The Forex Chronicles

Archives for January 2024

High Probability Trade on S&P 500 – 26 January 2024

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Introduction

Many traders are sceptical about whether or not you can find high probability set-ups on the lower timeframes because the price can move around so fast, and seemingly at random a lot of the time.

However I believe that it is still possible to find good quality trades on these lower timeframes because I regularly take these trades myself on the 5-minute chart of the major stock market indices, and tend to have a decent hit rate.

Some of the very best traders just use price action alone to find high probability trades, such as Al Brooks, for example, but I like to have a few additional indicators on the chart for guidance.

These include the VWAP indicator, the stochastic indicator and several moving averages, and just yesterday (26 January 2024) they all combined to provide a high probability set-up on the S&P 500, as I will demonstrate in the rest of this article.

The Set-Up

As you can see in the 5-minute chart below, the price of the S&P 500 opened slightly higher when the market opened at 14.30 (UK time) before dropping back towards the VWAP indicator (shown in black), where we saw a lot of sideways price action and indecision around this key indicator.

Crucially, the price failed to close below the VWAP and was also trading close to the 10, 20 and 50-period exponential moving averages, so this was all pointing to a possible breakout.

Trade Execution

I was already going into the trading session with a bias to the long side because the trend was so bullish on the higher timeframes.

So when the price bounced off the VWAP, and closed above these three moving averages with one very strong 5-minute candle, I was ready to enter a long trade if the price broke the high of this candle, which it duly did.

The fact that the price closed above the highs of the previous 6 candles and was showing significant divergence on the stochastic indicator at the bottom of the chart just gave me added confidence that this was going to be a strong breakout.

I ended up entering a long position on this initial breakout at 4894.4 and closed half the position at 4900 because this was a major round number that could have acted as strong resistance, and the other half at 4905 after the price had continued pushing higher without any red candles.

As a result, I banked a total profit of just over 8 points from the two positions combined.

Closing Comments

You can see from the chart above that the price of the S&P 500 subsequently dropped back later in the session, but that was irrelevant.

The point is that at that particular time, the indicators and price action were all pointing to a breakout to the long side, and when I see a confluence of indicators like this and a tightness of price action prior to the breakout, this is a time when I like to take a position.

It is rare to see the price of this particular market trading in a narrow sideways range around key indicators at the start of a session, but when you do, you know that in most cases there will eventually be a breakout and a strong surge in one direction or the other, even if it doesn’t last for the whole day.

So it is always worth keeping an eye out for these high probability set-ups because they do come up on a regular basis, even on the 5-minute chart, which is my preferred shorter term timeframe.

They won’t always be profitable of course, but by using tight stop losses, there should be more winning trades than losing trades, and the profits from these trades should exceed any losses that you may incur.

Oanda Moves Into Prop Trading With Labs Trader Program

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Introduction

There have been hundreds of prop trading firms popping up in recent years, many of which have been completely unregulated.

Subsequently, they have conducted some fairly dubious practices in order to prohibit or ban profitable traders, and prevent them from passing their challenges.

I think we have all read about what happened with My Forex Funds, for example, which used to be one of the leading names in this space.

In addition, many others have also made life difficult for traders with slippage, downtime and delayed executions, for instance.

So it is interesting to see that Oanda, one of the leading forex brokers, and arguably one of the most trusted brokers, are entering this space with their own unique prop trading program – the Labs Trader program.

Why are Oanda Starting a Prop Trading Program?

I think it is fairly obvious why Oanda and other currency brokers are interested in starting their own prop trading program.

The fact is that these prop firms have enjoyed huge success in recent years and have racked up some huge profits because very few people actually pass the challenges.

So it is only natural that they will want a slice of the action, particularly as many traders are now trading through these firms rather than through a traditional broker.

Oanda have a large and active database of traders that they can promote this service to, and also have significant marketing resources to attract new traders.

Plus they should be able to offer tighter spreads, better executions and a generally more professional service than many of the smaller prop firms.

Who Can Join This Oanda Labs Trading Program?

It should be pointed out that this program will not be available to traders from all countries.

According to the official press release, Oanda Labs Trader is only available to residents of countries serviced by Oanda’s Global Markets division, which means that traders from the UK, the US, Australia or Canada, for instance, will not be able to join their prop trading program.

What Challenges / Account Sizes are Available?

As with many similar prop firms, Oanda are offering a variety of different challenges and account sizes, as you can see below:

The smallest account size that you can go for is the $25,000 Titanium account, which will set you back $249, but you can also take the $50,000 Silver challenge for $399 or the $100,000 Gold challenge for $699.

Alternatively, you can pay $1200 to take the Platinum challenge in the hope of obtaining a fully funded $250,000 account, or you can take the Black challenge for $2400 in the hope of obtaining a fully funded $500,000 trading account.

Whichever one you go for, you will need to achieve a 10% profit in phase one followed by a 5% profit in phase two to pass the challenge (without hitting the daily drawdown limit of 5% or the maximum drawdown of 10%).

You will then be able to start earning 75% of any profits on a fully funded account.

Final Thoughts

I think many people were very excited when they heard the news that Oanda were creating their own prop trading program because they are undoubtedly one of the more reputable brokers with operations in numerous countries.

