Wouldn’t it be easier if we could just automatically trust what people and companies tell us? It can be exhausting to always need to carry a healthy amount of skepticism in our decision-making.
Unfortunately, we don’t live in a world where we can place our trust in someone or something immediately. We need to be skeptical, and develop safeguards for ourselves that filter out what is legitimate from what is not.
So how do we know if a trading alert service company is legit or not? What do you look for to determine if they are so that you can be confident you’re making the best choice for yourself?
We’ll help answer those questions here by highlighting some key factors to look for so that you can differentiate between trading alert providers that are legit and those that aren’t.
Let’s start with the ‘promise’, or the initial claims made by these companies. This is typically what you’ll see first on their website.
The Promise
We all want to be able to place our trust in what others say. But with trading alert services, if they are making promises that seem too good to be true, most of the time, unfortunately they probably are.
It’s easy for people and businesses to glamorize their profits online by only sharing their gains. What they might not be showing is the dark side of the moon, where they could be hiding tremendous losses. So while the famous financial saying goes, “risk equals reward,” remember that high risk can also equal huge losses.
Signal providers that use an aggressive, highly risky strategy are employing something that is unsustainable, and therefore unreliable. Steer clear of companies that boast unrealistic gains, they won’t last. But what is a realistic ROI? Anyone promising returns well over 25% in normal market conditions are most likely either using an unsustainable, highly risky strategy – capitalizing on the human emotion of greed, or they are simply blowing smoke.
To help explain what “normal” market conditions are, a nice baseline to be aware of is the S&P’s average return, which has been slightly over 10% since 1957, when it started. If a company is slightly beating the S&P, those are widely considered to be solid returns, and they’re also realistic.
It is worth noting that we have not been experiencing normal market conditions in the past few years, however, as we’ve been witnessing the largest bull run in the history of the market. So in these not-so-normal conditions, it’s not entirely unrealistic to see gains higher than 25%. But again, normally, be aware of those that boast high gains over 25%.
Also be aware of those that don’t share their gains at all. A legitimate provider will transparently share their profits and historical performance, not hide it.
At The Trading Analyst, we use a strategy that focuses on long-term, consistent profits that target 10 % – 25% gains per trade. Over time, these gains accumulate, and our losses are hedged. The name of the game is to lose less than we win, so we make proper risk management our prime concern, and that’s the key to the success of our strategy.
Performance of the S&P 500, 1992 – 2022.
Clear Methodology and Language
If you are reading about an alert service’s strategy and the information seems nebulous, how can you trust that they have a defined strategy and methodology behind each trade? You want to find a service that is open about their strategy, and is clear about how it is defined. This includes having an entry and exit strategy, using effective forms of analysis such as technical analysis, and the practice of proper risk management to protect against heavy losses.
Market-leading alert providers will be clear and open about their strategy. And not only that, but their methodology will be concrete and succinct, not full of fancy-sounding words, or ‘fluff.’
It’s easy to make big claims about a method and strategy using complicated language, but what you want to look for to know it’s legit is the “how.” As in, how is the service carrying out the claims they make, and how are they supporting the language they use to describe it? If a service can back up what they’re saying by being transparent and succinct, it’s obviously easier to trust them.
The Trading Analyst places a high priority on transparency, making its trading methodology publicly available and accessible for all.
One last thing to note is, companies can be clear and transparent without giving all their secrets away. You won’t find a successful beginner strategy that is laid out step by step in detail, that doesn’t mean they’re being sketchy. So don’t think they’re being dishonest if they don’t share all the details.
Just find a claim they make, and something to back it up. For example, “we constantly beat the market”. Great, now look for their portfolio’s performance history to see if their performance matches their claim and see if the strategy they claim to have used in the past year or so makes sense.
Transparency
We discussed above the importance of alert providers being clear about their strategy, and also explained they should share how they carry their methods to help support their claims. Now let’s add another layer of criteria to help determine the legitimacy of a provider: transparency. You can make all the claims you want about a strategy and method, but a legit company should have results (profits) that backup their claims.
Be aware that illegitimate providers will cherry pick returns they want to share. So make sure that the percent gain they promise (i.e. “we guarantee 12.5% gains on average per trade) is in line with their historical returns. If they don’t share this information, or it seems nebulous, it’s likely they’re trying to hide it.
At this point, in determining the legitimacy of a trading alert provider, if you see the claims they make, and a strategy and historical results to support that, you can be almost certain the provider’s alerts are legit.
The piece we want to touch on that brings all the criteria together is the track record of the company that’s providing trading alerts. Their track record is essentially how all the pieces we’ve touched on above come together, and seeing if they’ve been successful over time.
An Accessible Track Record
A company can have all the right components of a legit provider, but you want to make sure all of those parts come together seamlessly to build a functioning system. This developed over time through years of experience.
You can also review customers testimonials to see how successful others have been when following the company’s alerts.
Companies and traders with multiple years of experience and thousands of happy customers are obviously much more trustworthy than those on the contrary. This may seem apparent, but it is important to note and keep in mind when you are determining the legitimacy of a trading alert service. This doesn’t mean that companies that are brand new should be avoided, but rather, trusted with increased caution.
The traders that are within the companies also have their reputations to protect. So seasoned veterans are more easily trusted than rookie investors, as they aren’t as willing to sacrifice their reputation by making a ridiculous claim. Again, these points may seem obvious, but it is important to bear in mind as you’re sifting through different companies.
