Have you ever listened to a parrot? It hears conversations and spits back little parts of the whole.
That’s what I think of when I hear about other traders piggybacking off “pros” for a fee.
There are multiple reasons I’m going to explain and several more I’m going to simply ignore. If you happen to be one of those pros trading for a fee or a trader making a living copying someone else, I mean nothing against you personally. I’m simply trying to show to the new aspiring young traders or the frustrated veteran traders why this approach in general is the wrong strategy. There are simply so few traders that have made a living on someone else I’ve heard of them only in passing.
Reason #1. The small profitable Monthly Fee Pro.
There are legitimate professional traders out there that have a proven strategy that works. They trade a small account and have success but always seem to be pushing their special trading system, bootcamps, private twitter feeds, and everything else. Why is this?
Because they have a feeler bet business plan. In poker, the best players will constantly bet feeler bets. Weak hands typically fold under the pressure while strong hands bet back and let the pros know to back off.
In this trading model, the pros place small lot trades, small option trades, or simply don’t show any results and only show %. They say this is to help the little trader feel like they can relate, but in reality, it’s a feeler bet in the trading world. They take the small risk upfront, and because their system is decent, they can produce when the hands are weak.
However, when the hands are strong, they lose like everybody else. The difference is their constant flow of premium memberships more than makes up for this. Losses are part of trading; but why are you paying extra just to lose like everybody else?
These may be the best of the group if you have to pick one to learn from, but do yourself a favor and don’t stay with them. Risk is different when you bring in so much that it’s not a risk but the cost of acquiring customers. They may make $500 a day on a good day, but with 200 followers at $99 a month they can make $20,000 a month even on their bad days.
Remember, they are marketing traders, not traders who market.
Reason #2. Fictional Fills.
There is an entire group of traders that call out these perfect fills on breakouts, reversals, penny stocks, etc. Between YouTube and Emails this seems like the Real Deal.
In reality, these types of traders give what I call Fictional Fills. The above screenshot is TSLA, not some no name penny stock, not some upstart, but TSLA in 2017. The daily range was just under $20 with the screenshot being $4.00 ABOVE the low of the day and on volume of over 6 million shares.
Everything in the far right is after the market closed, actual transactions. For example, not a single share traded today between $355.33 and $355.30. The entire screenshot is close to a .50c move or 4% of the day’s move yet there was almost no actual volume here at 24,264 shares.
Here’s Some Simple Math
24,000/6,000,000=.04% of the day’s volume
.52c/$19.85=2.6% of the Day’s Range
Remember, this is TSLA. If you can’t get filled decent on TSLA at normal times, what makes you think you can get filled on the breakout that the YouTube Trader is showing was exactly $8.00 with a stop at $7.95 and a profit at $9.00.
Another trick these types of traders do is to take the setup themselves and then call it in the room. Once they’re already in, especially on the more popular sites that trade the cheaper stocks, the fill slippage can get pretty extreme. Sheep to a slaughter is the best phrase I can think of to use here.
The screenshot shown is through Tradestation. If you are considering one of these pros, do yourself a favor and SIM (DEMO) trade with them for a week. Write down their best trades they called out and then go find something like Tradestation’s order matrix and see the actual results. Doing this real time can really help see if what they call is even possible to get, but even in hindsight, it should help show the cracks.
Reason #3. It’s Not Your Plan.
Let’s say you found that diamond in the rough. You followed them for a month and all the trades they called out were available, without excess slippage, and you really think this is it.
So you sign up for $149 a month. A small price to pay for a lifetime of success. They start calling out winning trades, and you start making money. Some of the trades are breakouts, some are pullbacks, some seem to go against everything you believe will happen, but you take the trades anyway because they are the pro and you are not.
Do you know what will happen to your mentality going forward? Every failed trade that you had a hunch about will cause doubt on the pro. Every winning trade that you had a hunch about not taking will cast doubt on you. Slowly, you will begin eating away at your mental fortitude until the pro hits the normal drawdown period and you walk away in disgust.
In the meantime, the pro has collected anywhere from a few hundred to a few thousands from you and is running a “special” on twitter right now to get someone new.
Unless you are trading your own plan, your at the mercy of someone else. When they take a break, when they pack it up, when they hit their drawdown, what do you do?
Accepting that the key to successful trading is the right plan and not the right guru will change everything for you. If you feel like you’re on the right track and feel a pro could help, do so in more of a coaching aspect and not as a parroting trader.