Imagine you wanted to make money from the desire of good people to embark on their trading adventure, and you didn’t care how you got it.  

You saw a market out there of people buying systems, and a pretty strong one at that.  

And let’s say, you didn’t want to bother with the difficult process of making something worth buying that works.  

As long as you can make something look good and sell it to a bunch of people, you are happy since you aren’t even going to be using it yourself.  So any shortcut you can find to make your new system produce results that sell, regardless of long-term performance, you take……since after all, you’ll be gone within 30 days of launch!  This is where many forex scammers sit.

How To Avoid Forex Scams

I know many of you have had personal experience with losing money in both product and account to absolutely garbage products.  This is something I could sit and recount to you about my experience for pages.  And many of you who have known me for a while have heard a story or two!!  Yeah, the world of EAs and forex systems is fraught with almost complete $%@& all over the place.  That’s why I got into testing systems in the first place.  I wanted to be an honest voice in the sea of liars.  I had been burned one too many times.

So today, I want to quickly discuss some of the techniques scammers use to “put lipstick on a pig” and get people to buy their garbage and how you can quickly spot most of them. After all, even the best “filtering” process before purchase will inevitably lead to a bad buy every now and again.  That’s why we ALWAYS test on demo FIRST, then, if we are totally convinced and happy with the results, we try a LIMITED LIVE account.  Here are some examples of forex robots I have tested and teh few that actually passed my due diligence, suing the process I am going to show you below: Forex Robot Reviews

But let’s see some of the “tricks” these hooligans use to purvey their faulty wares.

• Grid Trading:  Ohhhhh boy, ohhh boy does a grid account fool many!!  This approach to trading relies on nothing more than adding to orders as the trade goes against you.  Many systems place arbitrary first orders, then just keep piling on as the trade goes in drawdown.  Since currency pairs fluctuate by nature, you can actually produce positive gains for a decent amount of time before the crisis happens.  Here’s how it works:
  • First order is placed, then the second, third, etc…. in a set distance of pips drawdown.  When the market USUALLY moves in the other direction (to go with the trades), the deepest and most recent trades start to go in profit, and all orders are closed when aggregate of all orders becomes a pre-determined positive number.
  • Orders must stay open until this overall profit level is reached
  • Trades continue to be added as price goes against trades
  • At some point, the market will make a VERY strong move against trades, and BOOM!!!  There goes the account.  It might not happen for a while, but it WILL happen eventually.

You see, as the market moves against the orders, each order makes the per-pip value of the total trades increase and after a few orders, each dip in price against the positions will become more and more expensive, finally placing the drawdown amount to where it eats all the free margin and equity and your broker closes the orders for you, wiping out much of the account.  You can quickly spot grid trading by two features on the equity curve.

How to Avoid Forex Scams

The first is the very consistent rate that the closed equity curve (the actual “banked” money in the account) will rise, which looks VERY appealing at first glance.  BUT, when you see the floating equity curve (the open orders), it will have very jagged “V’s” below the closed equity curve.  The second, is that any trades that are open will be spaced a consistent distance in pips apart (eg 10 pips, 20 pips).  When you see this, DISREGARD the gain because you aren’t seeing the overall risk.  The risk is total, and total destruction to the account is only a matter of time.

• Backtests:  I’m DONE with backtests.  When I see vendors show them, I pretend I don’t even see them.  I have NEVER, EVER, EVER, EVER seen an account in a live market that looks like backtest results.  Because hindsight is 20/20.  “Ohhhh, but they are using very good quality tick data”,  “Ohhhh, but it represents what happened in the market, so it’s accurate”.  PHOOEY!!
• First of all, looking at a “dead” market in the rearview is nothing like the way the market acts in real time.  Slippage, gaps, speed of market, broker execution, spread, etc… has a big impact on the actual trading in real-time and very little impact in a backtest.
• But the biggest reason I can’t stand backtests is that most systems are DESIGNED based on backtests.

It’s very easy to make a system win if you have the market already laid out in front of you.  It’s the same reason you can’t bet on sports that have already been played.  Wouldn’t it be great to be able to bet on LAST YEAR’s Superbowl???  I know I’d be rich.  Designing a trading system around a backtest is the exact same thing.  You can pick the points a system would have made the most money in, and then design a system that grabs those points you already know about.  Then run the system in that backtest, and who would be surprised it made amazing gains.  You put it in a real market, and WHUMP!!  There goes all your money (in extreme cases).

So first step in how to avoid forex scams: Don’t buy the hype.

Make ALL your judgements about a system based on REAL, LIVE-MARKET results.

It doesn’t have to be a real-money account, but it does have to have traded in a live market.

So when vendors parade their backtest to you, ask them to show you the MyFXBook.  Which brings me to my next point.

• Creative Accounting:  Yup, it’s not that hard to do.  MyFXBook has a “verify” feature that solves most of the problem though.  But many people don’t check to see if the MyFXBook results are verified.  Yup, they even put the two check boxes right there at the top of the page.  If “Track Record Verified” isn’t checked with green, don’t trust the results.  Because to make the results look good, all you have to do is pull a 3 month section that was profitable (or 1 month, or whatever), only feed that data to MyFXBook, and viola, great looking results.  But MyFXBook requires you to submit the entire record before they will give you the green check for track record.  From initial deposit to current trade.  Sure, this can also be done by accident, but do you really want to be buying something from someone who overlooks submitting all the results??

By using a little due diligence and sober eyes to analyze a system before you buy it, you can save yourself a lot of heartache later.  I have created a short video which shows you just what I’m talking about with grid systems, and a little something I always look at with the equity curve.  Enjoy!!

If you would like to see a few reviews of forex robots that have passed my due diligence and the process I go through to “vet” them, CLICK HERE

Author: Omar Eltoukhy

MyFXBook Video On Equity Curve Checking

If you would like to know more about myfxbook, here is the link: Myfxbook.com

How to Avoid Forex Scams