Author Archives: JLTrader

Why I Stopped The ‘Verified Performance’ Account

Since early December last year until this week I’ve had a ‘Verified Performance’ widget tracking the performance of a live 10k account at Darwinex. This post is to explain why it got started, why I shut it down and the way forward.

Close followers of my site know that I’ve been an enthusiastic cheerleader of Darwinex, believing it will disrupt the asset management/mutual fund industry. So of course that as soon as they offered corporate accounts (you don’t go for a potential income of millions of $$ with a personal account, now do you? :) ) in November last year, I joined. As they say, what a difference a year makes. Long story short, I very much doubt now that the DARWIN as a product and Darwinex as a company, in their current format, will make significant progress in attracting investors and AUM. I won’t get into more details here, if you’re curious you can read the posts I made on their forum or contact me privately.

While the above was perhaps 90% of the reason why I started that account, 10% had to do with making my site even more different and unique compared to the rest of the other 1M  trading related sites. So after 90% of my original motivation when I  opened the account disappeared, I had the following dilemma: should I continue to run it at Darwinex, move it to a different broker or close it? After debating with myself for a few days, I decided for the latter. Main reason being, I didn’t see the utility in it anymore. To those critics who would be quick to point out: ”yeah, then you’re now just like the guys you’re bashing and calling scammers” I will answer that it’s not the case. I haven’t so far and never will imply more or less overtly that trading is easy, you can do it on your smartphone while sunbathing, you can effortlessly take 1k to 10k in a year, all you need to become a professional trader is a $300 course and all other sorts of  BS so ubiquitous on trading sites. Always keep in mind what Carl Sagan said: extraordinary claims require extraordinary evidence.

The way forward as I see it, unless some very strong reasons will come up, I won’t start another account to show verified performance.

Reviewing The Reviewers

Two of the oldest and best known review sites for trading/investing services, products and companies are ForexPeaceArmy.com (FPA) and Investimonials.com. The scope of this article is to show that they are both untrustworthy and more or less fraudulent.

ForexPeaceArmy.com is run by Dmitri Chavkerov, a Russian national apparently living in the US. If you were to believe his story as told by himself, Dmitri was invited to manage $500 million in a $1 billion fund in 2007, when he was only 25 years old. In reality, around that time Dmitri was an Internet-ordained minister who performed a sham marriage ceremony for his girlfriend in a green card fraud case. But maybe he’s reformed since, right? I very much doubt it. When you call someone like Andrew Mitchem a ‘trading giant’ and continually push and advertise his overpriced junk, then you can’t be taken seriously.

Shoulders of Giants
It is a widely known fact that 98% of forex traders lose money. The 2% that are successful can be called giants. The reputation and profitability of traders in this section is beyond question or doubt. – FPA pitch

Andrew Mitchem advertised by FPA

Investimonials.com is run by the master of self-promotion himself, Tim Sykes. I’ve detailed last year, when he deleted my comments on an article and then blocked me on Twitter that his apparent honesty and transparency are just a facade.

All that’s wrong with Investimonials.com in one picture

What is Investimonials.com?
A place to discover the best financial products…and to weed out the worst. We want to help readers ‘invest in the best’ because saving you money and helping you grow and get rich is our top priority.

Trade with Kavan and other penny stock scammers are among the best financial products, right Timmy? And how about weeding out the worst? Marcello Arrambide, aka Wandering Trader has 146 five star reviews out of a total of 161.

Marcello Arrambide rated on Investimonials.com as the best thing since sliced bread

Yet as my review and common sense would say, he IS the worst, 100% scammer.

To conclude: these two sites are run by shady individuals and advertise proven scams as the best thing a (novice) trader would need. Extreme caution is advised when using them .

My Thoughts On The Sterling Flash-Crash

We’re all just one trade away from humility. – Marvin to Bud Fox in Wall Street.

Last night I’d just finished watching an Alfred Hitchcock movie (Frenzy (1972) – recommend it) when I checked my Twitter feed.  It was in a frenzy (pun intended) about GBP – capital letters tweets and charts that indicated a big plunge. I quickly checked the prices, and for a second I couldn’t believe it – almost 600 pips fall in 1 minute in GBP/USD.

