Successful System Trading

[4x4u]

Over the past nine months I have been very successful investing in the Forex market. It has been by far the best investment choice I have ever made. I trade using a proven system which does 95% of the work for me. I have absolutely zero guesswork. And, it only takes me an average of 20 mintues per week to manage MY OWN account. The system always sets me up to buy low and sell high, and I earn daily interest on leveraged money.

I use the FreedomRocks hedging strategy. They have four recommended brokers FXCM, GFT, 1WF, and IBFX. The system has over 5,000 users in 80 different countries. The system is completely virtual so there is no expensive software to purchase. There are no charts to read, no graphs to look at, and no signal services to buy.

FreedomRocks is great because it allows the average investor to system trade the market. The software is only $100 per month to use and one can start a live account with InterbankFX with as little as $500. They will get 400:1 leverage on accounts all the way up to $1 Million**Only available to FreedomRocks users. They will also get the institutional interest rates.

Watch a movie at www.simple4xinvesting.com (http://www.simple4xinvesting.com/) and feel free to call me directly anytime.

Best Regards
Chris Thomas
1-541-554-8140
Chris.thomas541@yahoo.com (Chris.thomas541@yahoo.com)
Skype ID: christhomas4

[hanover]

Hedging schemes like Freedom Rocks (FR) claim that investors can make "returns comparable to those that the big institutions make", at negligible risk, and with absolutely no forex knowledge, or trading experience: no charts, no analysis required; a "color by numbers" method.

I haven't subscribed to FR, but I've attended their presentation, and watched their videos. I'm familiar with the concepts behind hedging schemes.

The primary income source from FR is the swap interest that gets credited to your account, which is the difference between the net interest offered by the hedged currency pairs. Hedging inversely correlated currency pairs (e.g. EURUSD and USDCHF) means that you simultaneously buy or sell both currency pairs, hence you're effectively trading the cross pair (EURCHF in this case). If the correlation was 100%, then the EURCHF price would never move, and there would be zero risk. What the FR sales pitch doesn't tell you is that the cross pair could easily move 5%-10% within the course of a year, while the interest differential between the pairs remains something like 1%-2%. This price movement could either be favorable or unfavorable: that is completely fortuitous. Given a large enough time period, it should eventually sum to zero, but in the meantime your account must somehow survive fluctuations that could be several times the amount of the interest received.

Now, to make decent returns from an interest differential of 1%-2%, you need to apply very high leverage. In the FR presentation I attended, they were promoting up to 400:1 leverage. This ramps up both the interest payments and the effect of the price movement, in exactly like proportion, by up to 400 times, depending on what percentage of your account ("margin") you choose to place at risk. (So if the interest differential was 1.5%, then at 400:1 leverage and 10% margin, the return from the interest would be 1.5% x 400 x 10% = 60% p.a.; if you chose to risk 20% margin, the return would be 120% p.a., and so on).

One thing that the videos don't mention is that when countries' banking authorities adjust their interest rates, your broker will adjust his swap rate accordingly. This could either work in your favor, or against. An adjustment could mean that the differential between the rates in the inversely correlated pairs is no longer significantly positive, hence negating the main income stream.

FR also promotes a buy low/sell high concept, while saying that it's not necessary to analyze the market. This is fallacious, since without any analysis, there is exactly a 50/50 chance of being right or wrong in trying to guess price direction (or a 50/50 chance of price reverting to the mean, a concept that they show in their video) at any point. Hence any gains made through the price movement are completely fortuitous.

Having said this, however, there may be some in-built sophistication in FR's black box algorithm, in determining whether to initially buy or sell both the pairs, and in placing the targets where the positions are added to, or reduced. It's conceivable that this could somehow provide a predictive "edge", and therefore alleviate some of the risk. But, even if this is so, there is no information as to how the algorithm operates: blind faith is apparently a prerequisite.

Keep in mind that your bottom line at any point includes not only any profits that you might have "locked in", but also the profit/loss situation of any currently open positions; e.g. if you "lock in" $1,000 by closing your current position, and then later incur a loss of $700 on another position, the net effect is still $300, regardless of whether the first position had been closed, or not. Hence "locking in profit" (which was discussed during the presentation I attended) is an illusory concept.

You also need to keep in mind that every time you buy and/or sell a currency pair (i.e. to apparently lock in any profits gained), your broker effectively charges you the "spread" (which is how the broker makes his income). The more often you buy or sell, the more often this cost applies. Ironically, the better the correlation, then the lower the movement in the cross pair, and hence the greater the amount of the spread relative to any profit that is made fortuitously from the price movement.

And in addition to the spread cost, don't forget that you'll be paying a monthly fee to FR, irrespective of your investment performance.

I suggest that a certain amount of due diligence be performed, before subscribing to any system. Web sites like forexbastards and gurubusters offer "independent" reviews on many trading systems. In the case of FR, the reviews are very polarized: some rate FR 5-star perfect, others a dirty scam. I believe that this illustrates my point. The positive reviews are from those who have experienced period(s) where the correlation has held well enough, hence the leverage has provided high returns from the interest differential. (I guess if I wanted to be cynical, I could also suggest that some are reviewing it positively simply to attract members into their networking downlines). The negative reviews are from those who were not so fortunate: they apparently encountered an occasion when the correlation broke down, and they were overleveraged, resulting in account wipeout. If loss occurs, it will inevitably happen without warning, since no analysis is being performed.

Put simply, there is no such thing as a "free lunch" in forex. No matter how clever one tries to be with position sizing systems (e.g. martingale, anti-martingale), scaling up or down, in or out, pyramiding, or hedging, there is no way around these facts:

1. High leverage = high return = high risk.

2. Long term positive expectancy can't be obtained without an underlying entry/exit method that somehow identifies and exploits recurring inefficiencies (i.e. bias or non-randomness) in price behavior. Such an "edge" is made possible only through many hours of dedicated analysis and study, i.e. knowledge of the markets, and trading experience.

Finally, FR also offers network marketing, which will doubtless appeal to many. I live in New Zealand, where schemes like Amway - which sell consumable products - are legitimate, but network marketing of "intangible" products (like investment schemes unable to promise an absolute guarantee of profit) are likely to be classed as illegal pyramid selling. Hence I suggest that you first seek legal advice, with regard to your own country's or state's legislation, in this context.

I’m not saying that people shouldn’t give Freedom Rocks a try; I am just trying to point out some of the risks involved. In my view, FR’s positive sales pitch glossed over some important points, and I'm attempting to redress the balance here.

David