Most traders usually start looking for trading signals and signal providers after a string of losses or after months of not seeing any improvements in one’s own trading. This article will list the five biggest problems with blindly following signal services.
- Not taking responsibility
Once a trader starts to blindly copy someone else’ signals, they are not taking responsibility for their actions. Whereas active traders have to take complete responsibility for their actions and subsequent outcomes in order to grow, passively following signals undermines the ability to learn from one’s own mistakes. These traders might be better off looking for other investment opportunities if the whole idea is to follow someone else’s strategy. So instead of following anonymous signal services without a verified track record, passive investment strategies such as Managed Futures or Automated Trading can potentially offer better risk-reward opportunities while presenting a clear and defined method of trading with detailed performance history. Past performance is not indicative of future results.
- Neglecting the importance of Risk Management
Trading is not only about finding entries. A good trader is someone who not only understands how to find an entry but someone that also employs good risk management; In fact, many professionals argue that risk management is even more important than finding the actual entry signal. Every investor has a different risk appetite, and signal providers will not take this personal risk profile into account when making recommendations. This often results in taking too much risk after a string of losses, in an attempt to make up for losses by taking on even more risk or being too scared and not risking enough after a losing streak. All these variables impact the long term expectancy of a trading system, and a signal alone is not capable of adequately addressing these problems. A trader who does not employ basic risk management principles can easily mess up a potentially profitable trading strategy.
- A trade is not only a “Signal.”
As just discussed, there are numerous more components to a trade than just a signal. On top of risk management, other variables such as knowing what to do once you are in a trade, how to manage positions, when and how to cut your position and how to deal with sudden changes in the markets all impact a trade. If all you have is a trade signal and then you are on your own to figure out the rest, the chances of somehow turning this signal into a long-term trading career are slim to none.
- Not understanding the Process
A responsible and serious trader should always try to understand the whole process behind the signals that he or she is acting upon. If you don’t know how the signal provider is generating the trade signals and/or what the system is based on, it is impossible to follow up and manage the position and risk accordingly.
- Your trading career depends on the provider
What if the signal provider just suddenly stops his service or maybe restructures his internal operations without even telling you? You are back to square one and have to figure out how to go on from here. If you are really serious about trading and want to build a professional career (or a second income stream) then you should look to build your own knowledge instead of depending on someone else.
There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.