However this will quickly have turned to disappointment when it became clear that this service would not be available to traders in the UK and the US, for example, and several other countries.

Nevertheless, if you do live in one of the countries serviced by Oanda’s Global Markets division, you may want to consider signing up to Oanda’s Lab Trading program because they are offering the chance to obtain a fully funded account up to $500,000.

My eToro Performance in 2023 – Up 33.24%

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November and December Results

Before I discuss my overall performance for the year, I just want to update you with the results from November and December 2023 because these made a strong contribution to the final result.

  • November +9.82%
  • December +5.83%

As you can see, November was a big month for the portfolio with a gain of just under 10%, thanks largely to a big rebound in the US stock market that started at the end of October.

This continued into December with a traditional Santa rally that can be relied upon nearly every year to push share prices up, and this increased the value of the portfolio by a further 5.83%.

Overall Performance for 2023

Another strong month for me was January, right at the start of the year, which saw a gain of 9.51%.

Many of the other months saw more modest gains of 2 or 3%, but I was more than happy with that because the final result for 2023 was a gain of 33.24%.

Biggest Gainers

It is fair to say that Google (up 49% on my last purchase in February) and Amazon were two of the biggest gainers in 2023, along with the SPY ETF, which tracks the S&P 500.

However some of my UK dividend stocks have bounced back strongly and paid healthy dividends, especially IG and Aviva, and Catalyst Pharmaceuticals is currently over 41% in profit at $16.81, having originally bought at $11.90, and I think there is a lot more to come from this particular healthcare stock.

I have also traded in and out of this same stock a few times as well, which has helped to boost my performance stats.

Another strong gainer was Easyjet which gained just under 25% in two months before I decided to bank my profits on this stock last month.

Biggest Losers / Disappointments

Most of my portfolio stocks are now in profit, but I have one Russian stock that I am still unable to sell (Qiwi) and another stock that has been a constant disappointment (Tencent).

The fundamentals of Tencent remain strong, but it keeps experiencing setbacks every time the share price looks like recovering, and the recently announced regulation on Chinese gaming is the latest setback.

This is one stock that I am currently considering selling, and I may well replace it with Alibaba because I think this could be one of the strongest performing stocks in 2024 as it is hugely undervalued, with a very low P/E and a rapidly increasing free cash flow yield.

Recent Purchases

With regards to my most recent investments, I haven’t made too many changes to the portfolio. However after banking profits on Easyjet, I did buy back into two Chinese stocks, JD and Baidu, that were far too undervalued to ignore after they both saw some big sell-offs.

I think these will both do well in 2024, and as I just mentioned, I also really like Alibaba as well because this is arguably even better value right now, so this is probably next on my list when I next bank some profits.

Trading Strategy

With this current high interest rate environment, I have been very selective about the stocks that I have been buying.

For example, I will not even consider buying a stock that has high levels of debt because this is obviously very expensive to finance with interest rates so high compared to recent years.

Equally as important, I will only buy stocks that are generating large amounts of free cash flow that is forecast to grow even more in the next few years.

That’s because these companies are best equipped to deal with any recession if there is one, and have lots of capital to reinvest back into the business, buy back shares to increase the EPS or pay out to shareholders in the form of dividends.

IG Group is a good example of one such stock that satisfies both of these criteria, and this is currently up 12.1% and 22.25% (not including dividends) on the two purchases that I made in 2023.

Finally, as in any economic climate, I always want to see some degree of revenue and earnings growth moving forward to help maintain a steadily rising share price over time, and I use analyst forecasts, trading updates, conference calls, webinars, etc. to help me with this.

I should point out that I do place a few forex trades in this eToro account from time to time, but I mainly use this account to trade a global portfolio of stocks.

Risk Score

My risk score has remained between 3 and 4 in 2023, which indicates that I have a fairly low-risk strategy, so a gain of over 33% is a decent result when you compare it to the overall risk of the trading strategy and the portfolio of stocks held.

Copiers

At the end of 2023, I do not currently have any active copiers as I am not currently part of the Popular Investor program, and therefore do not receive a great deal of exposure.

However I also understand that many prospective copiers will be wary of the losses made in previous years, and I can completely relate to that.

So all I can do is to stick to my current strategy of investing in quality growth stocks that are generating large amounts of free cash flow, and hopefully the performance of this year can be repeated in 2024 and beyond.

Final Thoughts

While I am delighted with my overall performance in 2023, I can not take too much satisfaction because of the disappointment of previous years.

In previous years I was trying out different strategies and undoubtedly bought too many speculative early-stage companies that ultimately resulted in some big losses because I was too stubborn to cut my losers early.

However I have now gone back to the strategy that I use for my retirement accounts which is to only invest in proven quality companies that have little or no debt and are increasing their earnings and their free cash flow every year, and preferably paying a dividend as well.

Follow Me on eToro

If you would like to automatically copy my trades in eToro, my username on this platform is SteadyProfits and you can copy my trades here if you have an account with eToro.

You can also track my performance and see my latest trades from the same page.

Whether you choose to follow me or not, I wish you luck with your trading and investing, and hope that you have a great 2024!