My first reaction

My second reaction was to see what lessons could be drawn from this event. Some compared this with the SNB debacle from January 2015 – I disagree with this point of view. That was a ticking time bomb, the only unexpected thing being that it contained a nuclear load (I wrote at that time about it, here). What happened with the British pound last night was a total surprise, of a kind not seen since the flash crash on 6th May 2010.

First lesson here is that unless you’re trading with a bucket-shop, you can’t rely on your stop-loss 100% of the cases. Even if you avoid trading around high risk events (central bank announcements, NFP), you’re still exposed to this sort of black swan events.

Second lesson, in order to survive these huge and sudden moves, you have to trade a size small enough that if the price gaps 10X your stop loss for instance, the account doesn’t get wiped out. To illustrate, let’s say your SL on GBP/USD trades is normally 50 pips. In yesterday’s event, you’d have gotten a 600 pips loss, or 12 SLs in one go. If you risk 5% per trade for instance, that would’ve meant 60% of your account gone in a minute.

Third lesson: play the probabilities. Trader A is always in the markets, with one or more trades open. Trader B has open trades only at certain times. Which one is more exposed to black swan events? You guessed it, trader A.

“My philosophy has always been to stay out of the market as much as possible. The less time I am in the market, the less risk I am taking. If dictated by market conditions, I’d rather make X percent having significant market exposure in only three months of the year than make the same amount while being in the market all the time.” – Mark Minervini in Stock Market Wizards by Jack Schwager

Trading Guru Busted By The CFTC

Listen and understand! That Trading Guru is out there. It can’t be bargained with, it can’t be reasoned with. It doesn’t feel pity or remorse or fear, and it absolutely will not stop…ever…until your wallet is bled dry. – paraphrase of Kyle Reese to Sarah Connor in The Terminator

School of Trade (SoT) has been extensively reviewed by TradingSchools.org in November 2015 and the verdict was: 100% scam.

A few days ago, The U.S. Commodity Futures Trading Commission (CFTC) filed a civil anti-fraud enforcement action, charging SoT with fraudulently marketing commodity futures trading strategies and systems. You can read the press release here.

I’m writing about this case because I believe it is a good example of how scammers can operate and get away with murder for a long time. I strongly recommend you read both the review linked above and CFTC’s complaint. Here are the highlights:

The CFTC alleges that Defendants have: 1) portrayed Dufresne as a successful professional trader with years of experience and numerous awards and recognitions when, in fact, Dufresne has little experience, has never been professionally recognized, and has never been a profitable trader;

bs

Joseph James’ fantasies about himself

2) touted the profitability of SoT’s strategies and systems and claimed hundreds of thousands of dollars in trading profits earned every year, when, in fact, none of the Defendants’ accounts has ever been profitable;

3) promoted SoT’s “Live Trade Room” in which they purport to make profitable trades on live accounts in real time when, in fact, none of the trades called or profits claimed to have been made in the “Live Trade Room” as set forth in the Complaint can be found in any of Defendants’ accounts.

Defendants sold at least 877 memberships in SoT and took in more than $2.7 million during the period charged in the CFTC’s Complaint.

More than $2.7 million!! Let that sink in for a minute. And then consider the following: that’s only a small part of the damage these scumbags have inflicted on the people they conned. Many customers lost a lot more than the fees they paid to SoT by trying to replicate the fabricated trading success of JJ.

School of Trade is quite big on YouTube, which is a fertile ground for smooth talking salesmen who grab your attention with successful ‘live trades’ and various other tricks.  Keep this article and the screenshot below in mind before wasting your time on YouTube trading gurus. To conclude:

  • if your trading professional has countless YouTube videos purporting to show profitable trades, but no verified live track-record, stop following him. It takes less time to connect an account to a free verification service than to produce one of those videos.
  • just because someone has had a website and been on YouTube for +5 years doesn’t make any of his trading claims true.
  • if it seems to good to be true, then it surely is.

Update: Here is the full, 39 page complaint by the CFTC. It has some real gems, such as the one below:

or the fact that Dufresne was incarcerated for 6 months in 2005 for attempted sale of narcotics, right during the time when he alleged to be a professional trader and hedge fund operator.

A New Low For Social Trading Advertising

I’ve been using ForexFactory for its Calendar feature for a long time. Because they’re decent with their advertising (as in not harassing you with countless pop-ups), I disabled Adblock on the site.

