About Tom

Tom Lund is the Content Manager at Apiary Fund where he began his career in 2012. He creates and edits the educational material that Apiary Fund uses to train new foreign exchange traders. Lund researches and writes the investing news and tips for the Apiary Fund blog and website. He graduated from Brigham Young University-Idaho with a bachelor’s degree in English.

Author Archive | Tom

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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Risk Management in the Infield

If you’ve ever watched baseball, then you’ve probably seen some spectacular double plays. But you’ll also notice there are times when the fielders don’t try to get both outs. This is a real-world example of risk management.

There are certain circumstances that make turning a double play too risky for the fielder, and they know they can’t afford to mess up! Two runners on base are exponentially more dangerous than one. So, what do they do? They throw straight to first base to get the sure out! Just as the fielders sometimes have to bite the bullet to ensure they get the out, we as traders have to get used to taking hits before we find good market positions.

While it would be nice to believe you’re going to generate profits on every trade, the reality is that you won’t. Sometimes you lose trades and runners advance, but if you remember the fundamentals of risk management, you’ll be a profitable trader. Small losses (a single runner) are much easier to overcome than large ones (two runners). Your efforts should be focused on minimizing the damage inflicted by the losing trades that will inevitably come.

Just remember this simple formula: Big Winners + Small Losers = Profitable Trading

 

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