Subject: Warning - Ken Roberts

Last-Revised: 28 May 1999
Contributed-By: Conrad Bowers (cpbow at earthlink.net), J. Johnson

This article is a response to a message saying that the Ken Roberts course is a good introduction to commodity trading (the message originated on an AOL site but was quoted on the Motley Fool investment site). According to one of the writers of that thread, Ken Roberts is now advertising on radio with ads saying you can turn $5000 into lots of money. Some of the comments below would apply to just about any technique if you're starting with a small amount of money.

In my opinion, Roberts does not adequately warn of the risks about trading commodities. Most of his first course is a pep talk about how easy it is. In reality surveys have shown that some 90% of people stop trading within about a year. Most stop because they have depleted more of their capital than they can bear and keep on trading. Remember these differences about commodities as compared to stocks:

  1. Unlike the stock market, in commodities for every dollar won there is a dollar lost in the markets. Most lose, a few are consistent big winners. Remember you are competing against people that have done this a long time, people that do it full-time, and suppliers/users that use the commodity full-time. Unless you're sure you going to beat these pros the first time, you better trade with money you don't need.

    While you dream of what the money you hope to generate will do for you, don't lose sight of the initial odds against you. With time I believe an individual can learn to trade successfully. But if you don't survive the training period, you will have had a very expensive education.

  2. Highly leveraged; You can lose more than your entire investment if you get in a position that's way too large for your account, particularly if you get locked into it by 'limit moves'. These happen occasionally in a number of commodities. (You can hedge with options, though.) The more common problem is cumulative losses. Someone who starts out with $5000 will have difficulty placing stops that won't get hit by market 'noise' (short-term fluctuations). If they place more reasonable stops, then it will be a large percentage of their account. It's probably possible to start with $5K, but you either have to be lucky enough to build the account up before it gets wiped out, or you have to be disciplined enough to trade very small positions and not the more lucrative commodities. (Having seen my account dwindle 80%, I am trying to rebuild it on this basis; some recovery with options, currently pretty flat trading "small" commodities.)

The Ken Roberts course does teach how to calculate the dollar differences a price move will profit/cost you. However, the is an almost complete lack of discussion about the proper amount to risk. To pitch a course to investors with only $5K with no discussion of risk strategy is outrageous. His video repeatedly asks interviewees, would you recommend this course for a struggling family/single parent, etc. That is enough of a misrepresentation that I believe it should be regulated.

I got interested in commodities through his course, TWMPMM I. I actually didn't use his entry techniques so I won't fault those. I fault him, the fax service I did use, and myself for my not understanding risk control. I didn't risk a huge amount per trade (never more than 10%, usually less) but I still overtraded enough that my account bottomed out at less than 20% of the starting value. Of course that's when the profitable trades came along but I couldn't take them. Roberts' entry techniques (particularly one of the two) would typically risk MORE than I did. If someone with a large account followed his techniques with proper risk control in a diversified mix of markets, it might work. There is no test of his entries so I don't know if they are profitable or not. It's sending new people off into the markets with small accounts and no risk management training that's outrageous.

He does do a good job of stressing paper trading. However, three months is good for introducing you to the daily process and stresses of decision making. It is not a valid test of any strategy. Only by testing a strategy over quite a long time of historical data, can you tell if it works. He publishes no indication this is so. Often, people hit a couple good trades in the paper trading stage, and they are sure they're ready to make it. I think 6 months to 1 year of reading and paper trading is necessary. Wish I had!! For the money you can get several much better books, rather than one course that is literally more than half hype.

The claim that the first course is complete is false. Want to know about options? Buy the TWMPMM II course. Want to know about entering already existing trends? Buy a bonus pack (or get it with a one year renewal). In other words, if you're frustrated that you seem to be losing your account just send in $95 or $195 more for the solution. Want to learn how Ken really trades himself? Attend a $2000 seminar. Not satisfied with a subscription? -sorry, prorated refund requests refused (I tried).

Bottom line: If you don't know what you're doing you're gonna lose! If you're looking for someone else to do the brain work, expect to lose! Only you know how important your money is and how you want it to grow. And, oh by the way, don't get greedy!

For other opinions, check out extensive discussions on the misc.invest.futures news group; if the thread is not currently active just type 'Ken' and 'Roberts' into a Dejanews search and you will get a screenful.

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