The Forex Chronicles

My Forex Funds Shut Down by US and Canadian Regulators

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The prop industry has been exploding in popularity in recent years as more and more traders attempt to earn a fully funded account and trade with another company’s capital.

However yesterday it was rocked by the news that one of the biggest prop firms in this space, My Forex Funds, had been taken down and were being investigated by both Canadian and US regulators.

This will have been a devastating blow to the thousands of people from across the world who have one or more funded accounts with My Forex Funds, and the many others who have recently paid for challenges.

Website Notice

If you visit the MyForexFunds.com website, this is the notice that you will be presented with:


It has recently been updated because they originally stated that the company were being investigated by a Canadian regulatory body (where the company is based), but they have now disclosed that they are under investigation by a commodities authority (CFTC) in the US as well.

Why are My Forex Funds Being Investigated?

With more and more online prop firms opening up all the time, I think many people have been expecting the prop industry to be scrutinized a lot closer by regulators, and it now appears that this time has come.

Many of these prop firms are not regulated at all in the countries that they operate, and because they are enabling trading on a variety of instruments, both on simulated and live accounts in some cases, they are operating in a very grey area.

Furthermore, the whole business model of these prop firms has always been very dubious. In order to pay as much as 75-90% profit share of each fully funded trader’s profits, they require lots of traders to pay for (and fail) challenges, or go into drawdown and lose their account if they do pass the challenge.

Therefore this starts to resemble a ponzi scheme operation when you look at it closely.

Some companies claim that the fully funded traders do actually trade with real funds on a live account and that they mirror the trades of these traders to hedge themselves, but it is not clear if this is really happening or not.

In the case of My Forex Funds, some of the issues raised by the CFTC are pretty damning:

https://www.cftc.gov/PressRoom/PressReleases/8771-23

You will quickly discover that although My Forex Funds claimed that your success was their success, they were actively working against traders, whether that was through deliberate slippage when a trader was opening or closing a position, delayed fills or closing accounts abruptly.

Indeed if you watch this deep dive video from Rafael Kimmel, he goes through all of the key points raised in the CFTC documentation:


When Will This Investigation be Concluded?

According to My Forex Funds, the first court hearing is 11 September in the US, followed by a Canadian court hearing shortly afterwards.

So we should know more after this date, but it is possible that this investigation could take a lot longer, and anyone hoping for a quick resolution may well be disappointed.

Will Any Traders Receive Refunds?

It is far too early to know if anyone who has purchased a challenge or an instant funded account, or if anyone due a payout will receive any kind of refund when this investigation is finally settled.

It is a possibility, but even if you are entitled to a refund, it is often a long drawn out process and it could take months or even years to receive any money back.

Final Thoughts

It is worth emphasizing once again that this is an ongoing investigation and we should know a little more after 11 September.

I think the key takeaway from all this is that prop firms cannot be relied on to make a living.

You really need to have a personal trading account with an actual broker if you are generally profitable and want to earn a steady income because prop firms are unregulated, and any prop firm accounts that you currently have could easily disappear overnight.

Just today MyFundedFX have announced that they will no longer be accepting any new customers from Canada, so the knock-on effect of this investigation into My Forex Funds has already begun, and is likely to continue to impact this industry moving forward.

IG.com Now Includes TipRanks’ Smart Score for Stocks

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Introduction

IG.com is a very popular site amongst traders and investors because it enables people to go long and short on thousands of different stocks through their spread betting and CFD platform.

It is obviously important to be armed with as much information as possible before entering a position, particularly for medium to longer term trades, and normally you would get this information from other dedicated sites, but the good news is that you can now get a lot of useful data without ever having to leave the site.

That’s because IG have partnered with TipRanks to offer proprietary Smart Score data for thousands of UK and US-listed stocks, as well as listed stocks from the Australia, Canada, Germany, Spain and Singapore exchanges.

A Beginner’s Guide to Smart Score from TipRanks

If you’re not already familiar with TipRanks, they basically compile a vast array of data for every company, both fundamental and technical, and their algorithm then assigns a score between 1 and 10 to each of these stocks based on this information.

8-10 = outperform
4-7 = neutral
1-3 = underperform


As you can see from the image above, the fundamental data includes a consensus of analyst ratings, recent hedge fund activity, insider trading activity, blogger sentiment, crowd wisdom, news sentiment, return on equity (ROE) and the current growth rate.

They also provide a snapshot of the technical trends of a stock, including the moving average trend and the current momentum of a stock.

