So the question is how do you evaluate a forex algo, system or signals service other than to take the results given to you by the seller at face value? The only way I know is with a live account and here is how I suggest doing it”
Use very low or even no leverage (1:1). I prefer no leverage so in this way you will not be risking all of your capital while testing out the product. Then compare the results against what the seller is showing to see what the difference is between paper trades and real time executions. You should get a feel pretty quickly whether there is a difference in results.
Of course, in the end, the performance will determine whether you want to invest your capital in trading the algo, system or signals service. Most important, you must be comfortable with the risk being taken (e.g. bigger stops, larger drawdowns) whether it be an algo, system or signals service. As I noted in, Forex Signals Providers; Caveat Emptor
Are you comfortable with the risk the signal provider takes on its trade calls? This is very important as you do not want to take more risk than you are comfortable taking. For example, if you are used to risking 1% of your capital per trade and your average stop is 25 pips, how would you handle a trade call with a 100 pip stop that would put 4% of your capital at risk? You need to be aware of the risk involved and if you want to maintain your 1% risk per trade then you would need to cut your leverage accordingly. If you are not comfortable with the amount of risk the signal provider takes per trade then either don’t subscribe or reduce your leverage to lower your risk.
To sum up, evaluate with low or no leverage rather than risking all of your capital on the hope that a product will perform as advertised.
Jay Meisler, founder