Last night, an ad that I’d never seen before caught my eye:

Tradeo ad on ForexFactory

Clicking on it, you land on this page (which miraculously disappears if you do sign up):

What is wrong with these two pictures? Everything actually. 109k followers for just one trader on a quite new social trading network that hardly anyone heard of? On ZuluTrade, the granddaddy of social trading, having 1500 followers places you in top 10 most followed traders. Further statistically improbable facts: out of the 9 featured traders, there are 6 (very attractive) girls. Names don’t really match the countries these people supposedly come from (does Maria Nicoleva sound Swedish?, Amanda Stoun Portuguese or Anton Williams Italian?)

If you actually search for these names, for no other reason than to learn how to become a top trader :) you’ll get this:

Where is Silvia Mirova? :(

There goes my chance of having a chat with the lovely Silvia :(

All kidding aside, I don’t understand what Tradeo expects to achieve with this, considering that it costs a pretty penny to be featured on ForexFactory. Click-bait is one thing, but downright false advertising is totally different. Do they want to cement the already shady online reputation they have? Or am I missing something here?

A Lesson From The Latest News On Paul Tudor Jones

Bloomberg just reported that Tudor Investment Corp., the hedge fund started by legendary Paul Tudor Jones in 1980 is laying off 15% of its workforce, amid lackluster performance and client withdrawals.

Performance since 2001. Photo Credit: Bloomberg

But if with all I had I still lost, what chance does the green outsider have of winning, or, rather, of cashing in? – Jesse Livermore

So what do we have here? Paul Tudor Jones, featured in Market Wizards (after a five year streak of triple digit returns), who’s been trading since the late 1970s and managed to build a multi-billion dollar hedgefund, has been having problems making money for the past few years.

If you go on social media though, or if you visit trading related websites and forums, you’d be hard pressed to find people who are losing. On the contrary, they make money and many of them are more than willing to share their secrets with you, via courses, DVDs, indicators and so on.

One wonders why, if they’re as good as their Excel tables, photos and testimonials say they are, don’t they help struggling hedgefunders like Paul Tudor Jones? Can you imagine how much they would stand to gain, monetarily and PR-wise?

There’s only one answer: because they’re full of shit. All the smoke and mirrors they’ve created about their experience and performance wouldn’t stand a minimal due diligence process. That’s why they remain in their make-believe world where you can become a successful trader (conveyed meaning: you make money every week) after buying a $300 course.

The real world of trading is much more complex and difficult though. That’s why I’ve been stressing here time and again, look for and learn from actual traders if you want to stand a chance of succeeding in this business.

A Trading Expert With Conflict Of Interest – Huge Red Flag

A few reminders of how conflict of interest looks like – always good to keep in mind before entering into a business relationship with a trading/financial professional.

1. EuroScalperPro, an 100% automated Forex EA, is currently being heavily advertised on Facebook. It comes in a free version, if you sign up with one of the three supported brokers, or a paid one, at $197/month or $1,997/year. No matter which one you choose, there’s the same big conflict of interest: the guys behind EuroScalperPro (more on them in a second) make money – either through commissions on volumes traded or cash upfront – irrespective if the client makes profits or not. If this aspect was clearly understood, I believe only a few people would still want to do such a deal. Particularly that in this case you don’t actually know who you’re dealing with – the About page is hilarious:

Our ability to generate superior risk adjusted returns through widely ranging and evolving market conditions has captured the attention and respect from traders, fund managers, investment houses and private wealth managers worldwide. Our Commentary and Research have been quoted across the Internet and we are widely regarded as the authoritative source on quantitative Forex trading.

It takes some chutzpah to write something like this when no names, no faces and no supporting evidence are presented.

2. If someone got the impression from the example above that this happens only with anonymous companies, let me present Boris Schlossberg and his BK Asset Management.

2. What fees are associated with the Managed Accounts Program?

There is no management fee. BK Forex Advisors is compensated via rebate from broker.

Or, if you prefer to pay upfront, you can do that on the other website, for $145/month.

If you’ve been around Forex for some time, the chances are slim that you haven’t heard of Schlossberg or his business partner Kathy Lien. In their own words:

We are known in the forex community as Traders First Analysts Second because unlike market commentators who simply offer up their opinions, we risk our own capital in the market every single day.

