Evaluating sources
One of the most important questions for any source on financial topics is: how does it make its money? Someone who earns when you trade advises you differently from someone who earns nothing from it.
Learning objective: After this lesson you can judge a financial source by how it makes its own money.
For every source, first ask: what does this person or site make money from? The answer usually explains why the advice is what it is.
Links and interests
Someone who earns from referral links for new accounts recommends opening new accounts. Someone selling courses stresses that you need to learn a lot to trade successfully. That needn't be dishonest, but it reliably colors things. This site, by the way, earns nothing from whether you invest or trade, and it has no referral links to brokers.
Showing mistakes
Second question: does the source also show its mistakes? Anyone who only shows gains is showing a selection, not their results. Screenshots of gains are a cheap and common tool fraudsters use.
Checking the evidence
Third question: is there evidence? A claim about past returns should have a source. If all you get instead is self confidence, that's a warning sign, not proof of skill.
Conflicts of interest can be sorted by how someone gets paid: commissions on products sold, pay based on trading volume, selling courses and coaching, advertising income based on reach, or funding by the users themselves or by public money. Each kind steers the advice in a predictable direction, even for people who mean well.
Proof of past results
With evidence of one's own success, distinguish documented from claimed results. Only complete records over a longer period, which someone from outside can check and which include all positions, are credible. Snippets of single trades are worthless, because you can pick the nice ones. The same goes for results from demo accounts.
Scientific studies
With scientific studies, check whether others were able to repeat the result. Single studies with spectacular results often don't hold up, partly because striking results are more likely to be published than boring ones. So rely instead on summaries of many studies and on findings confirmed over decades and in many markets.
Summary
- First ask how the source makes its money.
- Selected screenshots of gains prove nothing at all.
- Findings confirmed many times beat single spectacular studies.
Did you get it?
What's the first question to ask of any financial source?
What it makes its money from. The way it's paid decides which direction the advice is colored in.
Why are single screenshots of gains worthless?
Because you can pick the nice ones. Only complete, checkable records are credible.
What do you rely on for scientific claims?
On findings that many studies have confirmed over long periods and in several markets.
Check your understanding
Your task
Pick a financial source you use yourself, such as a channel or a newsletter. Write down how it makes money, whether it also shows its mistakes, and whether it gives evidence for its claims. Sum up in one sentence how much you trust it afterwards.