Choosing A Winning Options Signals Service
Author: Max Day
Author: Max Day
It seems like signals services all the rage these days. Just pick your asset class of choice and there are probably dozens of systems on the market touting their proficiency in picking winning trades. With so many of these systems available in the marketplace, how do investors separate the winners from the losers? Finding the best signals services is a lot like finding a needle in haystack because many signals services, whether it's a stock, forex, futures or options service, are just trying to sell product. They lure investors in with outlandish promises of trading riches only to disappoint in the end.
There are a variety of factors you need to consider when searching for a signals service and we're going to explore several here. After all, you're not only spending your hard-earned money on a signals service, you're going to be using that service with more of your investment capital in an attempt to generate larger returns, so it pays to be a smart consumer. Options Signals Services: What To Look For Let's focus on options signals services for the purposes of this article. At the end of the day, the sole purpose of a signal service is to provide the user (you) with trading ideas and recommendations. Many signal services are automated, meaning if you download their software onto your trading computer, they can be used in conjunction with your brokerage account to place trades without you being there to click the buy or sell button. These systems are most prevalent in forex trading.
On the other hand, an options signal service is likely to simply email you a trading idea. For example, the mythical Big Joe's Big Options Winners service may tell you to buy the September 70 Exxon calls.
Seems pretty straightforward and that brings us to our first point on options signals services. If you're a new options trader, make sure your signals service is applicable for beginners. Recommending puts and calls is one thing, but if you're a beginner that uses a service that recommends straddles, strangles, condors and other more advanced strategies, at the very least you'll be confused and probably lose some money in the process.
The next thing to look at, and this is no less important than ease of use, is the long-term performance of the service. A truly legitimate signals service will furnish recent and long-term trading results INCLUDING the losers. Run away from any service that says it's 100% accurate. There's nothing wrong with having a few losers here and there. That's just part of investing, but we obviously want to use signals services that can substantiate a history of options trading success. Reasons Behind The Trades Anyone can recommend an options trade, but not everyone or every system can tell you why that trade looks good. The service that tells you to buy those Exxon calls had better be able to realistically tie that recommendation to a catalyst such as a looming earnings report, recent upticks in call buying on Exxon, oil price increases, a bullish chart pattern that has emerged, etc. In other words, the signal service needs to give you some fundamental or technical reason to lay your money on the line with this trade. You need hard facts, not gut feelings or tarot card readings. Look Into The Past To Get A Read On The Future Investors should always remember that past performance is not an indicator of future results, but with signals services, we should take the time to look at as much historical data as we can stomach. First, we want to ensure that the system's developers are touting past winners that actually occurred. Did those Exxon 70 calls work out to be a good trade? Believe it or not, there are some hucksters out there that will simply make up profitable trades that didn't happen just to get you in the door.
We also want to look at past results to test the signals service's ability to recommend good trades in a variety of market conditions. It's easy to recommend calls when the market is in a strong uptrend, but did your options signal service come through for you when the market turned down by recommending plenty of puts? What about during sideways markets? Did your system just shut down as many services as possible in choppy markets, or did it generate some solid ideas? These are a couple of the things that astute options investors look for when evaluating a signals service. One Part Of Your Toolbox, Not The Whole Thing Signals services are a fine idea for any options investor looking to get a leg up on the market, and especially for those that don't have a lot of extra time to do research. That said, an options signal service should be just one part of your trading arsenal, not a crutch that you consistently depend on. Think of the signals service as complement to, not the sole driver of, your winning strategy. About the Author:
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