Author Archives: JLTrader

Don’t Buy the Hype – Rev Trader Pro

Facebook sponsored post of RevTraderPro

Facebook sponsored post of RevTraderPro

Generally speaking, I’m very skeptical of anyone selling Expert Advisors (EAs), for two reasons: 1. from the buyer point of view, believing that you can get your own ATM for the price of an iPhone or less shows lack of understanding of how the world really works. 2. from the seller point of view, it doesn’t make any economic sense to sell something that supposedly produces triple digit returns annually for a fee instead of using it to manage outside capital.

Today I’m going to address a real piece of work, RevTraderPro, which is used according to its creator, one Doug Price, by wealthy clients with $10+ million. :) In order to get a chance at multiplying your money some 4.000% in a year (!), you’d have to spend around $700-$750, depending on VAT and other taxes. In any case, it comes with 60 day money back guarantee, so what is there to lose, right ? Just read on, by the time you finish this article, you most probably won’t be willing to part with your money anymore.

Let’s see what’s wrong with the ‘Incredible gains in forex’ made by RevTraderPro:

1. Already their homepage gives us a taste of what is to come.

RevTraderPro homepage

RevTraderPro homepage

Leaving the hard-selling aside, do people with $10+ million dollars really compound their wealth at the pace of 4.000% a year ? In what universe is this happening ?

2. Looking at the statement on their website, I get the distinct impression that we’re dealing with a fabricated one. I know, they also have the same statement on a live, Myfxbook verified account. So how is it done ? I’m afraid I don’t have a definite answer to that and I will refrain from speculating as long as I don’t have  any proof.

Statement

Statement

There are several wrong things in the picture above, and I have highlighted them: Firstly, the ticket numbers per currency pair are consecutive. This doesn’t happen, unless you make up the data in an excel spreadsheet. Secondly, there is a GBP/USD trade on 10th October 2014 which is closed at 1.6181 and the same second another trade is opened and now the price is 1.6207. 26 pips difference within 1 second on a dull day ? It should be obvious that we’re dealing with fictitious quotes here.

3. I looked at the first few trades of the account – they are the same in the statement listed on Myfxbook as on the website. If you just pay attention to the three NZD/USD trades highlighted: the loss on the first two 8 lots trades up to the point the third 8 lots trade was opened was $80/pipX55pips + $80/pipX13 = $4400 + $1040 = $5440 which is more than the entire deposit.

Myfxbook history

Myfxbook history

This further points to a complete fabrication of the statement. But even if somehow there was a reasonable explanation for all the red flags (highly unlikely) – what kind of trading is this when you open 24 lots ($240/pip) in an averaging down fashion with a $5k account ?

Let me end with a quote from the disclaimer you can find on RevTraderPro homepage: ‘The typical purchaser does not make any money using this system.’ :)

Disclaimer

Disclaimer

 

Gain vs Absolute Gain On Myfxbook – Which One To Trust ?

Here’s another Myfxbook related post which was inspired by a chat I had on twitter. It all started when I objected to advertising the ‘Gain’ of a trading system with no mentioning of the ‘Absolute gain’ – especially when in this particular case the difference was almost 5 times in favor of the ‘Gain’.

For those of you who don’t know, here is how Myfxbook calculates performance. Given the fact that Time Weighted Return (TWR) measurement is required by the Global Investment Performance Standards published by the CFA Institute, it would seem that there’s no point in further discussing this, right ? Wrong.

The fact is that there are many systems with a ‘Gain’ of hundreds of percentage points but with a double digit ‘Absolute gain’. Does this just happen in the normal course of trading your account or is there more to it ? As a rule of thumb, the bigger the discrepancy between the two, the more wary I am that the trader might not be acting in good faith.

axit

Anybody can fool around with the account above ( he’s the one with the most subscribers in Autotrade) and see for himself how inaccurate the ‘Gain’ can be. For example, set the custom analysis dates: 12/06/2012 19:25 and 01/02/2013 02:06. You’ll notice that both ‘Gain’ and ‘Abs Gain’ are the same, 83.8%. Now set the end date for next day, 01/03/2013 01:53 and you’ll see the ‘Gain’ is now 134.16% and ‘Abs Gain’ 54.63%. All this because of one deposit and one profitable trade closed. Keep at it for some time and you end up with the kind of discrepancy that we see in the picture.