So look for the experience of the traders in the company, the amount of time the company has been managing a portfolio, and review customer testimonials to get a different perspective than just what the company wants you to see.
At TTA, our senior trader has over twelve years of experience, and our company has been around for the last five years. Moreover, we have over 11,000 successful traders as clients.
The Trading Analyst makes closed trades publicly visible for all.
Even if it is Legit, it Might Not Work for You
We’ve addressed in this article some things to look out for in your search for a legit trading service, but remember that you not only want to find a service that is legit, but also one that runs parallel with your goals, preferences, and lifestyle.
For example, if you find a legit service, and they send day trading alerts, but you work a 9 to 5 job that hardly lends the free time necessary for you to execute day trades, you probably won’t be successful with that provider.
Swing trading is a strategy that works better for those that have commitments like a 9 to 5 job, as the trades are more spread out and are not done intraday. Day trading is more for those that have the free time in a day to constantly monitor the market. This strategy doesn’t work well for the average working class.
TTA focuses on swing trading, and you can expect to see 2 – 5 signals in a week, which is a typical amount of trades for a swing trader.
Conclusion
Let’s distill what we’ve talked about in this article. First, you want to analyze the promise, or big claims a company makes such as their ROI and their “winning strategy.” Then find out how they carry this promise out so that you know it’s legit. And remember, if it sounds too good to be true, unfortunately it probably is.
Next, make sure they are being transparent, and succinct. With their strategy/methodology, and their portfolio’s performance. Companies that are blowing smoke will talk in circles all day long, saying fancy five-dollar words and never make a point in what they’re trying to get across.
Legitimate businesses are clear and concise about their strategy. And again, this doesn’t mean they give you their secret formula, it just means that it won’t feel like they’re hiding something by using fancy language without stating a bottom line.
Lastly, if you’ve vetted a few companies and you find one that you think is legit, ask yourself if the company is right for you. You want to make sure that you’re choosing a company that employs a strategy that is complementary with you and your goals.
What to Look Out For with Trading Alerts: FAQs
Is stock promotion illegal?
The short answer is: promoting stocks is not illegal. But companies and individuals need to be very careful with how they do it, otherwise they would in fact be breaking the law.
So what specifically makes it legal and illegal?
To legally promote a stock, proper disclosures need to be made.
But to fair, unfortunately the vast majority of promotions are fueled by manipulation. There aren’t a lot of scenarios where an individual or company would be promoting a stock without some sort of ulterior motive.
So while stock promotion isn’t directly illegal, a lot of times the promotion is tied to something that makes it illegal.
Can you be sued for stock advice?
Yes, you can get sued for giving stock advice, as you can be sued for almost anything. The important question is, in what circumstances will the court favor your case or not?
As a quick note before jumping into details: if you want to give stock advice, just be extremely cautious giving advice to those you don’t know, as there are a lot of litigious individuals out there nowadays that will happily sue you.
Giving investment advice at all without a license, a prime example being a RIA (Registered Investment Advisor), can be a dangerous, slippery legal slope, and individuals and companies can be sued if they are not properly licensed.
Another example of when it would never play in your favor is if you possess private information about a company, and let’s say in this case it’s information that would most likely cause the company’s share price to increase, and you recommended the stock to others, you could be arrested for insider trading, which is a big no no.
If a company makes proper disclosures, and they make it absolutely clear that it is 100% up to the individual how they use their money to invest, and all they’re doing is sending alerts about how their portfolio is being managed, there isn’t a whole lot that can come down on them legally, as they’re not managing money, nor are they obligating anyone to do anything.
But again, people sue for all kinds of ridiculous reasons, and they could sue a company after they lost money following their alerts, but their case isn’t going to go very far…
Can you get stock picking alerts for free?
It is possible to find companies that send you alerts for free. But remember that a business will generally follow a cost vs benefits trend. Meaning, why would they take time and resources to produce really helpful, strong alerts and then offer them for free. Their cost is high and benefit is low, in this case all they’ll get are some smiling faces as a benefit.
So if a company requires you to pay for alerts, that becomes your cost, because hopefully you’ll receive an equal benefit from what you spent. This doesn’t always happen unfortunately, as human greed causes some companies to charge much more than they should (high costs with not so equal benefits).
Check out multiple different signal providers, and cross check what you will have to spend (the cost) and review the benefits you’ll receive to see if you’re getting a good deal. So while you can find free alerts, and it might not cost you anything more than a couple minutes of your time to set up, and a little personal data, don’t expect much on the benefits end.
Are trading alerts good for beginners?
Trading alerts are a fantastic tool for beginners. Even veterans use trade signals.
At the end of the day, signals are a tool you can use. Not even really a suggestion. You are not obligated to follow the signal at all. But for beginners, they might be following the signals a little closer to suit. Good signal providers have a team of traders with years of experience, versus a beginner trading on their own with little to no experience.
Having a signal provider be a guide for a beginner that’s entering the labyrinth of the market could be really beneficial for them.
The only downside is, you can learn a lot from making mistakes. Traders who create signals for a good provider have made mistakes that help guide them in their decision making. So as a beginner, if you’re following signals blindly, you might miss valuable lessons that will help you become a successful trader in the future.
