Author Archives: JLTrader

A Japanese Day Trader Made $34 Million Last Monday – Fact or Fiction ?

THE WOLF OF WALL STREETLast December one couldn’t escape the story of the 17 year old teenager from New York who had allegedly made $72M (!!) trading stocks during lunch breaks at school. Of course, the next day it turned out it was all a hoax.

This time around, there’s a Japanese day trader who has supposedly hit the stock market jackpot:
While Many Panicked, Japanese Day Trader Made $34 Million. Not only has this story become viral, but I’ve seen experienced traders on Twitter quoting from his ‘wisdom’ as in:

For him the basic rule is: “Buy stocks that are being bought, and sell stocks that are being sold.”

Now, that’s $34M worth of trading advice right there :) . What surprises me is that the major news outlets and experienced traders talking about this on social media show very little skepticism towards this story. Just because the guy said something and Bloomberg Business published an article, then it must be so. Well, if I say that I can walk on water and provide some Photoshopped pictures to prove it, would you take my word for it ? Then why would one believe an equally enormous claim resting on the same kind of shaky evidence ?

It’s not just that the story doesn’t make sense : here we have a guy who wants to remain anonymous for fear of robbery and extortion (in Japan, of all countries !) but is active on social media and keeps going to the press with fantastic claims. Either you spend your +100M dollars in trading profits on the quiet or if you want the world to know how skillful you are, back up your claims.

What really irks me is that this type of stories cast trading in a totally unrealistic light. It’s like hearing that some doctor cures cancer patients just by touching them. The world just doesn’t work that way. And speaking of cancer, do you remember the Australian blogger Belle Gibson who fooled everybody that she was healing herself of brain cancer through natural therapy ?

Back in October 2008 I witnessed first hand how easy it is to deceive the media with unsubstantiated claims of trading success. On a very popular news and entertainment Romanian TV channel the evening news presented a guy who claimed he made big profits by being short US stocks just at the right moments in those crazy volatile times. The message was very similar to the one transmitted by the Bloomberg article linked above: people panicking and losing money left right and center, but Mr X is different. He is making money, and lots of it.  This guy was some sort of guru on a Romanian trading forum, and even convinced people to give him money to manage. Well, in the end it turned out that all his trading and supposed profits were demo and he lost the money people entrusted with him.

I’ve no idea how much truth there really is behind the story of this wonder Japanese day trader. All I can say is that we shouldn’t forget our common sense and a healthy dose of skepticism before believing everything we read.

Original Turtles Trading Rules

I always say that you could publish trading rules in the newspaper and no one would follow them. The key is consistency and discipline. Almost anybody can make up a list of rules that are 80 percent as good as what we taught our people. What they couldn’t do is give them the confidence to stick to those rules even when things are going bad. – Richard Dennis in Market Wizards

The original turtles trading rules have been in the public domain for more than a decade. How this came to be, makes an interesting story in itself (which you can read about in the first few pages of the PDF). I believe these rules can be a real source of inspiration for any trader who is trying to develop or improve his own strategy. Unlike the dime a dozen trading systems to be found free on forums and for hundreds or thousands dollars from snake-oil salesmen, the turtle system has actually made millions in trading profits. Not only during the four years of the turtle experiment, but afterwards as well (albeit in a modified form). Just take a look at the performance of a couple of original turtles like Jerry Parker or Paul Rabar.

You can download the 38-pages PDF here: Original Turtles Rules

Now, some of you may think along the lines: they don’t work anymore, Richard Dennis himself had two blow ups, one during the late 1980s and the other some ten years later. They are useless, that’s why they are free. Well, I don’t share this view. First of all, Dennis’ own results, similar to Jesse Livermore’s experiences, are more a reflection on his ability to follow the rules than on the viability of the system.

Secondly, I haven’t seen a comprehensive backtest for the period 1989 – 2015 to be able to judge how much this ‘doesn’t work anymore’ is fact and how much of it is rumor. Even if it has been done and it shows under-performance compared to the 1984 – 1988 period when the experiment took place, the educational value of the turtle system remains intact. Until we get to see the precise trading rules of some other successful millionaire trader, closer to 2015,  the system developed by Richard Dennis and William Eckhardt is the next best thing.

Anatomy of a Trade And a Trading Lesson

After all, the game of speculation isn’t all mathematics or set rules, however rigid the main laws may be. Even in my tape reading something enters that is more than mere arithmetic. There is what I call the behavior of a stock, actions that enable you to judge whether or not it is going to proceed in accordance with the precedents that your observation has noted. If a stock doesn’t act right don’t touch it; because, being unable to tell precisely what is wrong, you cannot tell which way it is going. No diagnosis, no prognosis. No prognosis, no profit.

