Archive | November, 2012

Establishing your Trading Psychology

Because trading psychology is one of the most important aspects of our industry, we emphasize the need for emotional discipline. Now don’t get us wrong—you don’t have to be a robot to see success in your trading, but you certainly need to be in control of your emotions.

Trading becomes a whole new ball game once you’ve earned a live, funded account. Statistically, there are some significant changes in behavior that manifest themselves when the money is real. Though the initial balance is smaller on a live account, which reduces the impact of a single trade, we still tend to get a little cautious with real money. Too often, newly-funded traders’ equity curves begin to show a downward slope because they suddenly aren’t letting trades run and they’re cutting their winners short—all in the name of capital preservation!

To counteract this, we at the Apiary Fund emphasize that traders should establish a set of rules and stick to them. There isn’t a set of universal trading strategies that work for everyone, but when you find out what works for you, practice with it. Tweak it when you need to. But once you’ve established those rules, don’t ever break them.

The rules won’t always determine which positions you take, but they should help determine how long you hold them. It will be easier to accept losses that way. You will put less pressure on yourself, and you’ll find that your trading will improve!

To read more on this subject, take a look at this blog post.

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A Tip on Trading Systems

With Thanksgiving just a couple days away, we’d like to not only encourage a balance in your diet that will leave you feeling healthy and proud, but we’d also encourage a balance between risk and reward in your trading system!

Here’s an example of risk vs reward: If you go to a casino and bet everything you have on red, then you have a 49% chance of doubling your money and a 51% chance of losing everything. The same applies to trading; you can make a lot of money if you’re risking a lot, but then risk of ruin is very high. You need to find a healthy balance between risk and reward.

Let’s say you define ruin as losing 20% of your account and success as making 20% profit. Having a trading system with past performance results lets you calculate your risk of ruin and your chance of success.

Your risk of ruin should be always less than 5%, and your chance of success should be 5-10 times higher. So, if your risk of ruin is 4%, then your chance of success should be 40% or higher.

This is just a little trading system tip to keep in mind over the holiday! We at the Apiary Fund are sure thankful for all of you that make this community so great! Have a happy Thanksgiving, and if you’re traveling, be safe!

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The Winter 2013 Traders’ Summit

The Winter 2013 Traders’ Summit is fast approaching, so we hope you’re preparing! In case you haven’t heard of Apiary’s Traders’ Summit before, from February 25-27, we’ll be gathering together to discuss trading systems, risk management, trading psychology, as well as taking part in some great live trading sessions!

Our plan is to start on Monday, the 25th at 9:00am and end at 5:00pm. It will be a day full of introductions and non-stop forex trading instruction, with the exception of a break for lunch.

On Tuesday, we’ll be starting much earlier with live trading at 6:00am. It’s early, but we’d like to get a good time for volatility as the European and US markets overlap so that we can demonstrate a lot of live trades. We’ll have some expert traders at the front of the room explaining their methodologies for getting in and out of trades as they happen. After a good 2 hours of live trading demonstration, we’ll continue the day with instruction on developing your personal trading system and managing psychology. Because of the early start, we’ll wrap up at 2:00pm in the afternoon, leaving some time for nearby activities.

Finally, on Wednesday we’ll start again at 6:00am with another 2-hour live trading session with expert traders. After another information-filled day, we’ll exchange closing remarks and try to wrap up around 2:00pm.

If you want to know more, visit our summit website to see photos and read reviews from our Fall 2012 Traders’ Summit. If you haven’t reserved your seat yet, register today!

Did you go to the last Traders’ Summit? Let us know what you thought!

 

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Three Stop Loss Rules for Every Trader

Stop losses are an essential part of any risk management system because they help traders resist trading on emotions. Whenever you open a trade, you should always set a stop loss. If you stick to your plan and don’t move them, you’ll find you won’t ever let your losses run too long. Remember these rules:

1. A stop loss should be considered and decided before a position is entered.
2. A stop loss should be placed immediately at the time of entry.
3. A stop loss amount should not allow more than a 2% loss of your account balance—for day trades and scalp trades, a stop loss should not allow more than 1% loss of account balance.

Remember these rules and implement them! Good luck and happy trading!

 

Did you find this post helpful? Try taking a look at Apiary’s glossary!

