Every day I come across a trading guru offering educational content on the internet. Many of them speak of huge returns with minimal effort. Should these be trusted?

Here’s some tips on how to separate the wheat from the chaff.

Like most people, I watch YouTube at least once a day. This means I see trading guru advertisements regularly.

Seeing how these advertisements have proliferated in recent years, I figure that people must be paying attention to them.

With so many gurus generously offering to make you rich with little effort, surely it must be difficult to pick one.

To be clear, I have nothing against trading gurus. There’s nothing wrong with seeking an additional source of income if you’re indeed an expert in a particular area. I do have an issue with fake gurus and false promises though.

Hopefully this post will help you find a legitimate educator.

What Do Trading Gurus Offer?

These gurus typically offer services in the following areas:

1. Trading Courses

Sometimes called a boot camp, these programs offer to transform you from a complete beginner to a consistently profitable trader.

That’s entirely possible of course, but many gurus conveniently overlook the time and hard work required to become consistently profitable.

It’s like a university saying you’ll become a CEO after graduating with a degree.

Unless you can find a particularly outstanding course, I’d always recommend self-education.

Invest in a bunch of highly rated trading books and spend the next 6-12 months studying them. This is a great way to:

• Figure out whether trading is your cup of tea
• Figure out your trading preferences
• Develop discipline

If you can’t survive the self-learning phase, chances are you’ll quit within the first year of live trading.

2. Trading Signals/Trading Rooms

If you subscribe to trading signals, you’ll gain access to a closed group where you’ll receive buy/sell calls.

Trading rooms are similar, except that the guru will have the opportunity to explain his thought process and answer your questions.

These trading rooms/signal groups are a good place to meet like-minded traders and build camaraderie.

Assuming the guru is even profitable in the first place, such an arrangement could work if:

• You have the same trading style
• Your lifestyle allows you to frequently tune in to the group/room

The main downside is that these groups do not encourage you to exercise independent skill and judgement. Many times you’ll find yourself entering a trade because the guru did so, or because of peer pressure from other members.

It’s difficult to find long-term success if you’re at the mercy of others.

Here’s a sly tactic commonly used by these gurus – they create the illusion of success by bragging about successful trades, while losing trades are swept under the carpet.

I was once part of a 500-member Facebook group led by a stock trading guru. Whenever he had a profitable trade, he’d post the following on his website:

Did you trade NYSE: LLY with 500 of us? $1500 profit in 2 days!

Conveniently missing was the barrage of losing trades, which caused negative overall returns.

This is deceptive marketing at best, and gives new traders false expectations. Like your favourite fast food burger, most trading signals/rooms are never as good as advertised.

How to Find a Trading Guru

In the internet age, few things can be completely verified. At the minimum, I recommend checking the following:

1. Track Record

This only applies to real accounts, not demos. Believe it or not, I have seen trading gurus gloating with demo accounts.

There are numerous online platforms that allow traders to track their performance, such as:

• Darwinex
• Myfxbook
• FX Blue
• MQL5 Signals

Any respectable guru would use at least one of these.

Look for steady growth, without deep drawdowns, ideally over multiple years. Different market conditions should be covered, since it’s easy to turn a profit when the markets are consistently trending or stuck in a range.

Alternatively, there are some well-established trading competitions where traders can prove their skill. An example is the annual World Cup Trading Championships.

Here are the results of the 2020 Forex competition:

The returns are great, but they’re not at the get-rich-quick level that most advertisers promise.

2. Reputation & Background

You want your trading guru to have a reputation for providing value/insights to fellow traders.

Look for contributions in the following areas:

• Comprehensive trading books (Preferably not a $5 Kindle book)
• Website/YouTube channel/Podcast with useful content
• Magazine articles

You can also examine his professional background. I know some legitimate gurus who had previous lives in other fields, ranging from engineering to music.

The nature of these fields doesn’t matter as much as the ability to work successfully in teams.

You should be suspicious if you encounter a fresh college graduate or serial entrepreneur who suddenly discovered trading’s secrets.

3. Q&A Ability

Prepare a list of trading questions and get on a voice call with the trading guru. I suggest researching some of these questions beforehand and seeing how your guru measures up. You should be able to figure out:

• Is he really as knowledgeable as he seems?
• Can we communicate well?
• Is he sincere in mentoring me, or is this a hit and run?