I was twenty when I made my first ten thousand, and I lost that. But I knew how and why because I traded out of season all the time; because when I couldn’t play according to my system, which was based on study and experience, I went in and gambled. I hoped to win, instead of knowing that I ought to win on form. Jesse Livermore in Reminiscences of a Stock Operator

These two quotes contain very powerful messages that took time and several reads of the book to completely sink into my mind. They were the main inspiration  when I made it one of my trading rules to limit the number of trades taken per day.

One of the best things one can do as a trader is to set loss limits per unit of time (day, week, month) – protecting his capital should be his number one priority. I’ve touched on this subject before. Although I believe that a percentage loss limit is common among advanced traders, I think the situation might be different as to the number of trades limit.

Avoiding trading when the market doesn’t act right according to your system is an important component of trading success. It not only prevents you from spending time and money on suboptimal trades, but it also contributes to your peace of mind as a trader. I’m going to exemplify below the thinking process behind my latest trade:

This is how the USD/CAD charts (4h and 1h) looked like Thursday 13.08.15 at the end of the New York session:





Being in a clear uptrend, at least as far as the h4 time frame was concerned, the pair was at the time consolidating in what looked like a bull flag (continuation chart pattern). With a clean break of a resistance (red line) on h1 which offered technical levels for trade entry (blue arrow) and setting stop loss (under red line) and with the Oil prices falling to six year lows, I considered this to be an attractive long position.

Early during the London session on Friday, the price action looked constructive, presenting a pyramiding level (blue arrow) which permitted entering a larger trade size, having raised the initial stop loss to the level where I entered the previous trade.


USDCAD pyramid

Then, instead of continuing the bullish run, the pair soon turned, and remained choppy for the rest of the day:


USDCAD choppy price action

After the trade hit the SL and seeing that the price was not acting the way I expected it to act when I opened the trade, I stopped paying attention to the market. Although looking at the charts in retrospect, it might seem that it was the only logical thing to do, in real time trading it’s easy to get carried away. Without rules when to step away from your trading desk, even if you play small, over-trading and death of a thousand cuts are just around the corner. But if you have rules in place and follow them, I think everyone will realize that there are better and more profitable things to do than to chase an unfriendly market.

Trading as a War Zone

You know how some propagandists (from the passive, buy the index camp) like to portray active trading or investing as a war zone. There you are with your laptop or four screen PC  pitted against the brightest PhDs and quants that the money of  hedgefunds and banks can hire. It’s like a caveman with a club going against a modern tank. You have no chance, you’ll just get crushed.

I’ve always maintained this line of reasoning to be baloney. There is indeed a fight, but it’s all internal, between your emotions, mainly fear and greed. It’s no PhD’s  working for Goldman Sachs fault that you averaged down on that EUR/USD trade until you got margin called.

However, recently I developed a new perspective on this whole trading – military parallel. Reading this review helped me crystallize my thoughts on the subject. In one way, soldiers and traders are quite similar. One risks being killed or maimed, the other one risks the same, financially speaking.  You see, a soldier who’s been on the battle front returns home at the very least with psychological scars , if he was lucky enough to escape physically unscathed. That’s true as well for any trader worthy of the name.

What would you think of a guy who’s played some first person shooter games and watched Rambo 4 calling himself a soldier ? And selling courses and mentoring about how life is on the battlefield ? Well, I don’t know if someone that sick really exists, but there are plenty of wicked characters doing this type of thing in respect to trading.

I cringe whenever I see these flashy designed websites with copy along the lines of ‘let’s learn trading in an exciting and fun way’. Bullshit ! If you want excitement and fun go to an amusement park. Trading is a serious business. After some nine years in the trading trenches, I can easily tell apart the fakers from those who are the real deal. Look at how these salesmen act  in their YouTube videos and then compare them to  Paul Tudor Jones, a real trader. Or read Marty Schwartz’s book, Pit Bull, a personal account of a famous day trader.

The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the man of inferior emotional balance, nor for the get-rich-quick adventurer. They will die poor. – Jesse Livermore

How Much Money Do You Need To Start Forex Trading ?

This is the kind of question that gets asked a lot by beginners. After they become a little bit more familiar with forex trading, they’ll start asking ‘how much money do you need to trade for a living ?’. :) Well, that’s a subject for another article.

If you look at brokers’ offers, you’ll notice that many have no minimum amount for opening a live account (Oanda, CMC Markets, FXDD and so on) while others have very low limits ($100). It would appear that we already have the answer for the question in the title, but it would be a very superficial one.

