DIVERSIFICATION IN TRADING|PART 2:SIGNALS VS ACCOUNT MANAGEMENT

Sep 17, 2020

Diversification part 2: Signals and account management

What are they, and how are they different?

PART ABOUT SIGNALS
Well, signal service is when a professional trader sends you recommendations as to what trades to enter with stop loss and take profit.
But YOU decide whether to enter the trade or not.

The signal provider typically charges a monthly fee, that depends on his popularity and sales strategy
So you pay the same amount whether your account is 5000 dollars or 5 million dollars, so the signals are cheaper.
However, you need to be always on alert, and be prepared to make a trade at any time, as the price moves fast, so you can miss the opportunity.
Having mobile apps from brokers makes this task much easier these days.

Many people ask themselves, why would a successful trader sell signals at all? Aren’t they all in Goldman Sachs? Don’t they all trade 10 million dollars accounts that they made in 10 years of trading?

Well, no. To know why you need to understand, that even the best traders have bad weeks or even months.
We are all humans, so being sick or sad, or having the current market is such that it does not fit your strategy affects your results massively.
There are hundreds of reasons, but the fact remains: there are times at which all traders loose money. Whoever tells you differently is lying.

And traders eat what they kill, so a loosing month means they don’t get to eat anything. That affects the mood, and there is a higher chance to make loosing trades in future.
Selling signals helps to balance this equation, as the stream of signal subscriptions keep coming even if you lost money this month.

So this way, the trader patches a hole in his otherwise good life, having a small but stable income, which helps him better deal with losses on the market, which ends up making his trading better, as it keeps his mood more stable. So even the best traders sell signals!

But don’t they re-invest their profits and quickly end up trading a 10 million dollar account? Well, some do, some don’t.

It is the same diversification story. No matter how good you are, you will not have all your money tied up in your account. After all, you might get sick, or go crazy(literally). Also, there is a thing called psychological threshold. It is different for everyone, but there is a certain risk per trade, in dollar terms, that the trader just can’t handle anymore.

Can you make a trade with your own money risking 50.000 Dollars at once? Even if you have a 10 million dollar account? Some can, others-can’t.
It does not mean that if he can’t-he is a bad trader. No, It just means that he knows his limits, which is good. And so after they’ve reached a limit- they seek other ways to increase their income. These are teaching, account management and signal services.

The account management will be in the next article! Stay Tuned!

P.S:Read part 1 in the link below!