But a word of warning: don’t make the mistake of asking them to substantiate the ‘Traders First’ part. You might get blocked (Boris) or ignored (Kathy).

fxflow3. FINRA Files Complaint Charging Broker With Fraudulently and Excessively Trading Accounts of Elderly, Blind Widow

The complaint alleges that Werner engaged in a deceptive and fraudulent scheme by churning the widow’s accounts over a three-year period to maximize his compensation by charging more than $243,000 in commissions, while causing the customer approximately $184,000 in net losses.

Beside highlighting again the danger that exists when the interests of both parties are not aligned, this case also shows that even in a heavily regulated arena, there are still some scumbags left.

Cautionary Tales About Trading Gurus

Three things happened over the past few days that reminded me once again how much BS and deceit there is in the trading world. But before I start, I’d like to quickly answer  those who think along the lines of: ‘why do you even care, just mind your own business’. I care because these guys bring the entire profession into disrepute – and since they are either unregulated or fly under the radar, someone has to call them for what they really are.

1. Charlie Burton, who appeared in BBC’s Traders: Millions by the Minute documentary didn’t like the fact that I doubted the emperor has clothes in this article so he left a comment, threatening me with legal action (!!). What’s been Mr. Burton up to since I wrote that in October 2014? Has he provided any verified performance on his website (ezeetrader.com – really confidence inspiring name, eh Charlie ?) No, he started another site, which has sleazy salesmanship written all over it.

2. I just became aware that a couple (as in man and wife) of Twitter trading gurus – https://twitter.com/NorthmanTrader and https://twitter.com/Mella_TA hasn’t been heard of for almost a month now. Rumor has it that Sven Henrich aka NorthmanTrader lost some big money for people that trusted him to manage their accounts (apparently in an unregulated manner). The lesson here: just because you’re a prolific tweeter, have many thousands followers and appear via phone on CNBC, it doesn’t mean you’re a good trader or actually trade at all. I really like this quote from the CNBC piece:

While Henrich doesn’t manage any money, his chart work on NorthmanTrader has garnered a significant amount of attention in the online world.

The ‘doesn’t manage any money’ part was surely intended to mean ‘doesn’t manage any other people’s money’. But from a cynical point of view, it can mean ‘doesn’t have a live account’ :) – a distinct possibility since we don’t have proof otherwise.

Update 31/07/2016: Northmantrader has written this article telling his side of the story and answering Twitter critics.

3. Speaking of ‘trading experts’ who are big on social media, I came across the case of Keiko Kawamura, a 27 years old woman who was charged by the SEC in 2014 for an alleged scheme to defraud and for fraudulent misrepresentations and omissions. Below are some fragments selected by me, alternatively you can read the whole proceeding here:

In August 2012, Kawamura started a website kawamurafinancial.com where she provided investment advice for a monthly subscription fee until February 2014. Kawamura solicited subscribers through a number of misrepresentations, including falsely claiming that she obtained an annual return in excess of 800% in her personal brokerage account (in fact, she lost all of the money invested in the account), that she had managed millions of dollars, and that she had nearly ten years of experience in the financial industry.
Contrary to Kawamura’s representations to investors that she would invest all of the funds she raised in stocks and options, she misappropriated much of the hedge fund’s money to pay for her living expenses and for luxury vacations to Miami and London. Of the approximately $55,000 Kawamura did invest, she pooled the money in one brokerage account and lost it all in highly risky options trades.
Kawamura posted screenshots of portions of a brokerage account statement on her Twitter account, which many of her investors followed, that suggested that she was obtaining incredible returns in her own brokerage accounts. In fact, the screenshots reflected particular returns on unusually successful trades and/or trading days from her boyfriend’s brokerage account and were not indicative of the performance of the trading in her account.
This part once again underscores why I beat the drum on third party verified performance. Photos and videos not only can be manipulated, but even if they’re not tampered with, they usually show best case scenarios.
Kawamura’s website contained numerous material misrepresentations and omissions that she acknowledges were intended to attract subscribers. Kawamura claimed on the site that she had “been in the Investment banking industry for nearly a decade, specializing in Wealth Management for a major Financial Institution.” At the time she created her website, Kawamura knew this was false. She has never worked in the investment banking industry and has never worked for any financial institutions.
Lesson here: next time a trading guru blocks, ignores or calls you a ‘hater’ for merely questioning his claims, think of Kawamura and how far can BS and fantasy go on social media.