The fact is that the right amount of money for your first trading account depends very much on who you are. All other things being equal, one thousand dollars means one thing for the guy with a $2,000 monthly wage and quite a different thing to another guy making $7,000 a month.

The two most important differences between a demo and a live account are these:

  1.   you can’t buy anything with demo dollars.
  2.  a live account doesn’t have a reset button.

They are the sources of pain and exaltation that make live trading such a dissimilar experience to demo. I want to concentrate on the pain, and I’ll start with a quote:

Anyway, I think it’s no coincidence that our greatest champions, our greatest artists, our greatest leaders, our greatest everything all seem to have experienced some kind of gut-wrenching loss. I think their greatness, in part, was fashioned on the crucible of that defeat. To a certain extent, I think that holds true in my field as well, and I am leery of traders who have never lost it all. I think that intense feeling of desperation that accompanies such a horrifically deflating experience indelibly cauterizes great risk management reflexes into a trader’s very being. Paul Tudor Jones in a commentary on Reminiscences of a Stock Operator

Pain has had an important role in our evolution as humans (and the rest of the animal life for that matter). Just imagine being unable to feel pain to cold, heat, being cut or hit and so on. You wouldn’t be able to survive on your own for too long. I believe the same thing is true in trading: if you can’t feel pain when losing money, sooner or later you’ll blow your account.

To be able to develop trading pain sensors, so to speak, you need a live account with enough money in it that when you lose 20-50% or even the whole account, you’re not out on the street, but you do feel some actual pain. Otherwise, it’s real trading in name only. You’re the only one who, after revising your financial affairs, can come up with some figures as to how much would be needed in that respect.

I liken the first live trading account to a child who is taking his first steps. Let’s say he comes close to the burning coals you’re preparing your barbeque on, touches a coal with his finger and gets burned. Through the subsequent pain, he learned a valuable lesson – extreme heat is dangerous. Now imagine he hadn’t felt anything. Next time he would’ve taken an entire coal in his hand or would’ve sat right in the middle of the burning coals. Not a nice thing to imagine, I admit.

In trading, the main goal of your first real money account should be to teach you to feel pain when you let your losses run to -20%, -30% or more. Otherwise, you only set yourself up for bigger financial damage further down the road.

Eight Rules of a Serious Trader

Many people mistakenly think that the behavior of markets is truly predictable. They open up the trading platform, draw a few lines, add some indicators, perhaps also pay attention to news and announcements, and expect the market to duly submit to their price targets. Well, of course, if they last long enough, they’ll come to realize that it’s all nonsense. In reality, the market couldn’t care less that you just bought this break-out with an expected 1:3 risk:reward ratio. There will be periods when you’ll be wrong so often that you’ll be tempted to think of the market as a person who acts just to spite you.

Trading is all about odds, and in order to be successful you must always keep the odds in your favor. To do this, you have to have rules, and stick to them. What you see below is by no means an exhaustive list, just the most important points that I could think of this morning:

  1. Always use stop losses. You should always know the point at which the market proves you’re wrong before opening the trade.
  2. Trade with a plan. Even if you’re on demo, you have to understand why you do things the way you do.
  3. Be patient and don’t over-trade. You can program an EA or flip a coin – heads means a long position, tails a short one – and take ten or more trades a day. But if you do this, only your broker will be happy at the end of the month. The way to make money is to watch the markets you are interested in and wait until as many factors as possible are in your favor before taking a position. Each currency pair, stock index or commodity has its own unique pace and trading characteristics. Don’t trade until you feel familiar with the price action of your market and then wait for opportunities to bank large profits if you are right and small losses if you are wrong.
  4. Cut losses short, let your profits run. This rule has been commonly stated for so long that one would think by now everyone follows it, right ? Wrong ! It’s one of the most violated rules of all, both by beginners and more advanced traders.
  5. Don’t let a profit turn into a loss.  Once you’re profitable on a trade, you should raise your stop to break-even as soon as the price action indicates that it’s possible (usually once you’re up at least 1 risk). One of the most painful personal experiences that imprinted this rule in my mind took place in November 2008 when after being up some 200 pips on an EUR/JPY short I watched in disbelief how in a matter of hours it turned into a -300 pips loss after a speech of Tim Geithner.
  6. Don’t average losers. This is just a corollary of rule 4. Averaging down is just postponing and aggravating the loss you’re unwilling to take right now. Of course, on a few occasions you’ll get away with it. But eventually not even the ‘Queen’s Bank‘ will be able to save your account.
  7. Don’t trade on tips or on a guru’s analysis . Nowadays, we’re inundated with trading tips, fundamental and technical analyses. Free or paid, you’ll find them on a large number of websites or forums. The overwhelming majority (+98%) come from persons who don’t trade at all, dabble a bit in trading or are failed traders. You don’t have to actively look for them like in the old days, on the contrary, it takes effort to insulate yourself from all this noise.
  8. Always analyze your mistakes. Here’s an important distinction: A losing trade isn’t necessarily a mistake, and a mistake isn’t necessarily a losing trade. In other words, you can make a good trade and lose money, or you can make a mistake and still bank a profit. If you can truly and honestly identify the reasons why you made a mistake, then your chances of making it again are much slimmer. Mistakes are usually our best teachers; they reinforce the fact that you should always follow the rules.

