Novice day traders are often exposed to exaggerated or inaccurate claims by firms and organizations seeking to profit from the sale of products and services relating to day trading. It is wise to treat many such claims with a healthy dose of skepticism, and to apply common sense in this regard.
Here are some things to watch out for:
1. Exaggerated Advertising Claims
Claims such as “Trade with No Risk!”, “Proven System!”, “Guaranteed Six Figure Income Trading at Home!”, and similar claims should set off loud alarm bells. Day trading always involves risk, there are no proven systems that always work, and profits are by no means guaranteed.
2. Day Trading Systems
When reviewing a day trading system that someone is offering to sell you, keep in mind that the past performance of any system is no guarantee that you will be able to achieve the same results. A well-known characteristic of stock markets is that conditions and prices may change dramatically over time. A day trading system that is touted by the vendor as having a great performance record during a period when markets have been rising may perform poorly in a bear market.
Beware of vendors of day trading software, books and videos who provide glowing testimonial from third parties. These testimonials may be true or they may be false. You will have no way of knowing whether or not such testimonials are indeed genuine, and it is therefore best not to rely on them.
4. Day Trading Firms
Before dealing with any broker that caters specially to day traders, make sure that you perform some due diligence on the firm. In this regard, it is a good idea to contact your state securities regulator to determine whether the company has any outstanding claims filed against it or has ever been subject to any disciplinary action in the past.
5. “Hot Tips”
Be very wary of any “hot tips” and “hot inside scoops or information” that you may encounter on Internet bulletin boards, chat rooms and newsletters aimed at day traders. These sources of information often come from “pump and dump” specialists.
6. Day Trading Books, Videos & Courses
Keep in mind that many so-called “educational” books, videos, and courses relating to day trading are not objective, particularly those that make exaggerated claims about profits, those that claim that day trading is an easy path to riches, and those who attempt to sell you another product or service.
7. Common Sense
Your best protection, is ,of course, to simply apply common sense and a dose of skepticism when considering the purchase of a day trading product or serve. As the old saying goes, if something sounds to good to be true then it probably is.