Online businesses

One thing that has drawn a lot of my interest recently is the idea of setting up some sort of online business that will generate a stream of income on auto-pilot.  The reason is simple: I won't be physically able to continue working indefinitely, and I don't have enough saved in order to retire.

Steven James, a guy who has come across my radar recently, has a strategy that seems like it has some significant potential: Don't shoot for the stars, i.e., a single website or business that will generate all the income you need, but rather, put together a collection of simple, tiny web-sites that will gather the "low-hanging fruit" - picking off onezy-twozy sales of $5-50 a day.  Just a relatively few of those, and you have enough income to live off of.

He talks about it in this link:Multiple Profit Streams

So much hype!

It seems like everyday I get at least half a dozen SPAM emails promoting the latest new forex robot. What is really disconcerting is that each one of them decries the seemingly endless hype about new robots, and how completely worthless they all are - and then goes on to hype their latest creation as the one that's different!

Take this one - Extreme Pip Poacher - for example. He spends most of a very long advertising copy describing the bad things people do to try to sell you worthless robots that aren't going to work - and then says "But I'm different."  And shows you  a video of "real, live footage showed a stunning $1454.96 profit from three consecutive winning trades – completely hands-free and on autopilot."  Implying, of course, that if you buy his robot, you'll do the same.

The thing is, some of these robots actually do make money.  Not as much as their advertising copy claims, but enough to be worthwhile, as I detailed in my earlier blog.  So how do you know which?

I've decided I'm going to start a new site dedicated to reviewing robots and letting you know what I find - without all the hype!  Stay tuned.

A Forex Robot that HAS worked, at least for me

In yesterday's blog post, I talked about the very disappointing results of my experiment with the Forex Robot World Cup trading robot, Fusion. (To summarize, it turned a $400 trading account into $240 in about 3 weeks.)

But that doesn't mean that no forex robot can actually yield positive results.

When I first decided to dabble in foreign exchange (forex) trading, I also looked into a couple of the myriad of forex robots that are available, for two reasons. First, I knew I had no idea what the heck I was doing, and if I could buy a program at a reasonable price that did know how to do it, then I might be money ahead. And, secondly, I knew that, with a full time job, I really didn't have a whole lot of time to devote to it. Automated programs - robots - can trade for you night and day, while you sleep or are at work.

But not really having a lot of faith in them, I didn't want to spend a whole lot of money. So I bought the cheapest one I could find - a $67 program called Forex God Father. When I had it in operation for two and a half weeks and it had yet to make a trade, I decided that was not really the program I wanted. I requested - and received - a full refund of my money. (That's one good thing - since skepticism about these programs is so high, they almost all come with money back guarantees.)

After reading quite a bit of ad copy and a number of reviews, I tried one called Forex MegaDroid that sells for $97$149. [Edit: After I posted this, my son checked my data and informed that the price has apparently risen to $149 - either that, or I have forgotten how much I actually spend. At any rate, he is correct, the current price is $149.] I set it up on a demo account and let it run, and it seemed to do pretty well. It didn't trade too often - usually once or twice a week was all, and it didn't make astounding gains, but it had very, very few losses. Now don't get me wrong - it didn't come anywhere close to the gains promised by its advertising copy - a couple thousand percent. But it did make consistent, positive gains with, seemingly very little risk.

After a few months, I realized I really couldn't track its performance, because I was interspersing my own (practice) trades in with those that it made. So, on the first of January, I set it up in a new demo account with a nice even $10,000 balance, and let it run without doing anything of my own in that account. Today, 6 1/2 months later, that demo account has a balance of $14,191.74. That's a gain of 41% in just a little over half a year. No, it's not 2500%, but it sure beats the heck out of the 1 1/2 % I get on my savings account, or even the 12%/year I might (optimistically) get on my mutual fund.

So I decided, let's try it with some real money and see what it does. When I got back from my trip to see my son in Morocco in February, I opened a live acccount with $100.

Now, MegaDroid has an astonishing percentage of winning trades, but it does very occasionally have a losing one. And, for the reasons I detailed in yesterday's post, when it has a losing trade, it's likely to be a doozy. As it happened, the very first trade it made in the live account was a losing trade - it lost 5%. So right off the bat, my $100 is down to $95.