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Finding the Right Proprietary Trading Firm

Proprietary trading is not a new concept. In fact, it’s been around for decades, though the structures of today’s proprietary trading firms are as varied as the selection of cereal at your local grocery store.  Generally, proprietary trading firms, or prop shops, are focused on finding professional traders who can manage the firm’s assets.  While the structure provided by a proprietary trading group is great for the professional trader who knows how the industry works, there are some hidden pitfalls for the semi-pro or greenie trader choosing a firm to work with.  In this post from the Apiary Fund, I’d like to go over a few elements common to most prop shops, and show you how the Apiary Fund’s unique model compares.

Capital deposit
It usually takes some capital to get through the doors of most prop trading firms. Afterall, you’re going to be trading the firm’s money, so why shouldn’t they hold a little to cover any potential losses? Sure, they put it into an individual capital account that is kept separate from other traders’, protecting you from their losses. But, if the company finds itself in some financial trouble, your money isn’t safe. Who’s really taking the risk here?

Training and various fees
While most proprietary trading firms require some type of training and education, some shops are simply fronts for education programs and offer little if any opportunity for trading. The training they offer is usually less than stellar, as the information offered in such programs is often generic and easily obtained online. Brett Steenbarger, prolific author in the trading industry, writes in his own blog that “very high education fees may be a sign that this is actually the way that the ‘prop firm’ is making its money…There *is* no prop firm, only the illusion of one to lure newbie traders into educational programs.”

There’s nothing wrong with the idea of a firm charging for a good, quality training program. The problems come when the tuition for these programs comprise the bulk of a firm’s revenue. A prop shop should have some vested interest in its traders. It’s a matter of principle, really.

If you’re going to teach me something, you ought to stand behind what you’ve taught me. Without any risk to the firm, there’s no incentive to provide quality training. The last thing you want as a new trader is to shell out a bunch of cash in exchange for something you could have learned on your own—only to be left high and dry. As I said before, a legitimate firm should have a vested interest in you.

Where does the profit come from?
Education fees walk hand-in-hand with commission rates. A commission is a fee charged by the firm for facilitating the trade. When a firm charges a commission, they usually mandate a high amount of trades from their traders. They push their traders into the markets and demand they make trade after trade. They take their cut off of every transaction, winner or loser, and the trader is fired if he loses. This model shows a lack of vested interest by a firm in its traders, and reeks of a scam. If they see profit only when you see profit, there’s some obvious incentive for them to help you become a successful trader.

The profit-payout model is preferable to commissions. A prop shop shouldn’t make money just for facilitating your trades. If that’s their model, why would they care whether or not you’re a successful trader? And if they don’t care about your success, why would they bother creating a worthwhile training program?

A firm operating under a profit-payout model will make its money on trader profitability. It will teach you how to be successful in the markets and split your profits with you. By sharing profits, the firm is not only showing its faith in its traders, but also validating the education it provides. A shop that’s truly invested in its traders will not capitalize on a trader’s losses. A firm that’s invested in its traders will teach them how to attain success so both parties can reap the spoils together.

Nobody wants to see a firm take an enormous chunk from their paycheck, but traders also have to be wary of firms that offer surprisingly high payouts. This is also a sign that a prop shop doesn’t rely on trader profitability. Charging hefty tuition fees and then taking virtually no profit from successful trades, these firms are unwittingly showing the intrinsic value of the training they offer.

These are some of the most fundamental ways in which the Apiary model differs from that of traditional proprietary trading firms. Having provided a comprehensive education in sound risk management, Apiary is confident in its traders. So confident, in fact, that they are willing to put their own fund at risk to see you succeed.

If you’re interested in learning more about the Apiary Investment Fund, feel free to call us at 1-801-701-1650, email us, or attend our Trader Orientation Webinar.

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Burning at Both Ends part 3: Types of Candlesticks

In our last post, we learned about reading candlesticks to understand market behavior and predict trend momentum. As you become more familiar with with these symbols, you’ll notice that they work together to form distinct patterns that can act as signals of market behavior. In this post, we’re going to go over a three of these patterns and how they should be interpreted.

Boxcars are signals of reversalThese are called boxcars. They are signals of a reversal. The candles leading into the boxcars are relatively small, and the two large ones should have virtually no wicks. The moment following the close of the bearish candle is a great place to go in short. The inverse is true at the end of a downtrend.

 

 

 

Doji candles signal market indecisionThese are doji candles. After you’ve seen a significant expansion in the market, you might run into one of these. These candles signal total market indecision. They represent a price that pushed in either one direction, the other direction, or both, then finished right back where it started.

