I'm in the midst of setting up a small managed fund, and I'm wondering what criterias potential investors look out for, and more importantly what they turn away from. I'm doing this to gain better knowledge and insight to how others think as forex investors.
Just to get the ball rolling, here are a few of my own 'Red Flags' and a short commentary about why I think so. And in no particular order, here they are :
1. Demo accounts - Demo accounts are great for your own reference, but I wouldn't trust anyone enough with just a demo account performance. If you don't believe enough in your own system to trade with real cash, nobody should either.
2. Small pip gains with large percentage gains (120pips = 50% gains) - I think this is a hard one, but I'm pretty convinced that this only happens when the system is over leveraged. Risky. Very risky. Random spike could easily wipe out an account.
3. Average win less than average loss - This probably means profit levels are very near, and stops are really wide. This points to systems that have many wins, and few losses, but risk/reward is inverse. You can't beat the age old saying 'Cut your losses short, and let your winners run'. It looks good on paper (or on screen), but it essentially stops there.
4. Negative expectancy - This is a given. You will lose money over time.
5. Very many trades in a short amount of time - The system provider probably has a 'recommended broker' and needs you to sign up with them. Trading is probably not their main source of income, rebates and commissions from the brokers probably are. Sounds like a conflict of interest to me.
6. Short account history - I wouldn't trust my money with anyone whos just got 1-2 months of history on the books. If you ask anyone whos bought a EA/robot, most of them will tell you the same thing. It worked for the first month, then it imploded. True story.
Feel free to add to this list, or discuss/debate what I've posted.