But from then on, it just went up and up and up. By the beginning of June, it was up 26% - even including having started off down 5%.

I have control of some money that's not mine. I'm going to have to pay it back, I just don't know when. But until then, I have it sitting in a savings account. After seeing the track record MegaDroid had posted over 5 months, and only one other loss, I decided that, well, like I said, I could make a lot more money than having that sitting in a savings account. Granted, there is some risk to it (according to the disclaimers on my trading account "Margined Currency Trading is one of the riskiest forms of investment available in the financial markets"), but I felt like if I monitored it closely and determined to get out if MegaDroid lost any significant portion of the money, I could mitigate the risk. So a few weeks ago, I put a substantial part of that money into my forex account. It's actually only made a couple trades since then, but it's up close to $400 - more than I would have made leaving the money in the savings account for the next 10 years! [Edit: I came home from work last night to find that it was in the middle of two more trades that ended up netting an additional $175!] And that's real, actual, spendable greenbacks. That definitely more than covers the $97 I spent on buying MegaDroid!

So my point is this - yes, MegaDroid and most other trading robots are way over-hyped. But they can still be a very,very profitable opportunity.

Fulll-disclosure - if you should click on the link above and decide to try Forex MegaDroid out for yourself, I will earn a modest commission. I have not let that compromise the integrity of my comments here.

Forex Robot World Cup - results

It has been a long time since I blogged about the results of my experiment with Forex Robots, and I sort of left you hanging. The reason I stopped recording my results in real time was that I was about to say some pretty negative things about the sponsors of the Forex Robot World Cup, and they had a thousand dollars of my money that I wanted refunded.  They had guaranteed it, but I had no certainty that they would honor that guarantee in the face of negative publicity I might generate.  But they did.

Okay, here's what I found. The "Fusion" robot that they offered does not come anywhere close to living up to the gains that they implied that it would.  In the roughly three weeks that I was actively trading it, I lost about 40% of my original, real live, cash investment ($400 went to $240) - something they loudly proclaimed in their enticing ad copy wouldn't happen. But, when I fulfilled the terms of their guarantee, they did, indeed, refund my $999 purchase price without a hassle.

I started this series with the question "Forex Robots: Scam or Opportunity?".  So, was it a scam?  I think that all depends on your definition of "scam".  Did they deliver what they promised (or strongly implied)? No.  But did they take my money and run, or cheat me out of something to their gain? No.

If they had delivered a robot that was just trash and then disappeared or otherwise refused to honor their guarantee, that would be a scam.  Or if they had delivered the robot and used it to install a virus that could get access to my personal information (something I feared when I saw the virus warnings), that would be a scam.  Or if they used it to promote a Forex broker with whom I invested and then he ran off with my money, that would be a scam.  They didn't do any of these things.

They DID way over-promise and under-deliver, and after seeing the details and analyzing their strategy, I believe they did it deliberately.  I don't think they lied about the results they achieved. But I don't think they have told the whole story.  I think they manipulated the results to achieve one purpose: being able to quote a return number so astronomical (356% return in 19 days) that it would be compelling. And they did this by trading the robots with a risk factor that no sane trader using his own real money would ever do.

The Fusion robot was actually made up of 5 robots that performed well in their 2 month competition. (Note - successful traders say that 2 months is far too short a time to adequately judge any track record - robot or manual). The one that traded most frequently and with the best success was called High-Rider.  It's strategy appeared to be fairly simple - take small gains, referred to as scalping, with very few losses. 

One of the things people look at in evaluating a robot is its won/lost percentage - how many of its trades end up as profitable, vs. how many lose money.

It turns out that it is actually fairly simple to have an astoundingly high won-lost percentage.  All you have to do is set the stop-loss point so high that it is almost certain not to be hit. (The stop-loss point is the price point that you select when entering a trade such that, if the trade goes against you and hits that price point, you will "stop your losses" and get out.)