So You Want To Become a Hedge-fund Manager

This post goes out to all serious independent traders out there who wish to take their trading to the next level without having to change city or country. Traders who read countless times books like Market Wizards or Trend Following and want to some day be just like ‘one of those guys’. Traders who look for offshore brokers that still allow unregulated individuals to open MAM or PAMM accounts or frantically google variations of ‘get funded trading’ only to be swamped by more or less fraudulent offers.

If what I said above resonates with you then I urge you to take a look at Darwinex. It offers the exact legal and logistical infrastructure you’ve been looking for. And the best thing is that it doesn’t cost you anything (money or hassle) to list a DARWIN (Dynamic Asset and Risk Weighted Investment). This product can be considered, for all intents and purposes, to be a real hedge-fund. You thus become the trader/manager of your own hedge-fund, with Darwinex acting as a risk-manager and client-facing interface.

Here is why I’m beating the drum to spread the word about Darwinex: I believe this new asset class has huge potential both for serious traders and investors. In order for it to work, first thing that has to happen is for the undiscovered trading talent to not only hear in passing about Darwinex, but take the time to realize for themselves what great opportunity this is. Some might think at this point, why would I, as a trader,  invite competition. That’s not the way I look at it: I want the entire class to have as many serious traders as possible and to perform well because this would lead to an influx of new investments and better recognition overall for DARWINs. As things currently stand, even some of the traders with good performance so far that have received allocations via DarwinIA haven’t really grasped the concept of Darwinex. Otherwise, they wouldn’t be advertising signals or managed accounts – which is like driving a Porsche but inviting people for a ride in a 20 years old, beaten up Ford. :)

For potential investors reading this, there are at least two big advantages of Darwinex you should keep in mind:

  • one stop shop to a myriad of trading strategies
  • low, performance-based only fee – you’re not paying a management fee for someone else to get rich irrespective of the fact that s/he makes you money or not

I’ll end this piece with the words of Gordon Gekko (Michael Douglas) to Bud Fox (Charlie Sheen) from the movie Wall Street: “This is your wake up call, pal… Go to work.” :)

Drawdowns – A Reality That Traders And Investors Face

False expectations lead to a great part of the emotional and financial suffering that traders and investors encounter in the markets. Members of the first group are preponderantly misled by alleged professional traders (who can’t substantiate most of their claims and have no verified track-records) while in the case of investors, advisors with conflicts of interest play an important role.

Drawdowns, periods when a trading strategy loses money, are a reality of being involved in the markets that many  just gloss over, if they mention it at all. But if you are aware and really understand this fact of trading and investing, your life will be much easier.

Forewarned is forearmed

In my opinion, if you expect drawdowns to be no more than 10% and last no more than a month or two, you’re deluding yourself and probably shouldn’t be trading. If you’re an investor/asset allocator  and you think you’ll be able to jump from manager to manager right before they enter a drawdown, you just set yourself for a lot of grief further along the road.

You know the saying, a picture is worth a thousands words, so please look carefully at the 2 photos below:

Largest losses in Warren Buffett’s Berkshire Hathaway (BRK-A) stock since 1980

Dunn Capital performance statistics. Photo credit: BarclayHedge.com

Warren Buffett needs no introduction. Even though he’s the world’s richest and most famous value investor, we can see his sailing to the top hasn’t been smooth. Since 1980 his investment vehicle, Berkshire Hathway, experienced a couple of -37% drawdowns and two ~ -50% ones.

Dunn Capital is a trendfollowing CTA currently managing $542 millions with a long history which goes back to the 1970s. This year they’ve taken the 4th place in Barron’s Best 100 Hedge Funds list. One interesting aspect that caught my eye when looking at its page on BarclayHedge.com is that up until 2013 this fund had a fixed risk target of 20% VaR, the same as DARWINs have.

Since 1984, Dunn has compounded money at an annual rate of 14.17% (net of fees). But to achieve this performance, the firm and its investors had to endure some brutal drawdowns: for instance -27.5% during the 14 months between August 2011 – October 2012 or -44% during the 12 months between September 1999 – September 2000.

To conclude: in the financial markets, as in life in general, if something sounds too good to be true, it probably is. Throwing caution to the wind and ignoring history is what allows a myriad of hucksters or frauds a la Bernie Madoff to fleece their unsuspecting victims.