not based on real trades.
Here is another HUGE red flag:
If the promoter keeps bragging that he lives in a multi million mansion, drives a Lamborghini and has a private jet, run away. Really successful traders are modest and humble. They don't need all this BS.
There are also a lot of ways to inflate your track record numbers, as I described in my article Performance Reporting: The Myths And The Reality. Some of them include:
- Basing performance on "Maximum profit potential".
- Calculating gains based on cash and not on margin
- Presenting "Cumulative return".
- Holding losing positions indefinitely.
- Resetting past returns after a large drawdown.
Those who want to find out more details about some of those scammers, I highly recommend reading real and objective reviews by Emmett Moore from tradingschools.org. Emmett also describes how some of them game the system and make their profits look real. Fascinating read, highly recommended.
Van Tharp says successful trading/investing is 60% psychology...only 60%? Humans desperately want to believe there is a way to make money with no or little risk. That’s why Bernie Madoff existed, and it will never change.
Best luck with your investments.
Can you double your account every six months?
How to Calculate ROI in Options Trading
Performance Reporting: The Myths and The Reality
Why Retail Investors Lose Money In The Stock Market
Are You Ready For The Learning Curve?
Are You EMOTIONALLY Ready To Lose?
Trading Drawdowns by Peter Brandt
Winning Trades and Losing Trades by Peter Brandt
Want to learn how to trade successfully while reducing the risk?