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Yoda Quote #8 “Excitement…Jedi Crave Not These Things”

This is a continuation of the Trading Words of Wisdom By Yoda, for Quote #9 click here.

8. “Adventure. Excitement. A Jedi craves not these things.” The Empire Strikes Back

star-wars-character-yoda-handout-651712929Some might say that the word Investor replaces the word Jedi quite well in this sentence; for some reason, the glamorous life of investing just doesn’t pull to some people. However, being a boring investor can equal some exciting returns when it’s time to retire.

Consider the life of a Jedi: flying through space, fighting bounty hunters, saving a planet. It sounds like the life of adventure dreamed of by little boys, so why would Yoda say that a Jedi ‘craves not these things?’ It is because a Jedi’s role is to serve and protect, not seek the adrenaline rush of fighting for your life. It also takes many years of dedicated training to be master the force. Given the choice between fighting enemy droids or establishing peace in the galaxy, my bet is that Yoda would choose peace.

It’s a common question, ‘What would you do with a million dollars?’ The exciting answers are skydiving, buying a mansion, or an African safari. Yet, most millionaires follow ‘boring’ investment strategies. We want a balanced portfolio that will maximize our returns–without a lot of active participation and stress. Our role is to grow and protect our portfolio, not to enjoy the temporary power rush of a shopping spree. Just like training to be a Jedi (ok, maybe not just like), it takes years of discipline and repetition (boring) to achieve the status of successful investor (cha-ching!). As we’re completing our ‘training’ it’s important not to be sidetracked by ‘hot’ or ‘exotic’ trades–stick to your trading strategy that you’ve developed, trust, and know.

Happy Trading, and May The Force Be With You!

For Quote #7 click here.

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Positions, Risk, and Buffets

You don’t want to have too many active positions open; it’s like eating too much food at your favorite buffet. Buffets can be good. Buffets can be very good. However, you almost always–or at least I do–walk (if you still can) away from a buffet in pain–sometimes in a great deal of pain. I like the illusion that I have control over myself around food, but that disappears as soon as I see a soft serve ice cream machine paired with caramel and hot fudge pumps. There’s this mode that I enter when I’m in a buffet. I become this mindless food eating machine that inhales plate after plate of mediocre greasy food just because I can. Forget the fact that I’ve been working on not eating carbs for the past three weeks, I’m have four or five rolls with honey butter.

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Did you know that Apiary limits the number of open or pending trades you can have? This isn’t an all-you-can-position buffet, and for good reason! Apiary limits the number of open trades or pending orders in an account for risk management purposes. Mainly because during extreme market conditions, slippage is of serious concern; a lack of liquidity on either the buy or sell side means orders may not be filled before slipping far beyond any stops. By limiting the number of pending or open positions, Apiary can better manage risk across the entire portfolio. Mitigating risk is beneficial for us as a company, and for you as a client.

In addition to Apiary’s risk management model, limiting the number of open positions is a good practice at the personal level. One argument for multiple positions is the benefit of diversification.  However, after about 8-12 open positions, the benefit can become incrementally smaller and can actually turn negative.  For example, a trader actively managing 100 open positions is far less effective than a person managing 10. In fact, this is one of the ideas that helped found Apiary! It’s far better to have a group of ten traders individually managing ten positions than to have one person managing 100. In the end, the same number of active positions are being managed, but with far less risk.

Happy Trading!

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Trading During Scheduled News Events

Last week, The U.S. Department of Labor presented the monthly update on nonfarm payrolls. This would be an example of a scheduled news event. This may come as a surprise to some of you, but did you know that Apiary usually discourages trading during scheduled news events? It’s not necessarily bad to trade during these events, but here is a couple of reasons behind our thinking:

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  1.     Spreads widen:  The cost of trading in the form of spreads increase during scheduled news events due to the expectation of volatility and risk; liquidity providers will widen the spread to mitigate risk.
  2.     Slippage increases:  It takes time for a quote to be sent from the liquidity provider, received by Alveo, and then have a trade sent back to the liquidity provider. The chances of slippage increase even more with the volatility of a news event.
  3.     Frequent whipsaws:  The initial reaction to a news announcement is not always right–we’ve all been warned about the consequences of first impressions– and markets can change direction many times before the full meaning of the news is digested.
  4.     Lack of liquidity:  Sometimes trades may not trigger due to a lack of liquidity during scheduled news events.
  5.     Hardware issues:  The volatility, along with the pace of data, during news events can put extra strain on your hardware–leading to a slowdown in performance or even malfunctions during a news event.

If you choose to trade during scheduled news events, it’s important for you to recognize the challenges associated with this type of trading and be willing to adjust for the probability of increased risk. Keep these points in mind, and as always…
Happy Trading!

