Selling trading courses is a big business, very profitable for the vendors. But as the title of this old book says, Where Are the Customers’ Yachts ? In other words, how useful the information you find in those courses really is ? What prompted me to write this article is a question I received from someone about risk-reward. This person read on a website which sells ‘price action courses’ that risk-reward is not as important as he previously thought. The author, a self-professed professional trader, claims he has a high win-rate and doesn’t even have to aim for a 1/2 risk-reward ratio.
My best trader makes money only 63 percent of the time. Most traders make money only in the 50 to 55 percent range. That means you’re going to be wrong a lot. If that’s the case, you better make sure your losses are as small as they can be, and that your winners are bigger. – Steve Cohen in Stock Market Wizards
So I immediately thought to myself ‘ How the f*ck does this shameless vendor have the audacity to claim he’s better than traders working for a billionaire hedge-fund manager like Steve Cohen ? ‘ Buying courses from someone like this is similar to paying a blind-man to be your tour-guide in London.
I won’t take apart any particular course, because I’ve never bought one. When I started trading, the industry was in its infancy – most of the ‘big names’ of today weren’t around in 2006-2007. Fast forward a few years, and things like ‘price action’ have become great buzz words. My gut feel tells me that these guys are not traders. Having nicely designed websites, google ads, and fake positive reviews has nothing to do with successful trading.
And now back to the risk/reward ratio. Anyone who claims to have high win-rate (like 70-30 for example) and no verified results to prove it, is lying to you and usually has something for sale. It panders to the beginner’s logic which goes, the best way to get rich as a trader is to be right as often as humanly possible. The problem is, that’s not how real trading works.
It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong. – George Soros
In the real trading world, you’ll most probably have a win-rate below 50%. If you’re not even aiming for 1:2 risk:reward ratio and keep cutting short your winners it’s a mathematical certainty that you’ll waste your account.
Don’t be fooled by vendors who use buzz words to get you to buy their snake oil.