Trading the forex market is different than trading the stock market.  In the stock market, if you're buying individual stocks, you're buying ownership in a company whose value can go up or down by large amounts, depending on their success in the business - and can keep going.  In forex, you're trading one form of a commodity - money - for another form.  And there will be small differences and changes in the relative value of the currencies you're trading, but in the end, it's all money.  And so you're making money on the very, very small changes - changes in the 4th decimal place of the relative valuation, equivalent to 1/100th of a cent.

The result of this is that prices of one currency in terms of another tend to move up and down in relatively small ranges.  Even when there is a relatively large change in valuation, it occurs somewhat gradually, over longer periods of time.

So, if I enter a trade believing that the relative price of a currency is going to go up, and I'm willing to take a small gain,  it's very likely that the price will move to give me that small gain before it moves against me in a big way - even if it moves somewhat against me at first.  So if I'm willing to exit the trade on a gain of 12 pips (which High-Rider was using), and I set a stop-loss point of 200 pips, it's much more likely that the price will move up 12 pips before it moves down 200 pips, even if it might initially move down by 50 or 100 pips before it does. [A pip is the smallest price change that  will be quoted - usually the 4th decimal point of the price.)

And this is what High-Rider was doing.  It had a VERY high success rate during the competition. But here's the downside - if it DOES have a loss (and, eventually, every trading system will have a loss), the loss will be huge.

The promoters advised that you set your trading size  for High-Rider to one-tenth of a mini-lot (one-one hundredth of  a full lot) for each thousand dollars of account valuation.  At that point,  if the trade went against you, you would have lost 200 pips times $.10/pip, or $20, out of a $1000 account.  That's two percent, which is what I have read is the best standard for limiting your risk on each trade.  So that sounds reasonable.

EXCEPT that, as part of its strategy, when High-Rider found a trade, it would trade it up to 10 times, usually within a few minutes of each other.  And if the price moves against it, ALL of those trades are going to go down.  Which means that now your 2% risk is actually a 20% risk. In fact, that was what happened in my live account - a trade did go against it, and it wiped out $80 of my original $400 account in one day.

Now, all of that explanation was to get this:  When the promoters built their 356% return in 19 days, they were trading High-Rider with not one tenth of a mini-lot, but a full mini-lot.  That means each trade was risking 20% of the account balance, and the ten trades that High-Rider entered were risking 200% of the account balance! If the very first set of trades that was entered had gone against it (something that MIGHT happen), the account would have been  wiped  out.  That is why I say that no sane trader using his own real money would have traded the robot that way. In fact, in their case, it worked out, and, if I remember right,  the account gained in excess of 10% the very first day.

But they weren't using "real" money. Yes, it was a live account (supposedly) with real money, but if that trade had gone against them, they would have simply started over with a new investment of $1000, until they got an account record that they could advertise, and never tell you about the attempts that they had made that had lost money. In fact, it would surprise me if, behind the scenes, there weren't multiple attempts to get a good track record, and they only used the best one in the advertising copy.

So, was it a scam? No, I still wouldn't say it was a scam.  Was the advertising misleading? Definitely.  Was it false to the point of being fraudulent? Probably not.  A lot of the conclusions they wanted  you to come to were implied rather than stated.

Just because this robot did not represent a real opportunity doesn't mean that none of them do.  Tomorrow (I hope!) I'll tell you about one that I have been using that, while  not living up to its advertising copy, nevertheless has given me some very solid gains in a real-money account.  Stay tuned!

Forex Robot World Cup - Week 2

For those of you just tuning in, this series of blog posts is tracking my real world experience using the Forex Robot World Cup robots, and trying to answer the question, "Can the outlandish returns promised be real, or is it a scam?"  I encourage you to look back through the February archives to follow my journey.

There were some slightly encouraging results since my last post.  The robot closed out a trade Sunday night that had been left open over the weekend for a 1.18% gain, and then added more winning trades yesterday (.88%).  That brings us to a a return since I started this experiment of 1.96%.  Still nowhere near what the promos implied, but nothing to sneeze at either.  But one week does not a track record make.  We'll see.

Forex Robot World Cup Robots - Real World, Day 3

This series of blog posts is tracking my results actually using the winner of the Forex Robot World Cup competition.