 

 

 

 

 

Spinning tops denote market indecision

Like the doji, the spinning top denotes general market indecision. It’s not hard to tell why it’s called the
spinning top; its narrow price range combined with short high and low resemble the child’s toy.

 

 

There are many of these patterns, and they all go by many names. Don’t get too caught up in the terminology—the important thing is that you understand what the symbols and patterns are signaling. Clue in to these patterns; they can tell you a lot!

 

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Burning at Both Ends part 2: Reading Candlesticks

Now that we know the fundamental purposes and components of a candlestick, let’s delve a bit deeper and discuss how to read them. Because candlesticks tell us a lot about price action, we as traders use them to gather basic information about market behavior at a glance.

As traders, we’re all looking at the same information. Some of us may have a few extra filters and guides turned on, but we all use the same sources, same graphs, same charts. If it makes sense to us, it’s probably making sense to other people. If we’re considering an action based on what we’re seeing, they are too. And that’s okay! But, if we’re not seeing what everyone else sees, that presents a problem. That’s why it’s important to have a strong understanding of money management and act in accordance with that understanding.

A reversal signal at the end of a runThere are certain candlesticks that signal reversal and continuation. When we notice these in combination with the rest of the overall market’s price direction, we want to pay attention to that. They give us good indications of where the momentum is in the market.

Found at the bottom of a trend, a green candle like the one to the right should tell us that the price moved all the way to the bottom of the wick, but was forced to close much higher. This is a strong reversal signal at the end of a run.

A blue candle showing less momentumThis blue candle has made the same movement down and closed lower than its open. The green candle at the bottom of a downtrend shows us there’s more momentum—if it’s the blue, there’s less momentum—because it closed lower. Because the green closed at the high, we can see it has a higher upward momentum. The blue opened higher, pushed down to the same low, and didn’t carry the momentum upward and closed lower than the open. While both of these candlesticks signal reversal, the green is stronger than the blue.

 

 

 

The inverse of this is true.

A green candle at the end of an uptrendA blue candle at the end of an uptrend

 

At the end of the uptrend, these wicks both signal that the price reached the same high, but was rejected at that level. With the blue, we have the opening price push all the way to the top and close at the bottom. This is a stronger reversal pattern. The green closed higher, so it is a weaker reversal signal of an upward trend.

Pay attention to this when you trade! These candles aren’t enough to trade on all by themselves, but they work well in combination with other things (trend, momentum, etc.).

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Burning at Both Ends part 1: Understanding Candlesticks

Any new pursuit brings with it an entirely new vocabulary, and the world of trading is no different. Candlestick is a word you’re going to run into a lot, so we’d like to give you a simple explanation of this important symbol. Now that you’re a trader, you’ll never see candlesticks the same way again!

What is the Candlestick?
Candlesticks are visual summaries of price movements. In the early 18th century, a Japanese rice merchant named Munehisa Homma began to keep track of the prices of rice sales in his local market. With these records he plotted charts to help him better understand the effect that price movement had on people’s decision to buy or sell rice. The charts in Homma’s records were the seeds that have since sprouted into modern candlestick charts.

Individual candlesticks represent smaller periods of time within the larger time frame of your chart. For example, if you choose to view a one-hour chart, that means each candlestick on your chart will represent one hour—if you choose a fifteen-minute chart, each candlestick will represent fifteen minutes. The chart you use will depend on the type of trading you do. If you prefer to do lots of smaller trades, you’ll want to use a shorter chart like the one-, five-, or fifteen-minute charts. If you like your trades to last all day, you may find a one- or four-hour chart more useful. It’s up to you!

Elements of the Candlestick
Four pieces of information are contained in a single candlestick: the Open, the Close, the High, and the Low.

Parts of a candlestick

The Open is the price at the beginning of the period.
The Close is the price at the end of the period.
The High is the highest point the price reached within the period.
The Low is the lowest point the price reached within the period.

Now you might see why they’re called candlesticks; the high and low lines resemble a wick on a candle. The colors of a candlestick can also quickly relay information about overall price movement. Generally, a green candlestick shows an upward, or bullish, movement. A bullish movement is one in which the close is higher than the open. A red candlestick shows a downward, or bearish, movement—a movement in which the close is lower than the open. The green-red contrast is fairly standard, but you can set these to whichever colors work best for you.

The candlestick has been designed to make it easier for you to see what’s happening on your chart. Now that you understand these important symbols a bit better, you’re that much closer to forecasting price movements and potential market trends! In the next blog post, we’ll discuss reading candlestick charts, noticing trends, and translating that knowledge into successful trading.

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