There Is No Edge In

I recently stumbled upon Winnersedgetrading, a website run by one Casey Stubbs. This is how I was welcomed:

First Pop-up

Who would not click on ‘Yes’ ? :)

Second pop-up

Second pop-up

At this point I got intrigued – I mean, there’s a discrepancy between the seriousness implied by the domain name and what those pop-ups practically shout at you (scam site, leave ASAP).

Even though the website has been around since 2009 and now it claims to be ‘one of the premier educational resources for Forex traders’, make no mistake, it’s a sure way to waste your time and money.

Beside the free (read: worse than worthless) blog and tutorials center, Casey Stubbs helped by two other clowns (one of whom appears to be underage) offers a couple of paid products. The first one is an $100/month trade copier which targets returns of 4%-8% per month. Sounds like an inferior version of the strategy they send you for free if you give them your email. :) There is no verified performance, but rest assured, there’s a video where they show how they made $32,325 in just four days. :)

If you prefer to trade yourself, they offer an indicator that just today (I can’t believe my luck :) ) is discounted 90%, in other words is yours for $27 a month. To quote them, ‘Forex trading has never been easier’.



To conclude: this is beyond joke. How have they managed to stay in business for six years is what really amazes me. But then again, human nature never changes.

At first, when I listened to the accounts of old-time deals and devices I used to think that people were more gullible in the 1860’s and ’70’s than in the 1900’s. But I was sure to read in the newspapers that very day or the next something about the latest Ponzi or the bust-up of some bucketing broker and about the millions of sucker money gone to join the silent majority of vanished savings. – Reminiscences of a Stock Operator

Six Trading Questions Answered

Here’s another batch of Q&A I hope you’ll find useful:


1. What’s the difference between a discretionary trader (as I consider myself) and a pure trend follower ?

Simply put, and as the name implies, as a discretionary trader I’m not rigidly following the rules of a trading model which can either be built from scratch or bought from someone else. An example of a rigid entry criteria: the classic Donchian rule of always going long when the price reaches a four week high or going short when it reaches a four week low. Because trend followers have strict and quantifiable criteria for entering or exiting trades, they usually incorporate them into a fully automated system, being thus able to analyze and trade a large number of financial instruments. For example, Salem Abraham’s portfolio contains 59 markets.

2. As far as I understood you always set “stop loss” when trading, but do you always set “take profit” when you enter a trade?

I rarely set a ‘take profit’ because I don’t believe you can predict where the market is going. I prefer to let the price action guide me.

3. You mentioned that you trade on 15 minutes and 1 hour time frame. Do you take into account daily (or weekly) chart when entering a trade?

I usually look at weekly charts during weekends and at daily ones at the end of the trading day (when New York closes).

4. Do you follow the rule “never trade against the trend”? 

It depends on how you look at it. For instance, when you  ‘buy the dip’ in a pair that’s in an uptrend on the daily time frame, you’re actually trading against the trend on shorter time frames (like 1h or 4h). So just to answer your question, no, I don’t follow that rule.

5. You mentioned that you never put more than 0.5% at risk. In this case what is the realistic profit per month? 5% per month sounds realistic? Some people are trying to convince me that it is possible to make a profit of 1% a day but I simply could not believe it.

I would say that 5% per month (not every month from now into perpetuity though) is realistic, with the proviso that it’s on the upper limit of the ‘realistic interval’. Normally, when you increase the risk per trade, you not only increase the profit potential, but also the depth of a drawdown. Quick example: after five consecutive losses at 0.5% per trade you’ll be down close to 2.5% but nearly 10% at 2% risk per trade.

Just saying that 1% a day is possible is wrong on at least a couple of levels. Firstly, 1% every day ? For how many consecutive days ? Until you’re richer than Warren Buffett ? :) Secondly, what about the risks involved ? How much is it possible to lose while striving to gain 1% daily ? In my experience, those who espouse the 1% daily profits nonsense are either clueless beginners or shady vendors of trading services.

