Our Man Goes Undercover and Tells All

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Our Man Goes Undercover and Tells All

He spent days sitting through free seminars to become a super trader. Lesson number one: Itll cost you.

By Thomas M. Anderson

FromKiplinger's Personal Financemagazine, March 2010

Admit it: Youve been tempted. Youve seen the

infomercials for trading systems that will teach you how tomaster the markets. Sign up for a free seminar in your area

and youre on your way to wealth and freedom. Ordinary

people just like you are earning thousands each month.

Why not join the club?

With visions of early retirement dancing in my head, I

decided to take the plunge, or at least the initial part of it. I

would attend the free seminars of three big trading-

education outfits: Online Trading Academy, BetterTrades

and Profit Strategies. I wanted to see whether these outfits

delivered on their promises to help people become

successful traders. Heres what I found.

Respect your capital

The first rule you learn at the Online Trading Academy (OTA) is not to trust Wall Street with your money. Wall

Street has trained us to be buy-and-hold investors, the instructor, Chris, told me and the two other students

attending the Power Trading Workshop at the companys offices in Vienna, Va., a suburb of Washington, D.C.

(OTA also has offices in the United Kingdom, Singapore and Dubai, as well as in 29 other cities in the U.S. andCanada.) This is a bad thing, Chris said, because the market goes up, down and sideways. And when it heads

south, as it did during the 2007-09 bear market, buy-and-hold investors get crushed. OTAs mission was to

teach the likes of me how to make money regardless of what the market does.

How, you ask? Through the power of technical analysis. Technical analysts study past data -- primarily a

securitys price and trading volume -- to predict the future. They look for patterns to find reliable signals of when

to buy or sell financial instruments, such as stocks, options, futures and foreign currencies. The process involves

studying a menagerie of indicators, such as candlestick charts, Bollinger bands and something called the

stochastic oscillator. Technicians care little, if at all, about fundamental analysis -- the examination of, say, a


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Profit Strategies (PS) takes the total-immersion approach to education, kind of like throwing you into the pool to

force you to learn how to swim. Thats how I felt during PSs free Active Investor Methods class at the Hilton

Miami Airport. The two-day course, which had about 40 students, mixed beginners with trading veterans. We

skipped the introductory material and jumped right into trading strategies.

The instructors, Mike and Jay, detailed several complicated systems. One moment we were discussing how to

use a spike in a stocks one-day trading volume to predict whether the price would rise. The next moment we

were reviewing how to construct an iron condor, a strategy of buying and holding four different options with

different strike prices. Between the presentations, Mike and Jay flogged PSs eight-week courses on various

trading systems, each of which cost $3,495. Students in the course would meet with the instructor online once a

week for class and to review trades. Only a limited number of seats left, Jay said.

The audience had the opportunity to pepper Mike and Jay with questions. A newcomer asked them what kind o

return one should expect to earn from trading. Mike said that a 5% monthly return sounded reasonable. That

works out to 80% annualized.

All the seminars I attended were quick to point out that individual results will vary. And theres the rub. Because

the performance of individual traders is not public, you have no way of knowing how well these trading programs

work. Sure, the seminars present testimonials from their top earners, but you dont know how well the average

student does. Studies show how tough it is to succeed at trading. In 1999, for example, at the height of the day-

trading craze, the North American Securities Administrators Association studied the accounts of day traders.

Only 11% consistently generated profits, and 70% sustained losses that wiped out their accounts. None of the

seminar com-panies monitors the success rate of all their graduates. Says Judy Hackett, BetterTrades marketing

chief: We can only track the satisfaction of our customers, and we have lots of very happy customers.

Students who have succeeded with these systems swear by them. Jeffery Kronenberg, a 30-year-old former life-

insurance salesman, says he is able to support himself in New York City using the skills he learned at OTA. He

has been a full-time trader since October 2009 after taking a class last May. You have to work your tail off,says Kronenberg, who typically gets up at 6:30 a.m. on trading days and works until the markets close at 4 p.m.

They will teach you, but youve got to really want it, says Abba Genes, 26, of Mount Vernon, N.Y. He adds

that the skills he acquired from BetterTrades allow him to earn about $1,000 a month to supplement his income

as a concierge. Genes, who trades three hours a day in the morning, plans to become a full-time trader after he

completes college. He says it took months before he learned how to generate trading profits. Meanwhile, big

early losses nearly wiped out his account.

The seminar instructors I met said they made a good living from trading. But its impossible to know whether they

are successful traders or just great salesmen. The trading-education industry does not have a good track record

when it comes to sales practices. Seminar promoter Teach Me to Trade shut down in the U.S. after theSecurities and Exchange Commission filed a 2008 complaint against two of its salespeople. The SEC alleged that

in Teach Me to Trade seminars the pair claimed to be successful traders, but they actually earned their millions

from commissions selling seminars rather than from trading. In December 2009, Investools paid $3 million to

settle an SEC complaint that two of its salesmen misrepresented themselves at seminars as expert traders.

As I completed my journey, I couldnt help but wonder why those who possess the magic formulas for

successful trading would give away their secrets -- even if they did earn $4,000 or so per customer. After all, if

you can earn 80% a year, why would you run the risk of seeing the effectiveness of your strategy diminish as

more and more people started using it (a common occurrence in investing)? That aside, whats clear is that if you




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decide to learn how to trade from any of these companies, you will need to have faith that your instructors know

what they are doing and that you can convert their knowledge into winning moves. The odds will be against you.

Why its hard to trade and win

High costs. Most trading programs charge more than $4,000 for their workshops and tutoring packages. In

addition, trading generates a lot of commissions, usually $5 to $9 per stock trade at the typical discount broker.

Too much time. It can take years of practice to earn trading profits consistently. Even if you are not trading on a

daily basis, you will have to dedicate several hours a week to studying charts and related data.

Potential losses. Trading can lead to huge investment losses. This isnt for widows, orphans and those with

weak stomachs.

Tough competition. Financial firms have better trading tools than you do. High-frequency trading systems

utilized by professionals make it harder for individual traders to succeed.

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all.html

All contents 2010 The Kiplinger Washington Editors



Our Man Goes Undercover and Tells All

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