Let me finish this with a quote from Monroe Trout, which should also answer the question in the title:

There are plenty of traders I know who show track records with an amazing cumulative winning percentage. I’ve seen situations where they might be up 1,000 percent over
a five-year period, but if you examine their track record in terms of net dollars made or lost, you discover they are actually down.
Because they made the large percentage returns with small capital and then lost money when they were managing large sums?
Exactly. I’m not in the business of picking CTAs. But if I were, one of the first screens I would use would be a person’s total dollar profit—how many dollars did the CTA pull out of the market. If that number were negative, I would eliminate the CTA from consideration, regardless of the percentage return. – Monroe Trout, New Market Wizards by Jack Schwager.

 

Myfxbook AutoTrade Program – Should Investors Participate ?

I guess almost everyone involved in the currency markets, especially at a retail level, has heard of Myfxbook. It’s a good (and free) way to get a lot of statistics on your trading account that you can use to improve your trading method. It can also be used as an independent third-party audit tool for your performance.

Despite these positive features, I believe Myfxbook has money losing propositions as well, and I’m referring here to the AutoTrade Program. Judging by their FAQ it’s a win-win situation for subscribers, who get access to ‘successful trading systems’  and traders who can make some extra money with no extra effort. But as one popular song goes, I believe that actually there’s too much rain over paradise. :)

Let’s start by looking at the top system by number of subscribers, Axitrader , 1976 subscribers as of this writing. Firstly, there’s a huge discrepancy between Gain – 888% and Absolute Gain – 24%. How can that be ? Easy, the guy’s been gaming the Gain tab with a pattern of deposits and withdrawals that makes no economic sense. We can see that by checking the History tab.

Axitrader history

Axitrader history

Secondly, this account uses a custom start date for its track-record, conveniently skipping the first 3 months of the account’s existence. Why is that ? Because it had a 94% loss during those 3 months. When we select to see the entire track-record, instead of that illusory performance of 888% with 36% DD showcased by the AutoTrade program, we get the hard, cold reality of 22% with 95% DD.

Is that what passes for ‘successful trading systems’ nowadays ?

I don’t have the time, nor do I see the point in closely examining the other 40 or so systems in the list. I glanced quickly over a few of them and noticed the same ‘game the Gain’ approach. More importantly though, the way this program is structured to pay the trader creates massive conflict of interest between him and subscribers. Instead of getting a percentage of the profits made for subscribers, he gets payed based on the number of winning trades per month. Right there, this leads to over-trading and not exiting the losing positions in the hope they come back and can be closed as winners.

Although a few checks have been put in place (like the max 50% drawdown), which would create the appearance of professionalism, there’s a lot left to be desired.  To conclude, it’s my belief that this program is incompatible with serious traders.

As for potential investors ? They might just as well do this:

money

 

 

New York Teen Made $72 Million Trading – In His Dreams

Does anyone remember Alex Hope ? He was the 22 years old ‘trader’ supposedly so successful that he could afford to splash out £200k on champagne. That was in early 2012. Soon thereafter he was arrested and is now being charged with running a £5.6million Ponzi scheme.

This time coming from the US, we have another very young guy whose ‘trading acumen’ puts Hope to shame. Mohammed Islam, 17 years old, allegedly made $72 million while trading during his lunch breaks at school. The story, as presented in that newspaper and in other several places on the internet, is hardly believable to any thinking person. Moreover, it’s an insult to all real traders out there.

At this stage we can only speculate as to the reasons behind this preposterous publicity stunt, but I’m certain that it can’t end well for those who buy into it.