6. When you want to check trading strategy, how many trades you take in your statistics (10, 100 or more?).

As a general rule of thumb, the more trades you consider, the better and more statistically sound your analysis will be. Don’t forget that not just the number of trades is important, but also that they are spread over a period of time long enough to cover different market environments (high/low volatility, trending/range).

You Call Yourself A Professional Trader ?

You know you’re a lyin’ lowlife, motherfuckin’ gamblin’ degenerate prick? You know that’s what you are? – Nicky Santoro in Casino (1995)

Trading seems to me to be the only career where anyone can claim to be a professional without being challenged. Just think for a second. It’s actually against the law in most countries to go around calling yourself a doctor, teacher or a lawyer without having the required credentials. Not so in trading; we’ll just take one’s word for it.

Also unlike other occupations, it seems to me that anyone who dabbles for a while with anything even remotely associated with trading and finance can call himself a professional trader. It doesn’t matter that you’ve worked in sales or as a journalist, in order to attract gullible people to whatever you’re selling, you can call yourself a professional trader. Who’s going to say that it ain’t so ? To realize how messed up this whole situation is, imagine how it would be if the receptionist in a doctor’s office would take it upon herself to treat patients.

I think the leading cause of financial disablement is the belief that you can rely on the experts to help you. Typically, however, these so-called “experts” are not traders. Your average broker couldn’t be a trader in a million years. More money is lost listening to brokers than any other way. Trading requires an intense personal involvement. – Michael Marcus in Market Wizards

You wouldn’t put your health in the hands of a guy just because he says he’s a professional. You wouldn’t let a team of people build or redecorate your house just based on a handful of unverified testimonials. You wouldn’t learn how to fly a plane from a self declared expert with a nicely designed website. Then why treat trading any different ?

ForexLive Just Started Selling Trading Courses

Yeah, I just found out after watching some 30 minutes of an hour or so long *free* webinar called  ‘See the market through the eyes of a successful trader‘. I guess what attracted my attention was, beside the catchy title, the fact that they went out of their way to accommodate people on various timezones by giving the presentation twice, at different hours. I was sure there was something for sale, if we also take into consideration accompanying  statements like ‘space is limited’ or ‘is filling very fast’, which is standard sales lingo. It could be pointed out that the ‘scarcity’ problem can easily be solved by uploading the recording on YouTube and creating a dedicated page for answering any questions from listeners.

It turns out that my educated guess was correct. The *free* webinar was just a sales pitch for the $1197 ACT course which is named after Greg Michalowski’s book Attacking Currency Trends, launched in 2011. Please notice there’s that ‘scarcity’ sales tactic again: only 25 students per course. If that’s really so, I have no idea. There was no way of telling how many attendees were at tonight’s webinar, and I suppose they’ll use the same software.

Michalowski boasts that ACT is one of the highest ranked forex books on Amazon (47 five stars out of 53 reviews), but on a closer look, just half of those 47 (24 to be precise) are from people that have reviewed at least one other product. This casts serious doubt on the authenticity of the remaining 23. Even if we give him the benefit of the doubt, in the words of Shania Twain, that don’t impress me much. Traders are judged based on risk adjusted performance, not Amazon reviews.

As to the content of the *free* webinar, it was mostly common sense advice, ie treat trading like a business. What I didn’t like were some chart examples, where the highs and lows on GBP/USD were marked   on 1hr time frame and presented, with the benefit of hindsight, as good entry or exit points. A quote from Reminiscences of a Stock Operator sprang into my mind:

Disregarding the big swing and trying to jump in and out was fatal to me. Nobody can catch all the fluctuations. – Jesse Livermore

That’s perfectly true and every trader who’s been around the block long enough knows it from his experience. And here lies the beef I have with this project of ForexLive: if it really was that easy to catch all or most moves on 1hr time-frame with an 100 MA, Fibo levels and trend lines, Greg and the rest of the team would be compounding wealth at such a fast pace that they’d soon leave George Soros in the dust. The book on which this course is based was published 4 years ago. Why aren’t we shown any trading track-record from this period ?

I guess what bugged me hard enough to write this piece is what I perceive to be a sleight of hand on their part. ForexLive has built its traffic on up to the minute news, succinct analyses and market gossip. Now they use the reputation and exposure gained  in that area over the years to charge people $1197 for a trading course, without showing any proof that the methods taught have worked in real life. Well, in my book, that just ain’t right.

Later edit: seems like these guys can’t take any criticism at all. They removed my comments from the webinar thread. Anyone can judge for him/herself if there’s anything that can be deemed insulting in there.

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