Website : As far as we are aware this service is no longer available
Publisher : DOW Letter Team
Cost : £29.95 / month
Review Date : September 2009 - December 2009

WHAT IT SAYS ON THE WEBSITE

Dow Letter offers “you the opportunity to make consistent profits by trading the Dow Jones Industrial Index (DJI)”. Their trading system “constantly analyses the DJI in depth using technical/mechanical methods” with the aim “to take 30-40 points profit from each signal”. “We concentrate on small but consistent returns which over time using compounding can make substantial gains”.

This is not a get rich quick scheme, the aim is to “make a modest overall weekly profit, on a consistent weekly basis, with low overall drawdown”. Since its launch in 2006 the system “has never had more than 3 losses in a row”, the longest winning streak being 12 trades in a row in April-June 2009.

Signals are “generated near the close of trading sessions” and are usually delivered about 5 minutes before the Dow closes (that’s 20:55 UK local time). Trade frequency can be anything from 3 to 10 times per month depending on market conditions. Targets are 30 – 40 points and Stops are 60 points. Although one can start trading the signals with a £200 account a minimum account size of £600 is recommended with a risk of 5-10% of account size per trade.

The service is available for free, for one month by opening an IG index account and then mailing your details to Dow Letter. Additionally, the service comes with a money back guarantee, “If our systems performance does not deliver more winning than losing trades you can request a full refund on your subscription within 60 days”. NOTE: Due to the Risk:Reward ratio, even with more winning trades than losing ones in any fixed period this could still equate to a net loss.

The most recent performance trade history is provided on the website with the full history available upon request.

THE SERVICE

We had access to this service from September through December 2009. It is a little bit different to others we have come across to date in that it kind of works in two parts.

Just before the US market (DOW) is due to close, (16:00 ET), if there is a trade, the first signal is received by SMS and by email at around 20:55 (UK Local time). It simply states to go Long or Short on the Dow at close (21:00 UK Local time). In reality this means placing the trade just before the close, we aim for 20:59 to be exact, as we assume most others do. The reason for this is that the spread (on IG Index) changes from 4 to 6 after the market (DOW) has closed.

Shortly after the first signal a second signal is issued, by email only. The email arrives shortly after 21:00 UK Local time and provides the exact levels that the Dow Letter service has executed it’s trade at. It includes the actual Stop and Target that should be applied and you then amend your own trade accordingly, to ensure you achieve the same outcome.

This process may sound a little convoluted but after a little bit of confusion with the first trade one gets to know the sequence quickly enough. It takes about 5-10 minutes in total to react to the two signals and then it is Set & Forget.

Stops are, on average, around 60 points and Targets are, typically around 30 – 35 points. This is not a Risk:Reward we favour as it means the service has to deliver a 2:1 Win:Lose performance, at least, just to cover Break-even.

This service has been running for just over 3 years and, when requested, all trade history was provided. We used this history to put together some performance statistics, as follows:

2006
• 35 Trades with 26 winners, a Win:Loss ratio of 2.8:1
• Highest winning streak was 7 in row
• Maximum draw-down of 180 points (15%)
• Total profit for the year (from May) of 425 points, just over 35%

2007
• 86 Trades with 68 winners, a Win:Loss ratio of 3.7:1
• Highest winning streak was 11 in row (twice)
• Maximum draw-down of 140 points (circa 12%)
• Total profit for the year of 1,530 points, just over 127%

2008
• 139 Trades with 116 winners, a Win:Loss ratio of over 5:1
• Highest winning streak was 10 in row (twice)
• Maximum draw-down of 140 points (circa 12%)
• Total profit for the year of 3,109 points, around 260%

2009
• 34 Trades with 27 winners, a Win:Loss ratio of over 3.8:1
• Highest winning streak was 12 in row
• Maximum draw-down of 180 points (15%)
• Total profit for the year (to date) of 523 points, around 43%

Notes:
• Results assume a risk of 5% of (initial/opening) account balance per trade, so, thus, no compounding.
• Average Stop loss is 60 points per trade.

CAN IT WORK

Trading this service is quite straight forward, after experiencing the first trade. Place the initial trade when the 1st signal is received (around 20:55 (UK Local time)) and then adjust Stop and Target levels accordingly, when the 2nd signal is received (by email about 5 minutes later) and walk away.

Like with most signal services where execution is required immediately one does have to make sure they are around to react at the specific times. But, at least this window is known and is specific (20:55 – 21:05 (UK Local time)). As expected, sometimes we got a better entry than Dow Letter and sometimes worse, never more than a few points difference, swings and roundabouts really.

We like this service, historic results are very good, it’s a set time each evening, easy to operate, Set & Forget and our results emulated those on the web-site, almost exactly. Additionally, if this performance can be maintained, costs also seem quite reasonable.

The downside, the only one we really identified, and it’s quite obvious. We don’t like the Risk:Reward as it needs to be supported by an impressive Win:Lose ratio. The comfort factor here is that this is evident from historic results, 2.8:1 was the worst win rate over a 12 month period (2006).

Unfortunately for us we didn’t make a profit during the period we had access to this service. However, we are confident that the results published on the website are accurate and that we have satisfied ourselves that, long term, this service delivers. For these reasons we are choosing this as the first service (since BOM Signals was withdrawn) to make it to our “Services We Use” list.

NOTE: We also incurred some rollover costs when using the service, also in relation to DOW pricing and dividends. We have reported figures as is as we are led to believe these costs work for/against at times, but generally even out over time. We will only be able to add more comment to this as we progress.

We have created a journal listing all our trades to date and will continue to maintain it on an ongoing basis.