Day 3 was slightly better - and somewhat worse.  There were several winning trades - 11 in all - and 2 losing trades.  But the winners were small winners, and the losers were fairly substantial.  The overall result was a 0.05% gain for the day, and down 0.11% so far, considering only closed out trades.

But there were 2 disturbing aspects as well. One was that the robot has opened a number of trades which, if closed right now, would be substantial losers.  If all the trades were closed out at the end of the day yesterday, the account would be down about 3%.  Of course, part of a trading strategy is the exit strategy, so we'll leave it to see how the trades close out.  One review of these robots warned that you do have to be patient.

The other aspect was that one of the trading strategies seems to open several trades that are virtual duplicates of each other. Yesterday, it made 10 trades (which is the configured maximum number of open trades at a time) all within a minute of each other, all for the same currency pair, and at virtually the same price. One of the key aspects of currency trading is that you limit your risk, so if any one trade goes bad, it's not going to totally obliterate your account.  When you open multiple trades under the same condition, that's essentially the same as opening one trade with a much larger risk, because if one of those trades goes bad, they all will.

I'm still waiting to answer the question that I started with - Is it a scam, or is it real? I mean, as discussed in the opening post in this series, the numbers cannot possibly be anywhere close to real.  And yet, if it's a scam, there's two more questions: How, and why?

Why? What would the promoters have to gain?  The offer comes with a 60 day money back guarantee.  If the robots are worthless, everybody's going to ask for their money back, and then what have the promoters gained? And they appear to have put a significant chunk of money into the promotion.  Unless it was phony, the prize money for the competition was $150,000. Plus the expenses of setting up and running the web site, and creating the product.

And How?  The results they claimed from the competition are real and verifiable. While some have pointed out that 2 months trading is not long enough to really validate a robot, still, if it really obtained those results, you would expect it to continue to produce some significant positive results for quite some time.  It seems difficult to imagine how they could have produced fraudulent results.

One explanation of why is that they undoubtedly have a "referring broker" relationship with the broker that co-sponsored the competition.  Brokers make their money of the spread, and make money each time you trade.  It doesn't matter if the trade wins or loses - they still make their money.  If the robots ares sold and used widely, the brokers are going to make some significant additional money, and the referring broker gets a commission on that.  So even if all the robots are returned and they honor the money back guarantee, they would still make some money from their relationship with FXCM, the sponsor.  Whether it would be enough to justify the effort is a big question.

It does appear that I have solved my anti-virus problems. I re-installed an updated version of the free anti-virus software I use, Avast, and then re-ran the installation of several of the packages.  It no longer complained about most of them.  One it did complain about, and blocked, but I was able to turn the AV software off temporarily while I installed it, and then turn it back on, and the robots ran normally, while I continue to have AV protection, so I'm satisfied.  And their support desk did finally end up being helpful, though they were a little slow getting started. They gave me a link to the site http://forexspy.net/ , which has step by step videos of how to exclude the problem programs from the AV scans in several popular AV programs.

Time will tell.  I keep hearing the little voice inside: "Patience, my friend, patience."

Forex Robot World Cup Robots - Real World, Day 2

I got a little rushed this morning and didn't have time to report on the first day my robots (See Forex Robot World Cup, or my earlier blog posts for details).

I think I've resolved that anti-virus issues.  I did some more research on the web, and I don't  believe  the programs themselves are virus threats.  And I think I understand how to set up my anti-virus program to continue to protect me and ignore the robots.  I'm going to try that out this weekend when the robots aren't running.

The first days results were not stunning, but they were positive.  The robot made 2 trades, both small winners, for a net gain of 0.03%.  Not very impressive, but at least it wasn't a loss.

This morning I adjusted some of the trading parameters to be a little more aggressive, while still limiting my risk.  I looked tonight, and it had made 4 trades, 3 of them winners and one very small loss.  But just a little while ago, it closed out one trade for a rather substantial loss.  So that puts it at 5 trades for the day, with 3 winners, and a net return for the day of -0.19%, and -0.16% since starting. 

You really can't make a judgement on one or two days.  We'll just have to see how it does.