Part Three: Caveat
Ideally, a trade room should flow like King Arthurs “round table”. Everyone should have an equal say, while having a king (moderator) ultimately set the tone.
Role of Moderator
All rooms will have some type of moderator in place that controls the forum. Whether they are the actual owner of the trade room or being paid by a brokerage firm, they are compensated to moderate and guide traders (monthly fees for room access and/or initiation fee to the room). The moderator and trade room costs typically depend on the moderator’s trading experience and how large his role will be in the trade room. There is a bit of Darwinism in the trading room world, meaning if they don’t have a successful approach or the ability to attract followers to get involved with the room, then they will not survive. The most successful rooms have a moderator who is an active trader. They probably don’t need to be there to make a living, but they enjoy teaching and being at the helm. It is always good to hear their story and learn why they are doing what they are doing.
Red Flags
Like most things in life, if it sounds too good to be true, it probably is. That also applies with trade rooms. Remember, monitors are not required to be registered with NFA or CFTC. This means that trade rooms are not held by the same regulations/rules as CTA’s or brokerage firms. Although many of them are seasoned traders or previous brokers who have squeaky clean records, that doesn’t mean you won’t run into the rogue with heavy results, limited risk, and an easy to follow trade room pitch. They exist — so be wary. However, I feel like these are easily detectible with a “sound sniff test”. If I am going to pay an initiation fee or monthly subscription, I want to know what I am getting into. Questions to consider and keep in mind include:
- Who is running the room? What’s their story?
- What am I actually paying you for? (E.g. mentoring, signals, strategy)
- How active is the moderator/mentor in the room?
- Everyone talks about winning trades, will we discuss losing trades?
- How do they approach risk management?
- Are there testimonials from past users?
- Are there free trial period for their products?
- Who are their business partners?
- Do they care more about the trading room environment or subscriptions?
- Does it appear to have a professional room and website?
- What is the core strategy they are using and is it realistic?
“That Guy”
The most common thing I have found when reviewing trade rooms are the slew of traders who badger other traders with questions such as, “what is your track record?” or “can you send me your performance?” Although learning from one another is certainly an element of trade rooms, you have to remember that these rooms are designed for educational purposes and for creating a trading community. You have to understand that these are real traders who are in the same market and/or trying to master the same strategy. Everyone is trading independently, but together, they work to build an edge against the market. They are not CTA’s or trying to run an Automated Trading program for you to be successful without having to work. If you try to join these trading environments just to look for entries and exits and not trying to learn or understand the reasoning behind the trades, then you will not find these rooms beneficial.
Don’t get me wrong. It is important to do your homework and find a well trusted room and moderator, but the overall goal of the room isn’t designed for you to get buy and sell signals to blindly take. There may be times where that can happen and work out, but don’t fall into that trap of thinking this is an easy way to make money without much work. It still takes a great deal of hard work and skill for the traders following the room to be successful with their own trading. If you are perpetually disagreeing with the moderator, then you are probably not in a room that is best suited for your trading style. Also keep in mind that they may not want to accept you as a client. Always be respectful of the moderator’s time and the other traders in the room. When exploring a new room or community, your best bet is to trial a room and see if it looks promising. Just follow along and ask questions. If it looks good, give it a shot. Once you are comfortable with the room, start incorporating their strategy or prospective into your live trading activity.
The Take Away
Every day is different when dealing with the markets. Therefore, each day will be different in the trading room. Most people in the room will be sitting idly all day while they trade. For the professional style rooms, most members are professional traders. This is their day job so they will have access to the room while they are trading every day. If you are not in that position and are looking for the best time to access the room, then I would highly suggest visiting the room just before the opening bell of that market so you can get the daily commentary and see what to look for throughout the day. If you are an active day trader, then you will definitely be able to find the time to have access to a room, maybe even several.
Over the course of this blog series, hopefully you are able to walk away with more insight on trading rooms and what my personal thoughts are about them. I have gone over different styles of rooms that exist, and the things that you should keep in mind when deciding to pay for a subscription or for a mentorship program. It really doesn’t take much to get involved, but you do need to have the proper expectations that these are tools to help you trade and not a guarantee for your success. At the end of the day, you are the trader in control and it is your money on the line. Make sure you handle your risk appropriately and that you’re putting yourself in the best position possible to be successful. Remember, if it sounds too good or too easy to be true, then it probably is. However, if it sounds like a legitimate room and you are willing to work, then it will ultimately become an asset to help you be successful.
Read Part One: Exploring Trade Rooms
Read Part Two: The Trade Rooms
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