A Failed Pattern And A Few Trading Insights

I believe that a multiple time-frame analysis is necessary in order to get a clear picture of the trading environment.  That means looking at charts starting with the weekly time-frame (on weekends) and going through the daily, h4, h1 and 15min during trading days. Most of the time I seek confirmation from price action/chart patterns on the 1h chart and usually enter the trade either on 15min or 1h. I believe that is the best balance between  risk/reward and ‘noise’ removal. Meaning, on lower time-frames, 1min or 5min, there tend to be too many fake moves. After all, it takes a lot less buying/selling power to move the financial instrument (currencies, stock indices and so on) for 1min or 5min than it takes to move it for 15min or 1h. As a general rule of thumb, the bigger the time-frame, the better the confirmation signal is.

That doesn’t mean we should only look at the weekly charts, although there are successful traders out there that advocate weekly and monthly time-frames. It’s my belief though that would be a sub-optimal use of both time element and risk/reward. Not only is the risk/reward better when entering on lower time frames, but it gets you out sooner in case the trade goes wrong and gives you more opportunities to pyramid in case it goes your way. I’ll give an example with a recent DAX30 trade taken on a break-out of a continuation H&S pattern. Note that for the 15min – h1 entry the time spent in this losing trade was less than one hour with a total loss of around 25 points. For the 4h-daily entry the time spent in the trade would’ve been around 24 hours with a total loss of more than 100 points.

GER30H1

DAX30 h1

GER30H4

DAX30 h4

GER30Daily

DAX30 Daily

 

It Happened 27 Years Ago

Ending with a down Friday, this was the worst week for S&P500 and Nasdaq since May 2012, losing 3.1% and 2.3% respectively. Let’s get some historical perspective though. Seven years ago the US stock markets would reach what would prove to be their pre-2008 crash top levels. But does anyone remember what was going on 27 years ago ? On Monday, 19 October 1987 the stock markets around the world crashed, with DJIA losing some 22% on that single day. Here is a short clip from FNN, the precursor of CNBC, from that fateful day, where Paul Tudor Jones gives his opinion on the historic events that were taking place.

Traders: Millions By The Minute – Some Glaring Problems 2

Traders-Millions-By-The-MinuteI will address the first episode of the BBC Two documentary series, which can be viewed here.

First we have a lot of advertisement for a proprietary trading firm which also trains traders, called Amplify Trading. Generally speaking, I have a big issue with the whole trading education industry. This is still the wild west, where anyone can get away with making unsubstantiated claims and charging beginners or gullible people thousands of dollars.

We get to see Piers, one of the founders, trading during an ECB meeting. He puts on a trade based on his interpretation of a few words ECB President Mario Draghi said. We’re told he won $8k on the trade that lasted 2 minutes. There’s no mention of the risk taken. It all seems very amateurish to me.

Never trade in situations where you don’t have control. For example, I don’t risk significant amounts of money in front of key reports, since that is gambling, not trading. – Paul Tudor Jones

We also get some glimpses of a 4 months trading course Will and Piers teach to a group of 6 trainees. One of them is Ben, recently married, hopes that at the end of the course he’ll be able to trade for a living from home. I find that very sad on one hand, the fact that he’s so delusional, but on the other, I can’t ask myself, shouldn’t it have been the first lesson of the course, that you can’t trade for a living after just 4 months ?

Another trainee is criticized because he only took one trade during a week. Now, why would that be a problem ? Opportunities aren’t there every day or every week. The market doesn’t pay you by the number of trades you take. I find that critique ridiculous.

At 48:19 the voice over says that DAX is the most unpredictable and difficult to trade. (!) We’re not told how she came to that conclusion.

Then we have T3 Trading Group an US registered broker-dealer and Scott Redler, chief strategic officer and one of the top traders there. We’re told that some of the traders make millions trading company’s money. We’re not being told though that they operate on a first-loss basis, that means the trader has to bring his own capital, and what he actually gets is just extra leverage.

I didn’t really find any issues with the hedge fund lady, the floor traders or the HFT guy.