The image above is NVIDIA’s Smart Score data, and as this has been one of Wall Street’s leading stocks in 2023, it is unsurprising that it currently has a score of 9 out of 10 with strong fundamentals across the board and strong technical momentum behind it.

It is only some possible profit taking from insiders and hedge funds that is preventing it from getting a perfect score of 10 out of 10.

Another Example – Pinduoduo

One stock currently on my watchlist that does have a 10/10 rating is Pinduoduo:


As I know from my own research, this Chinese company has excellent fundamentals, but this Smart Score data quickly tells us that the technical trend and momentum is also strong right now, and that hedge funds have been adding to their positions lately, which is a key driver of share price growth in the long run.

Of course you shouldn’t make trading decisions based on Smart Score alone, but this does seem to give you a really good snapshot of a company at any given time.

Final Thoughts

The point of this article was just to bring this tool to your attention because I know that many people like to use IG, and this Smart Score data should prove to be very useful for anyone who likes to trade stocks on this IG platform.

The only real drawback is that the data isn’t as comprehensive for UK stocks, particularly the small and mid-cap stocks, but for US stocks and large cap UK stocks, TipRanks’ Smart Score provides some invaluable insights.

Nasdaq Analysis 29 July 2023 – No Traction for the Bears

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Introduction

FOMC weeks are always a lot of fun for indices traders because you can pretty much guarantee that there will be a lot of volatility after the interest rate announcement and the subsequent comments from Jerome Powell, and this week was no exception.

Although an interest rate rise of 0.25% was announced on Wednesday, as expected, we still saw some big price swings in the markets on Thursday and Friday, and I think yesterday’s price action in particular will have surprised a lot of traders.

Nasdaq Chart After Thursday

If you look at the price chart of the Nasdasq 100 after Thursday’s close, you will see that the price rallied up to around the 15,800 level early in the trading session before dropping all the back to 15,413 towards the end of the session, creating a very bearish shooting star-type candlestick on the daily chart.

It also closed just below the EMA (10) on the daily chart, which is a slightly bearish signal in itself, and was now trading fairly close to the more significant EMA (20) at around 15,400.

Therefore it was natural to assume that after seeing the price reversing sharply on the day, and with the price now trading close to the shorter term EMA’s that so often signal a change in trend when they are both breached, Friday was likely to be a continuation drive lower and the bullish trend may be coming to an end, in the short term at least.

However the Nasdaq, and the markets in general, had other ideas…

Nasdaq Chart After Friday

As you can see, after Thursday’s reversal, the price started to bounce back pre-market in the London session, and continued to move higher when the markets opened at 2.30 PM (UK time), closing the day and the week around 15,741.

So Friday ended up being a large inside bar, and the price reversed nearly all of the downward movement that we experienced from Thursday’s high, which just demonstrates how strong the markets are right now, and why it is foolish for bears to countertrend these markets at the moment.

When to Short the Nasdaq 100

I obviously cannot provide trading or financial advice on this blog, but if I personally was looking to short this particular index, I would be waiting for the price to close below the 20-day moving average.

Even then I wouldn’t be rushing in to enter a short straight away. I would prefer to wait for a breakout and then a retest, followed by a continuation move lower.

Final Thoughts

Overall, though, I still think the markets are still too strong to consider countertrending them, particularly after seeing Friday’s very bullish price action.

Although I think we are due a small correction at some point, we are getting towards the peak of the interest rate cycle, company earnings are coming in stronger than expected and if predictions of a minor recession (or no recession at all) are true, it is hard to see too many downward catalysts that are going to drive the markets significantly lower from here, other than a big escalation in war activities outside of the US.

Trading Analysis 3-7 July 2023 – Cutting Out Stupid Trades

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A Profitable Week

I will start off by saying that I had a fairly profitable week overall in terms of day trading.

It was a shortened trading week because of the 4th July holiday and the half day on Monday, but there were still plenty of volatile price swings in the rest of the week to make up for this.

Here are the trades that I took:

  • US Oil (Monday): +32 points
  • Gold (Tuesday): +0.75 points
  • Nasdaq (Wednesday): -17.2 points
  • Nasdaq (Wednesday): -12 points
  • US Oil (Thursday): +29.5 points
  • US Oil (Friday): -17 points
  • US Oil (Friday): +17.9 points
  • US Oil (Friday): +28 points

As you can see, it was not a bad week, but the two trades that really frustrated me were the two Nasdaq trades because these could easily have been avoided.

Breaking My Rules

I’ve been trading for over 20 years now and so you would think that I would be ultra disciplined by now, but the reality is that I still place impulsive trades from time to time that are not part of my overall strategy.

