Why Give Away Trading Ideas That Work?

New traders often approach educational material with the attitude that if it’s free, it can’t be any good. They willingly pay thousands of dollars for courses and systems, and they are often disappointed. Free material can be useful, practical, and surprisingly high quality and there are actually many reasons why free information can be the most valuable trading advice available.

Information overload is a real problem for traders at all levels. Trading for a living is a field where you can easily get as much information as you’d like, and there is definitely more information available than you need. The problem traders and potential traders face is that so much of the information, even when it’s free, isn’t worth the investment of the time it will take to read it.

It is not a simple process to find valuable and detailed guidance on exactly what and how to trade. The few good pieces are surrounded, with an equal ease of access, by worthless and dangerous information and countless offers to sell you the Holy Grail of trading.

Traders will find that they are continuously bombarded by ads that promise to reveal all of those secrets to great wealth, often for as little as $19.95. The general idea behind a promotion like this is to sell a high volume of low profit product and obtain customers willing to part with a small amount of money and over time, that can add up to hundreds of dollars in sales for the promoter. There is some very good information available at a low price, but most of these offers will be worth $19.95.

More often, these ads will offer systems and strategies that cost hundreds or thousands of dollars and almost guarantee that you’ll make millions if you act now. While some of these ads are certainly nothing more than overhyped marketing, the reality is that some are well worth the cost. It is a challenge to separate the good from the bad.

Likewise, there are many web sites that offer free content and some of them are thinly veiled ads for expensive services or trading systems. Other free sites are truly invaluable resources, filled with information that could easily be worth thousands of dollars. Again the challenge is to separate the good from the bad.

One of the biggest problems the trading industry faces is that regulation of experts and advice givers is minimal. There is sufficient regulation for brokers and the money placed in a trading account is well protected against fraud and theft. Legal requirements for offering trading advice, whether in a book or on a web site, can often be legally met by including a disclosure in fine print at the bottom. The disclosure says that the information might not be accurate and you can lose money following the advice.

Anyone can offer trading advice or publish systems without having to meet any minimum professional standard. There are a number of professional designations that can be earned, and all of them require members to meet ethical standards. But, these organizations are voluntary. Many of the best writers in the industry don’t hold these designations, but have proven with years of work that they are honest, ethical, and educational. This is truly a market where the advice “buyer beware” applies.

Some writers present deceptively authoritative ideas, but can’t survive a thoughtful critique of their analysis. One of my favorites is a widely read website where the writer reviews books using nothing more than a few random pages available for free on Amazon.com. Not surprisingly, he finds that nothing works. Regression analysis in Excel is a favored tool of many of these experts to demonstrate that a strategy doesn’t work, which isn’t surprising since market prices don’t follow a perfect normal distribution.

Many writers do offer valuable insights, and some of the biggest names in the trading industry frequently publish high quality information that is available for free or for a very reasonable cost. The question that new traders often ask is why these writers would give something away for free if it is so valuable.

There are a variety of reasons, and just because something is free doesn’t mean it is worthless.

For many, writing is a way to focus thinking and find new ideas. Clearly explaining detailed trading rules can be challenging. Doing that with enough precision that someone else can duplicate the results, especially in an interesting and readable way, is a very difficult task. In the process of describing a system, other ideas are tested and refined and the good writer will become a better trader by sharing their specific and actionable ideas. If the goal is to improve trading, it makes sense to write about the best strategies you use so that you can find minor improvements. Trading strategies need to be continuously evaluated to be sure that they still make sense in ever changing markets and writing about strategies can offer the writer a well structured approach to maintaining trading skills.

Others find that writing allows them to give something back to an industry that has given them so much. Trading is an industry where new traders have historically been taught by old traders. This was especially true for floor traders, but even just twenty years ago the knowledge needed to trade successfully wasn’t readily available. Many of those delivering some of the best information today started in the business at that time and are simply doing what they have come to consider as normal.

Some will give away a limited amount of material and offer additional material for sale. The free material, in many ways, is a ‘try before you buy’ sales model that helps to limit the risk of the buyer. It is an ethical approach, especially when compared to sales pitches that offer hypothetical results and only reveal the strategies after you spend a great deal of money.

While it may seem difficult to believe, there is actually very little risk in revealing detailed systems and trading strategies. The reality is that no matter how precise and how valuable the information is, there are very few traders that will actually use it. Some trading legends have demonstrated through decades of success that their seminars are worth thousands of dollars. One of these great minds once explained to me that people will spend $5-10,000 to spend three days learning from him and he believes that less than 10 percent will apply the exact methods he details. Within a year, most of them will either have stopped trading or modified the strategies so that they are no longer even close to what was taught. They want to spend time with trading legends, but the success that enabled to earn enough money to attend the seminar leads them to believe they can do it better, and their tweaking of tried and tested rules usually don’t add value.

Trading is also a business where success can not be limited by the fact that someone else succeeds. If someone reads about a successful strategy and duplicates it exactly, their success will not reduce profits for most traders. Large hedge funds may need secrecy in order to maintain their trading edge but for those with trading accounts that have balances of less than a few billion dollars, there is little risk that someone else’s trade will have any impact on their long-term results.

Trading for a living does require reviewing a large amount of information. Some of it will be worthless, and while that is true in any profession, the low bar to entering the trading profession seems to make it especially easy to come across useless material. With experience, it becomes increasingly easy to spot valuable information and the corollary to that is that you’ll also quickly realize what isn’t worth your time.

There are no general rules that apply. Some of the best ideas are freely available while some of the most expensive books and strategies are absolutely worthless. The only requirement to success is that you’ll need to do your own work – don’t believe anything you’ve read until you have verified the idea yourself and never trade someone else’s strategy with real money until you’ve fully considered all the possible advantages and shortcomings.

By Michael J. Carr, CMT