Evaluating a Trading
School
There are generally two types of trading schools:
1. A school that offers stand-alone education in trading methods; and
2. A school that offers education in trading methods in conjunction with a product(software) or service (i.e. trading room membership), or both.
When evaluating a trading school, the ideal scenario would be to evaluate the method, product, and/or service, as well as the curriculum (how well are their teaching methods; do they really “know” how to teach?). Because most people won’t be able to view this proprietary information beforehand, and because many testimonials are biased in selection and trading results (or trading room results) often use simulated or “demo” accounts, in most cases traders may have to utilize a trial and error approach to finding the appropriate school(s) that match their trading preferences, strengths/limitations, and risk tolerance.
Generally speaking, for a trading school to be effective, it
has to have two things:
1.
An effective set of trading methodologies, as
well as products or services for schools that offer those in addition to their
methodologies.
2.
The capacity to teach their methodologies
in an effective manner.
Needless to say, if a school can teach well but the quality
of information is not very good, then trader will not learn anything useful.
Likewise, a school can have high quality information, but if it cannot teach it
in a way that students understand, then its efforts are pointless. Let’s take a
look at these two points a bit more closely.
Have an effective set
of trading methodologies, as well as products or services for schools that
offer those in addition to their methodologies:
Every decent trading methodology that a school can teach will
always work “sometimes.” Every trading technique has its ideal market
conditions allowing for effective trading set-ups. For instance, if a school
offers both a trend-following and a counter-trend technique, both techniques in
combination will not necessarily be effective under their ideal conditions. Any
change in market, time-frame, or period of economic activity will introduce
variables that will make certain techniques effective or ineffective at times.
Many schools will boast a success rate in their techniques
upwards of 50%. This tells the student very little: there are techniques that
will 30% of the time but have a profit ratio in which profits are multiples
above the losses; and there are techniques that can win greater than 75% of the
time but whose profit/loss ratio or risk/reward ratio is such that one loss can
wipe out entire profits. It’s important to understand the statistics in order
to distinguish overblown marketing hype from reasonable descriptive
information.
Last, it’s important to find out what kind of trading
methodology suits you with regard to your risk tolerance, capital and time
limitations, and personality. If you don’t have the capital to position trade
futures, then you may want to look at forex or equities where you can lower
your capital exposure. If you don’t have time to sit down in front of computer
and day trade, then perhaps a day trading methodology is not suited for you. If
you are not comfortable with scalping or long-term positions, then perhaps a
swing trading approach is for you. Ultimately, you have to find out what
resonates with you personality, and agrees with your overall potential and
limitations.
Have the capacity to
teach their methodologies in an effective manner:
Not everyone has the knowledge or experience to teach. A
seasoned instructor is well-schooled in effective teaching techniques,
curricular development, and has the experience to make adjustments based on the
student’s current knowledge and learning style. Although this is not a
comprehensive list, an effective school will have the following:
·
A well-defined curriculum
·
Transparent learner goals
·
Methods to check evidence of learning on a
regular scale
·
Techniques to explain what is being taught in
different ways so as to ensure that everyone is learning
·
Adequate teaching sessions to support and
supplement materials being taught
·
Well-developed assessment strategies to assess
what it is and what is not working in the program, curriculum, teaching
sessions, instructors, and overall student progress.
A school that has not considered these points is, by
professional academic standards, not operating at professional capacity. Choose your school carefully. Many schools are
interested in collecting tuition with very little regard for your trading
education.
A word about trading
results and live trading rooms:
I once knew of a live trading room where the instructor was
scalping the E-mini S&P several times a day within the course of a few
hours. The results showed a 91% success rate. He would scalp for a few “ticks”
using limit orders (no stop loss) and get out almost as quickly as he got it. Students, some of whom were
finance professionals, were always impressed. Little did they know that many of
those limit orders would not have been filled in a live market as the
instructor was trading in demo mode. When positions were filled, slippage
would sometimes erode 50% or more of the potential profit. Ultimately, many of the students
lost their entire trading account in a short time. When they approached their instructor after losing all their trading funds, the instructor would point "poor trading psychology" as a cause of their failures and invite them to subscribe to an extended course for a regular monthly fee. Many students continued their subscriptions only to lose their trading account a second or third time.
In contrast, another school was also using a simulation to demonstrate
their techniques. However, in this case, the technique was to hold the position
for several hours, and profit targets were much wider. Positions in a live
market were almost always filled (if one missed a fill, the wide profit target
allowed for one to re-enter a position manually) and slippage hardly eroded
profits. Whether such a technique was effective is besides point. The main point is this: the trading methodology itself can determine the difference between live and simulated environments. Some techniques simulate the live market well so that students can more easily transition from simulation to live, whereas other techniques (as in the first example above) can draw differences between the two that is like comparing apples to oranges.
Is your school using a simulation for its live trading rooms
or results? If so, factor in slippage, profit- and stop-loss targets, and duration
of trade to determine how a simulation may affect the results in comparison to
its performance in a live environment. If your instructor has live results,
have him show it to you.
After all, the proof is in the pudding.
