Stock market advisory firms: A case study

By Rohit Malik

Stock market advisory firms or trading tips services ( as they are called) are relentless in their advertisements.

You are bound to see at least one ad when you visit any financial website like

If you already have a Demat and trading account, then you don’t even need to visit these sites. You will get the offer in your SMS or inbox or even a call, once in a while, about trying out.

Now, when the services are offered by your full-service broker, then it is usually free. Hence, once in a while you are tempted to try it.

To make it easy for you to decide, I along with my trader friends actually took a trial of these services as well as a couple of full broker firms.

All the trades recommended by these services were done on paper, so as to keep the judgemental & emotional aspect out of it.

Full-service broker newsletter case study:

These days full-service brokers don’t mail their clients directly, rather they do it either via their authorized person or dealers on their call-n-trade offices.

Once in a while, the dealer (or Relationship Manager) will call up the inactive client to take a trade. What we did was, we did call our RM and asked if there is any research report or trading call.

As expected, all three of them obliged and told us, what ‘research department’ has recommended.

Result: 50-50. Which can be purely incidental. I went through at least 30 previously published research report emails too and the result was the same. The verdict: There is nothing special there.

Besides, you can find these reports & verify any of the financial sites too.

This can be expected as the main objective of such a trading firm is to make your trade. They will get brokerage, no matter what.

Trading tips advisory/ Matka tips case study:

This was an interesting study.

These firms have their income based on the quality of calls they provide. At least that is the expected from what their telecallers promise or SMS msgs promise.

We tested 5 of the top advertised services across 10 different accounts. The ‘trading calls’ we received were mostly via WhatsApp or Telegram messaging app.

A trading call or tip will come like the image below (from a telegram channel)

trading tips
Stock advisory channel on telegram

What did we find?

For short-term movements, many of these trading calls were right. But, you need to be very fast in booking a profit. Plus, you need to keep your emotions out.

The reason for that is most of the ‘right calls’ would keep going in the direction of the trend. Thus, where you have booked 4-10 points profit, the stock may close at day’s high or low ( if you were short).

But, you can’t allow such movement to book in the next trade. Keep booking as per the rule. If you miss once, you losing money is quite high.

So, are these stock advisory firms right most of the time? Or enough to make profit.

No, Unless you are good a taking benefit. They are not. But they are good at telling the momentum part of the stocks.

Is there any website that provides the best trading calls?

To be honest, there is none. There are good sites and there are average. And their accuracy keeps on changing.

In a bull market, you will find many calls going right. Sometimes, in the bear market too. But it is in a range-bound market, where most of them falter.

And it is not because they are not good at their skills. Rather it is because trading is about checking probabilities and then taking a calculated risk to use available opportunities.

Thus, these trading firms and websites, all look at same data that is available to you and use their knowledge (in some cases lack) of technical analysis to find patterns. The calls are based on these factors. Nothing more.

They are more interested in giving enough calls to show that they have an active team. Because that is what they earn from.

This means the pressure to generate calls even when the right thing to do would be to be not taking the trade at all.

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