Once you know these five reasons, you will look at any flashy strategy with different eyes. You will see what stays hidden behind it, and why it does not give you the same result. The same reasons explain why no ready-made signal will become your strategy.
1. You only ever see a strategy's entry
A complete strategy has several parts. It names the market and the timeframe, the entry condition, the stop loss and the take profit. It also sets the position size and what you do during the trade. Videos and posts usually show only the entry.
The other parts stay in the owner's head. You have to guess them, and every wrong guess turns the method into a different method.
2. The strategy was built for someone else's time and life
A method designed for a full-time trader cannot be followed in an employee's lunch break. A stop loss that is reasonable for the owner's large account may be far too big for yours.
Every strategy answers one particular life: the free hours, the account size and the tolerance of one particular person. When your life is different, the same rules become different rules in practice.
3. A rule that does not fit your temperament is dropped on hard days
In 1983, Richard Dennis, a famous Chicago trader, chose about 20 people for training through a newspaper advertisement. Almost half of them had no business background. This group is known as the "Turtles".
The applicants also answered questions about their personality. One asked how important money was to them, and why. Another asked whether they would rather be good or lucky. They all trained for about two weeks and received the same rules.
The results were not the same. Not every Turtle made money, and several were let go in the first months. One of the Turtles, Jerry Parker, founded his own firm in 1988 and still trades the same trend-following style.
The rules were the same, and the people were different. A method that does not fit your temperament is dropped on hard days, even if it looks excellent on paper.
4. Seeing other people's profits pushes you towards more risk
In an experiment, José Apesteguia and his colleagues showed the participants the results of other people's trades. That alone raised their risk-taking significantly.
When they were also given the option to copy others directly, their risk-taking rose even further. The researchers concluded that copy trading leads to excessive risk-taking. The study was published in 2020 in the journal Management Science.
5. You learn nothing from the losses of a method that is not yours
When a copied strategy loses money, you do not know why. The market may have changed, your execution may have been wrong, or the method may never have fitted you in the first place.
Without knowing the reason, you cannot fix the method. So you move on to the next strategy, and the same thing happens again.
The five reasons in short
| No. | Reason | What it costs you |
|---|---|---|
| 1 | You only see the entry | You guess the exit, the stop loss and the position size |
| 2 | It was built for someone else's life | It does not work with your time and your account |
| 3 | It does not fit your temperament | You break its rules on hard days |
| 4 | Other people's profits raise your risk | You risk more than your account can bear |
| 5 | You do not know why you lost | You jump from one method to the next |
No ready-made signal solves these five problems. Usually, no signal gives you more than an entry.