NOTE: During December there were no trades at all due to low volatility in the market. The team at Dow Letter tell us they are considering offering a free months worth of subscription to clients on such months.

SUPPORT

Our Support requests were minimal but when contacted, responses were typically received within 24 hours.

CONCLUSION

PRO's
• Signals are clear and concise at a set time each evening (UK Local time).
• Entry process is 100% mechanical and Set & Forget.
• Historic results are good and consistent (and have been verified September through December 2009).
CON's
• 5% risk per trade may not be for all (one can of course adjust to suit).
• We will keep a watchful eye on those potential rollover costs.
• We just can’t let it lie! That Risk:Reward ratio (per trade) of 60:30 still niggles, even though we have satisfied ourselves with our due diligence based on exposure to date and the historic data.


Do remember, your comments are important, if you have experience of this service do share your experiences, they are valuable to us and others.

ReviewTeam - www.systemsfortraders.com

Thanks for a great review Gentlemen,

This type of system I've been searching for, sadly previous similar systems I tried in the past have disappeared after a few months, this one seams to have been around for a few years.

In your option could this be used at WorldSpreads or CapitalSpreads or is it designed just to work with IG?

mar..

Hi,

You are welcome.

We did look at Worldspreads but not Capital Spreads for the most obvious reason, better spread. Worldspreads do not yet have a continuous DOW instrument (24 hour trading, as far as we are aware) and that is the reason we stuck with IG. If this changes then we will obviously be reviewing the situation as the spread would be half of what we are currently paying.

As for Capital Spreads, for some reason we didn't look into them - none of us know why - so we will look into it in the near future. Obviously anyone can add some insight here, much appreciated.

Do remember, your comments are important, if you have experience of this service do share your experiences, they are valuable to us and others.


ReviewTeam - www.systemsfortraders.com

I have used Capital Spreads both live and demo.

Their demo isnt that reliable especially through the night..live seems to be ok.platform interface is basic..

Customer service is ok ish

I am based in the Uk so prefer to find SB company's as any profits are tax free. the downside to this obviously is as with most SB firms is that you are unable to have tight stops and spreads will widen during fast markets such as news as they hedge their own positions...

For this reason i tend to try and counter this & only use mental stops and tp's..if they dont know where the targets are they cant stop you out..means manual trading on alarms, but thats fine for now..

I thought margin calls arent called on Capital Spreads as they have predetermined stops that automatically set as a safety net on execution..this can be ammended once trade is triggered. However their terms and conditoins appear to state something different.

Spreads for the uk daytime (overnight may differ)

Dax rolling daily = 1 pip
Ftse rolling daily = 1 pip
S&P rolling daily = 4 pips
Wall Street Daily(DOW) = 3 pips
GBPUSD = 2 pips
EURUSD = 1 pip

FXCM offer a sanzzy platform now for SB.. very professional but unforunately, profits are always calculated in the counter currency, so if trading the GBPUSD you will gain 60p to a pip instead of ?1. If the GBP is the counter currecny then you would see a 1? return on a pip as usual..the paltfrom itself is very good imo, pretty quick execution and FXCM are very keen to let the world know that there is no dealing desk involved.. they have diirect quotes from banks which apparently improves speed and efficiency of quotes . spreads are reasonably competitive on forex and they will be introducing other instruments soon such as indicies etc. there is talk of integrating metetrader as well in the fiuture.. i have heard many stories about margin calls with FXCM and spread widening, although have not used them enough to have experienced this myself... so be cautious at first.

Hope this helps..

gl

deebee

deebee,

Thanks for that feedback which I am sure will be of use to others.

We think the main issue here is in relation to the continuous DOW contract which is offered by IG Index but not by Capital Spreads. This is necessary to trade the DOW Letter signals. To date we have still not been in touch with Capital Spreads but have now upped it up the priority list.

Regards,


ReviewTeam - www.systemsfortraders.com

i have since found that FXCM is in fact 1 for 1, even in US currency. If using ? curerrency then the basic lot size will be 0.64.Just simply up the lots size if you wish nearer the round ?1..

cheers

deebee

Hi,

I'm a little confused about which market to use on IG..... They seem to be using "Wall St Daily" from where they are getting entries. However, you have stated above "placing the trade just before the close".... and the Wall St. Daily gets closed at 9pm, so we would have to be opening this bet just after 9pm, right?

I'm sure I'm just being stupid here, just can't figure out where

Hi,

Yes we trade the Wall Street Daily. We usually enter our trades just before 21:00, sometimes after, depending on when we get the signal and where we are. We have never had a problem placing trades (or exiting) with IG Index as the instrument seems to be continuous, it rolls over each day at 20:45 we believe.

Hope that helps.


ReviewTeam - www.systemsfortraders.com

OK thanks, you don't get charged a 1pt for rollover then?

Also, thoughts on guaranteed Vs Non-guaranteed SL? I'm thinking that a non-guaranteed SL has the better long-term expectation, although obviously you have to be prepared to take the odd bigger loss in a fast moving market.

Hi,

Apologies - We have just double checked this - There are rollover costs (1 point) if trading before 21:00 but not if traded after 21:00. As we place as soon as we can sometimes we incur a rollover cost (1 point) and sometimes not. Sincere apologies for the earlier confusion as it is another member of the ReviewTeam that trades this and has just clarified. Our results to not include any rollover costs.

Regarding Stops, we never use guaranteed stops but that is a matter of preference and attitude to risk.

Hope it helps and apologies once again for the earlier confusion.


ReviewTeam - www.systemsfortraders.com