Getting started in the world of stock investment is not easy.
Not only is proper training necessary, it takes time and effort.
There are also thousands of unscrupulous scammers who want to take advantage of small savers who only seek to get a return on that money that is so hard to earn and save.
To help you avoid falling into the traps of these scammers, in this article I will teach you to identify scam traders by the 7 main characteristics that give them away. I will also give you some advice to help prevent your friends and family from falling into their clutches.
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- Warren Buffett, the best investor in history is from 20%.
Are these high returns true?
Of course not!
To try to deceive you, they often use different tricks to make you think that they are capable of making a lot of money in a short time. If you want to know what they are, I recommend my article in which I talk about the tricks of scam traders.
A proprietary "method" based on technical analysis
Most investors, we usually use the same method, value investing, which consists of buying shares in companies for less than they are worth. And palabras de Charlie Munger:
"All smart investment is value investing, buying something for less than it is worth"
It seems very simple in theory, but in practice it is quite complicated.
In return, the scam trader usually has his own method, supposedly infallible, that will make you earn a lot of money in a short time.
What is this method usually based on?
Normally, in the misnamed "análisis técnico bursátil”.
Technical analysis is an investment method that "supposedly" predicts the future evolution of the price of an asset based on the past evolution of its price.
The truth is that el análisis técnico has the same effectiveness in investing in the stock market as homeopathy in medicine or palmistry in predicting the future. Studies carried out on its reliability corroborate this. However, despite not working, the scam trader often relies on this method in their trading courses.
Why is it based on technical analysis if it is proven that it does not work?
Because it is an easy and simple method that anyone without any prior knowledge can learn in a short time. It does not require learning to analyze companies, their accounting, their business models, profitability, financial health or competitive advantages. Knowing how to draw a few lines is more than enough to get started in technical analysis.
Also, technical analysis not working doesn't matter for your business model. The scam trader makes money by other means. What's more, it may even be more profitable for him.
How can this be possible?
For because if you lose money applying his method, the fault will always be yours. In fact, he will take the opportunity to try to sell you complementary courses. According to the scam trader, if you lose money with his method it is because you need more advanced courses in "money management", "advanced technical analysis" or "neurotrading" that will sell you at the price of gold.
To recognize the technical analysis, if a supposed investor talks to you about:
- ECT and Müllen.
- Pull backs
- Japanese candles
- Eliott waves
- Stop loss
- Strong hands
In these cases, my advice is to stop listening to him. He's probably a charlatan who wastes your time and money.
If you want to know more about technical analysis, Adrián Godás explains it in greater depth in the article “Charts Road: Reasons Why Technical Analysis Doesn't Work and Won't Work”.
Although it is related to the above, the jargon itself deserves to be analyzed separately. Not only because it is a basic characteristic in the scam trader, but because of how comical it is.
The scam trader often uses their own jargon that makes them seem like experts to those who do not have basic notions about investing in the stock market. However, for people with a basic notions of finance and investment it is rather grotesque.
The best way to see it is through a couple of examples.
Here we can see a summary example of investment thesis that we could hear from an investor:
“It is a profitable company, with little debt, well managed, with good long-term growth opportunities. In addition, it is listed at an interesting price "
As you can see, it seems like it makes all the sense in the world.
Instead, here we have a investment thesis example for a scam trader:
“The currency has broken its short-term resistance in its fourth Eliott wave. Its Japanese candlestick chart shows a weekly shoulder-head-shoulder, reinforced by the stochastic indicator. This makes me position myself bullish with turbowarrants after adjusting the stop loss to the new trend "
As you can see, they use a series of words that make them look like real experts to those who have no idea. Yes, for those of us who know the futility of their methods, these words enable us to instantly identify them as charlatans.
Sponsorship by trading brokers
The scam trader is not shy about showing the big brokers that sponsor them.
In fact, They usually boast of the trust that brokers have placed in them for their great worth and professionalism in the world of trading.