These two Nasdaq trades were placed in the last two hours of trading, and I think the main reason that I took them was because I hadn’t found a decent set-up that was worth trading in the previous 11 hours from 8 AM to 7 PM UK time.

Normally I would just switch off my computer and come back the next day when this happens, but on this occasion I took two trades on the Nasdaq because I had convinced myself that it was highly likely to drop back down to the day’s lows, which it ultimately didn’t.

I think the quiet holiday period may also have been a factor because the previous day on 4 July, I only entered one trade on gold during the London session that came back and stopped me out close to break-even. So I was keen to get back into the markets and start making some money again, which is always potentially dangerous.

Trade Analysis

You can see my executions in the chart below (the red arrows show where I took my short positions and the blue arrows indicate where I was stopped out):

I don’t necessarily think there was anything wrong with the trades themselves. There were logical reasons why I entered where I did and my thesis could easily have played out on another day.

The problem was that although my potential profit would have been much more than my stop loss, in hindsight these were 50/50 trades and I generally like to enter trades where the odds of success are much more in my favour.

In addition, I shouldn’t really have been entering these trades at all because they were not based on my normal trading strategy and based on previous trades during the last few hours of trading, I know I don’t generally trade well during these hours. My win ratio is definitely no more than around 40-50% during this time.

Key Takeaways

The reason why I wanted to write this blog post was to encourage anyone else reading this to stick to their rules and not deviate from their trading strategy with stupid impulsive trades like this.

It will also help me to become more disciplined next time by writing down my thoughts and documenting them on this site.

Although I only traded these with smaller position sizes and I did at least use tight stop losses, it would have been a more profitable week if I hadn’t even considered taking them in the first place, and so this is a key lesson that I need to learn going forward.

Stick to your rules and your proven trading strategy, and don’t place impulsive trades when you haven’t found any set-ups in your usual trading windows and are looking to get back into the markets.

Opening Range Breakout on US Crude Oil – 14 June 2023

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Introduction

Opening range breakouts can be some of the easiest and most profitable trades to execute when you get some good set-ups, and today we had a textbook set-up on the US crude oil market.

I like to wake up and start scanning my charts around 7 AM UK time, and as we got closer to 8 AM, it was apparent that US crude had been trading in a very tight sideways range since around 6.15 and was poised to break out of this range, either upwards or downwards, once the London market opened.

With the price hovering just above the 10 and 20-period EMAs on the 5-minute chart, and bearing in mind that we were sitting right on yesterday’s high, I wanted to see a downwards break, and that’s exactly what happened:

Trade Execution

With this type of set-up, it is best to either enter a trade on the 1-minute chart or enter a position based on pure price action.

That’s because if you wait for the 5-minute breakout candle to close, you will often find that a large part of the move will have taken place already, and subsequently you will be entering too late.

I myself did the latter and entered a short position straight after the London market opened when I saw the price starting to tick down fast, getting in at 6973.7, ie $69.737.

I placed my stop loss at the high of the previous 5-minute candle at 6982.3, 8.6 points away, and I was initially planning to exit half the position at VWAP, approximately 18 points away and indicated by the thick black line on the chart, and then let the other half run in case the price blasted straight through it.

As you can see, the VWAP ended up acting as support as it so often does, and after closing half the position at VWAP, the price came right back up and nearly took me out at break-even.

However thankfully the price came back down and I eventually decided to close the other half out at VWAP once again when I had the chance because it wasn’t acting right.

So the total profit from this trade was around 18 points, representing a reward to risk of over 2 to 1, which I am always more than happy with.

After all, if you can find risk-reward trades of 1-2 (trades that return 2 points of profit for 1 point of risk), if they only work out 40% of the time, for example, you will still earn some decent profits in the long run.

Closing Comments

The main point I wanted to get across is that the opening few hours of the London trading session can be very profitable if you like to trade opening range breakouts.

The key is to find markets that have traded in a very narrow range leading up to the open because in the case of US crude, for example, we know from my last post that it trades in a range of around 236 points on average at the moment.

Therefore when it traded in a 30-point box from 6.15 to 8.00 AM UK time, something had to give. It was inevitable that we would see a breakout. All I had to do was be patient and jump on board when it eventually happened.

Of course there will be false breakouts from time to time, but when this occurs, the secondary breakout will often be the one that cancels out the initial loss and brings in the big money.

So always try to look out for sideways consolidations in otherwise volatile markets because the price is very unlikely to stay in this tight range for very long.