Trendfinder Trading Systems

I am so disgusted and enraged with the fraudsters and scammers out there that I just had to write this post.  There has been major fraud at PFGBest, MF Global and Barclay’s recently and many others (especially Ponzi schemes) over the years.  They are the easy ones to see – I’m not addressing them right now.  There are many more that aren’t so easy to spot, especially in the trading system world (unfortunately!).  I want to share an example so you can be better prepared when doing your due diligence about trading systems.

I just attended a webinar for an emini scalping strategy.  I attend webinars every once in a while if it looks like something I haven’t seen before.  Well – I’ve seen this before unfortunately.  I hadn’t seen this particular vendor but I have seen this type of deception before.

This vendor showed charts in TradeStation with entries and exits displayed and the indicators showing what triggered the entries and exits.  They then show these great trading performance results (no losing months) which even include $5 for commission – sounds good so far right?

Then he says something strange – “this is not an automated system, you have to manually enter the trades”.  Huh?  He just showed a trading strategy in TradeStation (which is how he generates all the performance results he shows) and says you can’t run it automated, you have to enter trades manually.  Well, I know with 100% certainty that this system he is displaying can be run fully automated in TradeStation, so I ask him “why not run it fully automated?”  No answer.  He keeps saying “any more questions” and ignores my question.  Red flag goes up.

I ask myself “why would he say it can’t be traded automated?” and it hits me – he is not including slippage.  You know, the spread, the difference between the bid and ask?  Except for limit orders, buy orders are filled at the ask and sell orders are filled at the bid.  This is one of the costs of  trading that must be accounted for.  I asked the host/presenter if he included slippage in the results…..no answer.  He shows a section of the report where the slippage used is displayed – it shows 0 (no slippage included).  So now I ask why he didn’t include slippage in the results….again no answer.  I make some comments about the deceitfulness of not including slippage in the results….no answer.

When he showed the performance results for the past few months I quickly noted the net profit and number of trades of the most profitable month.  I then divided that month’s profit by the number of trades and came up with $20 per trade.  This is for the ES (emini S&P) where the spread is always a minimum of one tick ($12.50).  So the slippage cost per trade is $12.50 at entry and $12.50 at exit.  That is $25 per trade.  So the real average trade is $20 – $25 = -$5.  Yes, negative, a $5 loss per trade!  And this is for his best month!  This strategy he is showing and selling to people is really a loser, yet the results he is displaying shows all winning months!

Now it is clear to me this is a scam – the presenter knows he is being deceitful or he would address my questions.  Also, he only sells his system – he doesn’t lease it.  Know why?  Because he knows it doesn’t work so he wants to get all of your money up front.  Disgusting.

I’ve seen this enough times I guess it shouldn’t get to me but it still does.  The reason why is that there are real people that are going to give this guy their real money and then trade it with real money and lose even more!  And this guy doesn’t care – he just wants your money.

Please do your due diligence when considering investments.  Do not fall for the quick sale.  If they say “to get this discount price you have until midnight tonight”, run away immediately.  When looking specifically at trading systems, here are two key questions to ask:

1) Are limit orders used?  If so, the results they show are probably not possible in reality.

2) Are commission and slippage included in the results?  If they don’t include both then the results they show are not possible in reality.

Asking at least those two questions should weed out most of the scammers.  I hope none of you have been fooled by some of the tricks system vendors use, but odds are you probably have.

My condolences go out to the victims of the MF Global, PFGBest and all the other fraudsters and scammers out there.  I sure hope your money is recouped as it rightfully should be.