But ... is this true?
Or are there other reasons why brokers sponsor scam traders?
It is easy to understand if we analyze the interests of brokers, which are financial intermediaries that charge for each operation carried out with them.
As you can imagine, what brokers are interested in is attracting new clients who trade constantly. The more they trade, the higher their profitability, since they charge based on the number of operations carried out.
Therefore, short-term traders and speculators are the best allies of brokers, as they bring them new clients willing to carry out many operations. It is a profitable business for both, as the broker earns money from commissions, while the trader takes his share of the pie by providing the broker with fresh cattle.
Those who end up losing are the usual ones, the small savers who fall into the clutches of scam traders.
Invest in glamorous or trendy markets and products
The hot products and markets used by scam traders don't usually have very long lives.
Some fashions that were in the past were those of Options, warrants, turbowarrants… He fórex It was very booming, although it is beginning to lose steam.
What are the ones that are booming right now?
Mainly, opciones binary, CFDs and latelycryptocurrencies.
Why are these products or markets fashionable?
Mainly, for the reasons.
On the one hand, all these products or markets, in theory, offer investors high returns in a short time. Obviously, scam traders will not hesitate to jump on the bandwagon and boast on social networks of the extreme profitability they are achieving with their infallible method with this fashionable product..
On the other, because It is much better to say that you have bought CDF's of a cryptocurrency than to say that you have bought shares of a company that produces cork stoppers. The former sounds modern and interesting, while the latter seems outdated and boring.
And why do these products go out of style?
Because people end up realizing, sooner or later, that they only serve to lose money.
How long will these fashions last?
These products they tend to last until most naive investors are plucked and people stop trusting them.
However, there is usually no problem. The industry of scams in trading does not stop reinventing itself with new products to recruit new dupes.
Their critics are "envious" of them
As we have seen, it is not difficult to unmask scam traders, especially for those of us who have been in the investment world for a while.
Sometimes some are criticized for their teachings or practices that are more than dubious.
How do you usually defend yourself from these criticisms?
Every good scam trader makes it clear that people who criticize them do so solely out of envy they have of their great success.
So now you know. If I write this it is not to warn about the dangers of this type of scammers, but it is out of sheer envy.
How to identify a scam trader? The checklist
I leave you a series of Questions you should ask yourself to know if you are in front of a scam trader:
- Does it show an idyllic lifestyle?
- Do you boast very high returns in a short time?
- Do you have your own method based on technical analysis?
- Do you use jargon that doesn't seem like it makes a lot of sense?
- Is it sponsored by trading brokers?
- Do you invest in glamorous or trendy markets or products like forex, CFDs, binary options or cryptocurrencies?
- Do you defend yourself against your critics by claiming that they "are envious of you"?
If one or more of these answers are yes, you may be dealing with a scam trader.
The best defense against scam traders
Unfortunately, scam traders continue to roam around the world, including Spain and Latin America. Many of them even appear regularly in the media. The last years, The Internet has become an optimal breeding ground for this type of mob.
In my opinion, the best defense against them is to be cautious and to know well the methods they use. Here are other articles in which I have talked about this topic, so that you better understand what these types of scams are based on:
- Short-term trading: a very popular ruin
- Speculating on the stock market in the short term: What you need to know (and hardly anyone will tell you)
- The Trading Scam: The Tricks of Scam Traders
- Charting Path: Reasons Why Technical Analysis Doesn't and Won't Work
- The wolves of Wall Street in Spain. So they have tried to scam me from a financial bar.
What can you do right now to help other people be prepared for scam traders?
Share this article with your friends and on your social networks. Especially with those people who have been or may be victims of this type of scammer.
Finally, if you want to start learning to invest, I recommend mi Free Introduction to Stock Market Investing Course. I will not teach you how to make money in a short time, but you will learn the basics to know how to make your money profitable in a safe and sensible way.
Thank you very much for your cooperation!