Author Archives: JLTrader

Paul Tudor Jones and Elliott Wave Theory

A few months ago I wrote an article addressing the magical powers attributed by some to Fibonacci analysis. What I had planned to write next about was Elliot Wave Theory, which I consider to be an equally ridiculous and degrading part of technical analysis. But, a couple of things held me back. Firstly, there’s much more haziness here compared to Fibonacci. Secondly, and most important,  Paul Tudor Jones is quoted in Market Wizards (1988) as being a supporter:

Are there any market advisers that you pay attention to ? Bob Prechter is the champion. Prechter is the best because he is the ultimate market opportunist.
What do you mean by opportunist ?
The reason he has been so successful is that the Elliott Wave theory allows one to create incredibly favorable risk/reward opportunities. That is the same reason I attribute a lot of my own success to the Elliott Wave approach.

Whenever I wanted to criticize the Elliot Wave aficionados, I got stopped in my tracks by the quote above. Well, this week I’ve been reading More Money Than God, a book which provides a history of hedge-funds. Paul Tudor Jones is of course mentioned, and new light is shone on a couple of things: the attribution of his trading success to Elliot Wave; the fact that together with his chief economist and statistician, Peter Borish, predicted the 1987 crash by noting an eerie parallelism when they superimposed the charts of the 1980s on the 1920s.

Firstly, as it can be seen in Trader: The Documentary (1987), Borish predicted that the crash would arrive in the spring of 1988. This forecast was no better than the many others made at a time when a lot of Wall Street players were expecting a market break – unsurprisingly  after a five year bull run. Secondly, in an interview in Barron’s in the first half of 1987, Peter Borish admitted to fudging the results of the 1980s-1920s comparison, juggling  with the starting points for the two lines until he got the fit he wanted.

How about the connection between Paul Tudor Jones, Elliott Wave theory and Robert (Bob) Prechter ? It must be said that Prechter was an investment guru in the 1980s, mainly because he had correctly predicted the start of the bull market in 1982 (by using Elliot Wave). After the crash, expecting the stocks to plunge at least 90%, he became a perma-bear and remains one to the present day. It’s clear that the stellar performance Paul Tudor Jones had in 1987 (200%) can’t be attributed to Prechter. Not only he didn’t pinpoint the date of the crash, but Jones said in an interview to Barron’s that he decided to fade Prechter (in other words, fade Elliot Wave), due to Prechter’s becoming such a large market force. A quote from More Money Than God offers what I believe to be the real reason for PTJ’s success:

The truth was that Jones’s trading profits came from agile short-term moves, not from understanding multidecade supercycles whose existence was dubious. Like the traders at Commodities Corporation, Jones was adept at riding market waves; he would get up on his surfboard when a swell seemed to be coming, ready to jump off quickly if the market turned against him. “When you take an initial position, you have no idea if you are right,” he once confessed, undermining the notion that any long-range analysis could explain his success. Rather, as he explained in his more candid moments, his method was “to write a script for the market,” setting out how it might behave; and then to test the hypothesis repeatedly with low-risk bets, hoping to catch the moment when his script became reality.

This sounds very similar to Jesse Livermore’s method of placing ‘exploratory bets’ until the market confirmed its direction and allowed him to add to the original position.

To conclude: although Paul Tudor Jones might have genuinely believed that his success was due to Elliot Wave, as he’s quoted in Market Wizards,  all the evidence points to the contrary. Again, from More Money Than God:

In one example of Jones’s loose grip on the causes of his own success, analysis by Commodities Corporation, which had seeded Jones, determined that he tended to lose money on cotton, the market he believed he knew best. When the Commodities Corporation analysis was presented to Jones, he had difficulty accepting it.

The Battle of Price Action Trading Giants – Chris Capre vs Nial Fuller

I’ve mentioned the universe of price action sellers before on this website. Today I’m going to revisit the subject because something very funny just happened. Someone sent me this article by Chris Capre, one of the high priests of price action sellers, 5 Reasons Why Hedge Funds Aren’t Trading Confirmation Price Action Signals where he frontally attacks the Pope himself, Nial Fuller. Now, that’s what I call real entertainment. :)

First let’s start with some details on who the combatants are:

  1. Nial Fuller is one of the more obnoxious internet marketers out there masquerading as professional traders. I haven’t  written about Nial before because he provokes me a gag reflex and I’m afraid I’m just going to puke all over my laptop. :) But here’s a good review of him and the kind of shenanigans he’s up to: Learn To Trade The Market Review
  2. Chris Capre has been selling price action related stuff for more than five years. I think he came on the scene at just about the same time as Fuller. While not as offensive, Capre has his fair share of skeletons in the closet. For starters, he doesn’t have any track-record. Then he mentions he’s a fund manager at KronoxFX, yet no verifiable performance records of that exist either. Then there’s this strange thing of him boasting to be a philanthropist (donating over 10% of net revenues each year). Why would you even mention that ? And if you do mention it, why not bring some actual proof ? Hey, it takes me 3 minutes to make a page and list ten charities to which I can pretend that I donate. He seems to be into religion, Buddhism. Well, if I remember correctly, in the Bible the showing off is frowned upon. There are more skeletons, but I think these suffice for now.