Websites, emails and instant messaging usually contain large amounts of copied-and-pasted generic text. I wouldn’t read too much into those.

Signing up for a course or trading room certainly isn’t cheap. If you’re getting half-hearted treatment, spend your money on books instead.

4. Satisfied Customers

Customer satisfaction is a good way to find out whether you’re getting a bang for your buck.

Treat online reviews or testimonials with a grain of salt, unless they’re written by someone reputable.

Some trading gurus handpick student ambassadors and plant them in their public seminars. Avoid these, unless you’re asking ‘How much were you paid?’

The best way to get an honest review is to summon your best stalking skills and contact past students.

If you can’t find any, there’s probably a good reason for it. Move on; don’t be a guinea pig!

Trading Guru Red Flags

If you spot any of the following, you should be really skeptical.

1. This is the Last Course Offering

Ah…the classic fear of missing out, the most exploited fear in history.

I’d run immediately.

Don’t worry; if the course is any good at all, he’ll be back to accept more students.

2. The Fee Refund

A (now-defunct) guru tried to sell me his course using this tactic. This can take many forms, but it usually runs along these lines:

1. You first pay the full course fee.
2. If you pass a test at the end of the course, the guru hires you to trade for him, allocating a share of his capital to you. You’ll be assigned a monthly performance standard.
3. If you meet these standards for one straight year, you’ll get a full refund of the course fee. If you miss the standard for any one month, you’ll get fired.

There are two issues with this enticing offer.

Firstly, the guru will guarantee that you’ll pass the test if you follow his trading rules. The test window is usually only a month long. Even if you trade perfectly, there is no guarantee that your edge (if any) will play out in such a short-term.

Secondly, if you manage to get hired, pay attention to the monthly performance standards. These are usually very stringent. For example, I was asked to get a 5% return per month, with a maximum drawdown of 10% over the year. This translates to 80% returns a year, 8 times the drawdown! What are the odds that a new trader can achieve this?

Consider the mathematics of the above offer. For the guru to still make a profit after refunding the course fee, you’re either going to need a large chunk of his capital, or have spectacular trading performance. It’s a losing game, and the guru knows it.

In essence, the guru will try his best to fire you before one year, and pocket the course fee. You failed to meet his standards, after all.

3. The Flashy Lifestyle

How many times have you seen advertisements of trading gurus with fast cars, mansions, and briefcases of money?

Of course, some props are necessary to capture your attention. After all, you don’t expect a successful trader to be impoverished, much like you don’t expect a top chef to be skinny.

The obvious problem is the grossly exaggerated trading returns. Even a highly skilled trader will need years and sizeable capital to amass the fortune needed to have the lifestyle advertised.

If buying a single course/trading room subscription could give you such a lavish lifestyle, wouldn’t there be a mass exodus towards full-time retail trading?

The legitimate traders I personally know all lead comfortable, but not flashy, lives.

The markets will eventually consume you if you don’t commit to continual learning. Flashy gurus can’t be too serious about learning because showing off is what they do.

Showing off is the fool’s idea of glory.

-Bruce Lee

4. The Trading Secret/Holy Grail

Some techniques work better than others, but there are no secrets or grails.

Avoid any advertisement that contains any of the following:

• Secret/Holy grail/Trick
• Live the life of your dreams
• Travel the world while trading on your laptop
• The notion of making big money with little effort

Often accompanying this sudden grail discovery is a complex rags to riches story, where trading saved the guru from an otherwise hopeless life.

Most successful traders are one-trick ponies. Through years of patience and hard work, they have mastered one particular way of trading, and ply their trade day after day.

Image by Tut and Groan

It boils down to finding what works for you, and working relentlessly to become extremely good at it.

Wrapping Up

It sickens me that many supposed trading gurus like to target middle-aged individuals who are looking to secure their retirement funds, or are seeking other challenges in life. Should catastrophic losses occur, these individuals have a relatively small window to rebuild their finances.

Hopefully this post will help you filter out some of the most egregious advertisers out there.

If it’s too good to be true, it usually isn’t. And if in doubt, throw it out.

Good courses/subscriptions will be here to stay; curb your fear of missing out.