Traders: Millions By The Minute – Some Glaring Problems 1

Traders-Millions-By-The-MinuteRecently BBC Two aired a 2-part documentary series called Traders: Millions By The Minute. It purports to take a look at some professional traders as well as a few wannabees. I found it instead to be a full of deceit entertainment show. I’ll list here the issues I found with the second episode, and I’ll write another article for the first one.

Charlie Burton is presented as belonging to the 10% of traders who are profitable. We are also told that his disciplined approach made him a millionaire. He pays £200/month for his forex charts. If he makes one successful trade in the morning banking around £1000 he’s pretty much done for the day.

What’s wrong with this picture ? For starters, there’s absolutely no proof presented that he can trade profitably. There’s also no proof that he made the alleged millions trading. After looking him up on the internet, I found out that he’s running a company selling trading education for more than £1000 a package. Now, if he really is a millionaire, this surely seems the more probable way he became one.

I see two problems with his trading approach. Firstly, there’s no need to pay for charting software in forex. With  the volumes he supposedly trades, he should be getting the best charting for free from his broker. Secondly, I can think of no logical reason to stop trading just because you made an £1000 profit. Not only that it goes against the old and true adage ‘…let profits run’, but a professional trader trades the market, not the money.

Justin and Akil, 2 guys in their early twenties. One of them (Justin) has been trading forex for nearly 4 years, the other takes care of the admin side of the business. They manage now over £1 million. They drive in a Mercedes C63 AMG to the house of a Premiership footballer to pitch him to invest with them. They show him the profits they made in a few months’ old demo account. The footballer’s wealth manager gave him the green light to invest £100k with the duo. He’s convinced by their pitch and they shake hands.

Whoa, this is wrong on so many levels that I don’t know where to start. Let’s see, like before, there’s no proof of the supposed £1 mil under management. Actually there’s no proof these guys even trade a live account. They are in their early twenties, don’t appear to come from wealthy families, almost 4 years of trading experience and already drive a Mercedes AMG ? It sure sounds like a Ponzi scheme here geared toward a minority group (black people).

Anyone remembers Alex Hope ? :) . Regarding the wealth manager’s approval for the investment, I like to think that he was somehow misinformed. Otherwise he must be ranking among the most incompetent managers for considering doing business with those two clowns. I mean, seriously, giving money away based on a few months’ old demo ?

Etoro social trading platform gets a few minutes of advertisement. You can follow ‘professional traders’ and copy their trades. One of the most popular is one Spanish guy, Malsolo. He has 5k copiers.

This is beyond joke. I looked up the leaders, they all seem to sit on big losing positions, some of them over one year old. They’re quick to bank a profit, but when the market turns against them, they let the losses run. And they’re called ‘professional traders’? :)

Gold Outlook – A Technical View

I read yesterday and commented on an article by Barry Ritholtz about the shiny metal’s outlook. I was surprised to notice that it attracted such interest with 148 comments so far. I’m not surprised though of the prevailing thought process that gold is somehow different from other asset classes like stocks or real estate. I guess everyone agrees that stocks do sometimes go down and there have been decades-long bear markets, but few would say that this applies to gold as well. I’m not going to go through all the arguments of the gold bugs of why the gold chart only has a BUY button :) . I’m just going to take a look at  the technical picture:

Gold - daily chart

Gold – daily chart

It appears that the risk/reward ratio is heavily skewed to the long side. You would risk around $30 hoping to make at least 20 times as much if gold goes back to its former highs. But let’s take a look at the silver chart as well. These two metals are highly correlated:

Silver - daily chart

Silver – daily chart

We can see that the triple bottom formation similar to the one in gold has already been invalidated here. All of a sudden, the long scenario doesn’t seem that appealing anymore.

What I think we have in gold is a bear flag, which is a continuation pattern. If confirmed, it would give a technical target in the $600-$800 range and a time frame for this to happen of 9-12 months.

Just remember, people are often wrong in their opinions, but markets never are. That means that what the market does is what actually counts, not what people think or hope it will do.