Don’t be the guy on the right, Chris Capre. God doesn’t like that type.

Ok, with the above being said, let’s analyze the article. It’s a wonderful mix of truth, self promotion, bashing a competitor and unverified, unprofessional claims. The first part, where he tears into Nial Fuller and his fakey pin bars bullshit, is true and the most funny part of the article. Conjecturing about what the hedge-funds and prop trading firms might or might not be doing is unwarranted in my opinion, save for the obvious that they’re not into Fuller’s BS.

Under Reason #3 paragraph we find this gem:

I’ve made over 20% in the last few months using your methods. I’m glad you poked giant holes in his price action strategies. 

Otherwise I’d still be waiting for pin bars and inside bars, missing hundreds of pips.

How’s that for unverified testimonial and kicking a competitor, all in one ? :) . Presenting a return without any mention of the risk taken to achieve it, is worse than worthless. Actually, it’s just bait for prospective customers.

I hope Nial Fuller won’t back into a corner and let this blow over, but charge back at Capre. I’m out to get some popcorn. :)

Later Edit:

I found another gem in the comments section of the above article:

FYI – I’m happy to put my top students numbers against anyone else from the pin bar + inside bar + engulfing bar camp and see who wins that one. I’m confident my top student (who also works a 9-5 job) will trump the top student from any of those other camps.

So we now have not only the battle of the giants, but the battle of their students as well. :) Here’s a tip for you Mr. Capre: if you’re so tough and mighty, why don’t you post your own numbers ? But please don’t insult our intelligence by posting excel tables or photos. Third-party verified performance only.

Related article: The Live Price Action Confidence Trick

A New Development at – Launching the Mentoring Program

It’s now a little over a year since I’ve started this website, which I believe has been beneficial to the general public in two ways:

1. by offering food for thought with my trading related articles inspired not from some sales script or ‘how to gain the most web traffic in six easy steps’ manual but from my personal nine years experience in the trading trenches and from the many books that I’ve read over time.

2. by exposing outright scammers and shady characters of which there are plenty in the trading world and debunking trading myths or various bad advice that I’ve come across when browsing the internet.

To be totally honest, this enterprise has helped me a lot too: through reading or rereading different materials as part of the preparation for writing my articles, I keep the various aspects of trading fresh and better organized in my mind.

There are two things that have been happening that finally made me decide to start the mentoring service. Firstly, the emails that I’ve been receiving asking if I offer some kind of education or trading support on a more personal level. Secondly, I did a google search on the subject, with particular attention to Forex mentoring and I noticed there’s great demand for someone who is genuine. People are just tired of hucksters posing as professional traders and using the same old tricks to con them out of their hard earned money. I also noticed there are many people smart enough to realize that ‘learning’ from some anonymous nick on a forum is not exactly the best way to approach something as important as trading.

So what about the supply ? Concerning forex trading, the only guy that I could find that seems trustworthy is Jarratt Davis. His approach to trading is totally different to mine though, and seems to be closed for new members for some time now. So it’s clear to me that there is a big gap between the demand for trading mentoring and the supply of serious and reliable mentors.

I hope that I’ll be able to meet some of that demand and help reduce the existing gap.

The Wolf in Sheep’s Clothing Giving Trading Advice


Let me give you trading advice

Via Twitter last night I came across TradingStory, a website which ‘aims to bring NEWER traders the most practical & inspiring trading podcasts (interviews & tips) anywhere.’ Browsing around a little bit, just to see what I missed some 8-9 years ago when I was a new trader, I got to this page: How to Shop for a Trading Service, where the BS really hit the fan. Sending new traders to scammers like Joe Ross or Markus Heitkoetter or to shady outfits like Maverick Trading is akin to letting a pack of hungry wolves guard a herd of sheep.

Regarding Joe Ross, he made a fool of himself on this forum thread and there’s also this review of him, basically questioning his supposed +50 years track-record (which no one ever saw) and trading expertise.

As to Markus Heitkoetter and his Rockwell Trading, a simple google search will reveal the huckster that he really is and the kind of shenanigans he’s up to.

Maverick Trading is just an ‘educational’ firm masquerading as a prop firm. I’ve written on this type of charlatans before so I won’t get into the particulars of this firm. One observation that I’d like to make though is this: look at the results tab and notice how they try to take advantage of the confidence and respect that the Reuters logo inspires. You’d think that those claims were verified and/or endorsed by Reuters, when in actuality, that’s just a PR Newswire release coming straight out of the wolf’s mouth.



I’m not giving this Brandon Clay guy, the author of the TradingStory website, any benefit of the doubt when in his own words, he’s been following the financial markets for almost two decades.

Listen, if you didn’t know you were being scammed you’re too fuckin’ dumb to keep this job. If you did know, you were in on it. Either way, you’re out. Get out. – Robert De Niro in Casino

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.