Fraud using signals

by Ed Khan

Signals are messages containing detailed information on points of buying and selling levels transmitted by “trusted” traders and services. Users will be asked to pay a certain amount for subscription or VIP access when signals are published.

I will leave aside the general moral and financial aspect of the signals for now. I will tell only about the scheme that is most often used to deceive and make money on new subscribers.

The take-profit goals

Signal providers almost always set several take-profit goals (from 3 to 10). This pure marketing stunt does not help users making a profit in any way. If they would use a single take-profit goal then 95% of those services would not be working at all!

We will not even take in consideration services that do not provide stop-loss signals (especially in margin trading). Let's say a signal always consists of two elements

1.       Stop-loss price.

2.       Take-profit. We will use 3 Take-Profit Goals:

· TP1 (Goal 1);

· TP2 (Goal 2);

· TP3 (Goal 3).

Let's review this example.

The signal indicates a long position for the pair BTC/USD at the $40,000 level stop loss at $35000 with 3 take-profit goals.

·TP1: $41,000;

· TP2: $45,000;

· TP3: 60 000$.

1)      Why is the TP1 so close to the entry point? It is 5 times lower than stop-loss ($1,000. VS $5,000.).

This means that the probability of reaching this level is 5 times higher. This is a marketing gimmick. If the price drops to $41,001, and then rolls back and triggers a stop loss, the signal provider can always declare that the first target was reached, and you could have close the whole position there, could have moved the stop loss to breakeven. In general, after TP1 has been reached, the provider never admits the signal's inefficiency. Mathematical probability advantage and freedom in the interpretation of the results are on the provider's side.

2)      TP2– between first and last take-profit goals could be many interim positions.

3)      TP3(last) set at the large price difference between entry position and far away from stop-loss. There is always a chance of reaching those price levels. The provider is feeling that user should trust their signals by reaching a first take-profit goal, the TP3 is a trophy.  If from the entry point of $40,000 will go up to $60,000 you will get the bragging rights of making +50% profit. Even if on the previous levels user did not take any profits.

The entire statistical data is built taking into consideration the execution of the entire position at Take-Profit1 or the Take-Profit 3 if growth continued. If the price correction took place it is not taken into consideration. This statistical data does not reflect the real results, because users will have to guess every time at what Take-Profit goal to close the entire trading position.

Most subscribers close equal shares of their long and short positions at each take-profit goal. Therefore, the results are averaged out, but almost always worse than in the provider's statistics.

Verdict:

· Do not trust the providers that are ignoring the stop-loss.

· Before paying for the services find out, is there risk management in place for each position, (not leverage (leverage does not matter.), but a deposit risk management for each trade, that could be calculated using the simple calculator on exchange).

· Clarify the amount of each position to execute after reaching each take-profit goal (TP1, TP2, TP, and so on, to hold providers accountable for each signal they publish).

· Learn how to trade by yourself!

Sincerely,

Ed Khan