Everyone knows how bad forex scamming has become, especially in the past few years.
Today, and over the next few weeks, I’m going to give you a few tips on how you can avoid getting scammed by those who make a living, not from trading, but from marketing a defunct product or service. I’ll also be discussing in more depth concerning the different types of scammers out there.
Today, we’ll be focusing on the no stop loss scam.
The first thing everyone is taught in forex trading, is to always have a plan. Have a plan to trade, and trade that plan. And it doesn’t even necessarily have to be a fully fledged system, but at least, have a clear indication what is the basis of your trading methodology. How to enter, how to exit. When to enter, when to exit.
You may have heard many times from other traders, that the exit is the most important part of trade. Entering is the easiest part apparently. Well, frankly, they’re both very important, and depending on how you trade, one could be more important than the other. However, one thing can’t be denied… new traders most often struggle when exiting a trade.
And whenever there’s a sense of struggle, the forex scammer immediately smells the opportunity to “help” the struggling trader.
The scam artist tempts the noob. Why bother with exiting a trade? There’s no need to learn how to master an exit of a trade if you have a system that dismisses the whole concept of exiting, right? No need to put in the hard work if all of your trades are winners. Surely a winning concept!
Except of course, what the scammer won’t inform the noob, is that his equity is his stop loss. This information never gets passed on to the new trader. All that the new trader sees is winner after winner after winner. Not a single losing trade. Doubling the account in less than a month. Remarkable stuff.
For those of you who aren’t aware of this scam, honestly, that’s all there is to it. The scam artist uses no stop loss. And he uses a small profit target. For example 3 pips. So as soon as the trade goes his way, he closes out for a win. But when the trade goes in the opposite direction, he just waits. And waits some more. Still going the wrong way? No problem, just be patient! It will eventually turn round and you’ll make your 3 pips!
(Please note, there is a difference a trader not using an initial stop loss yet exiting based on discretion or changing circumstances, and between a bad trader who never exits a trade until it’s a winner.)
Based purely on probability, it’s not unheard of to have hundreds, even thousands of winners in a row, for weeks and months on end. New traders would think they’ve hit upon a gold mine!
Unfortunately for the new trader (well, for every trader), eventually a trade without a stop loss will go bad. By bad, I mean, the entire loss of your account. So, a bit more than just bad. Utterly disastrous.
Many a new trader fell for this scam in the earlier days of retail forex trading. And many a scammer had earned some dirty metal for their unethical practices. However today, fortunately, the “No Stop Loss” scam has gone into near extinction, thanks to the vast amount of useful information posted in FX forums and portals.
Fortunately, there are some honest people doing some honest testing of certain Forex commercial products on the market. Please see our new EA section for the latest testing by John.
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