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An Early Exit Strategy

It’s February, and that means it’s about the time you’re wishing winter would finally end! We just got a fresh new heap of snow on our lawn, and walking outside I couldn’t resist one teensy tiny snowball at my sister. Big mistake. You should not start a snowball fight, one that you intended to win at least, without first either

  1. building a snow fort
  2. planning an escape strategy

-or-

    3. making sure the most direct path indoors is clear*

It’s snowball prep 101 to have an exit strategy, especially if you’re going to be outnumbered. Even Buddy the Elf, with his north pole experience and skill, only engaged in a snowball fight without adequate protection after being ambushed by a set of amateurs.**

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With that being said, you wouldn’t enter any situation without a good exit strategy (can you sense where I’m going here?). Coerced into lunch with your mom’s book club? Set your dentist appointment for a half hour later. Blind date later tonight? Your best friend is scheduled to call at 9:00. We may make light of these situations, but when you find yourself in them you’ll have wished you made a plan.

On a more serious note, the consequences of not having an exit strategy can be more severe when you’re trading. It always pays off to take the time to know your exit strategy; Benjamin Franklin knew his stuff when he said, “an ounce of prevention is worth a pound of cure.” Set up your exit strategy early, and then enjoy the snowball fight…or, er…trade 😉

Happy Trading!

*I feel like I have the responsibility to mention that this is the coward’s path, and is not recommended if you wish you escape, albeit with a few battle scars, with dignity.

**Honestly, why would you throw a snowball at somebody who is clearly skilled in all aspects of winter.

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Shifting Spreads and Such

Shifting spreads keeping you guessing?

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Just as a chameleon will change to match a variety of backgrounds, in the currency market spread will invariably change to match market events. Here at the Apiary Fund, the ECN style market structure shows constantly changing spreads throughout the day. Spreads are either set naturally (by pending orders in the market) or, if the market is not liquid, set by the liquidity provider.

Since spreads will widen or shrink often, it is common to see them fluctuate during the open or close of trading sessions. This makes sense because the open and close of each trading session are usually the most volatile. Spreads will also adjust for

-Uncertainty in the direction of prices

-News events

-Volatility shifts

-Changes in liquidity

Liquidity providers use spread to help manage risk by either encouraging or discouraging the trading of the liquidity provider’s currency inventory. For example, if a liquidity provider wants to move inventory, they might narrow the spread to encourage trading; similarly, if they want to retain inventory, they might increase the spread to discourage trading in that currency. The magnitude of the spread indicates the degree to which a liquidity provider wants to encourage or discourage trading. Obviously, during uncertain times of high volatility and news events, it’s common to see spreads widen–sometimes significantly!

While spreads will always vary, by knowing why they’re changing you’re showing that you understand what’s moving the market. If you can understand spread changes, you’re one step closer to really knowing how to trade. You will be acting instead of reacting. Now see if you can predict where the next shift will be!

Happy Trading!

Shawn Lucas

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Trading and Misquotes

While viewing a chart, you are actually looking at two different prices: a historical price and a current price.

When you first open a chart, Alveo doesn’t have a history of current prices so it must backfill the chart with data from our “Historic Data” server; this is called historical data.

Once a chart is open, Alveo starts receiving “Current Price” data from our “Quote Server.” Apiary Fund has multiple liquidity providers who send their current price quote to our Quote Server which collects and organizes the different quotes, finds the best price, and broadcasts it to your computer.

The challenge with current price data is that occasionally we get an incorrect quote from one of our liquidity providers – called a misquote.  Since Alveo doesn’t know whether a quote is correct or not, it will “print” that quote on the chart.

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As you can imagine, misquotes are problematic for many reasons.  First, misquotes are not a true reflection of price and any analysis using a misquote will be inaccurate.  Second, the misquote may trigger pending orders. If the price limit of the pending order is between the current quote and the misquote, then it will trigger the pending order and give you a fill that is outside the current price.

No data or quote providers guarantee perfect data.  However, Alveo takes extra steps to make sure it has an impeccable record of clean data.  We have sophisticated systems in place to catch misquotes sent to us by our liquidity partners.  These systems catch the vast majority of misquotes, but again, no data is perfect and occasionally a misquote will slip past our watchful eyes – about one in about 100,000 misquotes to be precise.

Most of these misquotes are so close to the current price that you’ll never notice, but occasionally a misquote may pop up that is more apparent. If you suspect there is a misquote on your chart, you can find out by refreshing your data.  This will cause Alveo to pull historical price data.  If the spike on your chart goes away, then you’ll know it was a misquote.  If the spike on your chart remains, then you’ll know it was a good quote.

Happy Trading!

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What An Old Fisherman Taught Me About The Markets

One of the greatest investors of all time had to be Noah…  They say Noah was able to float his stock while the rest of the world was in liquidation.  Impressive, eh!  While he may have been a good investor, he couldn’t have been much of a fisherman.  Why?  He only had two worms.

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If you’ve spent much time with a rod and reel, you might be quick to recognize the many lessons the sport teaches us about money in the market

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Here’s a short story about what an old fisherman – not Noah — taught me about the markets!

Link to Short Story:

http://issuu.com/apiaryfund/docs/apiary-fund-old-fisherman

Enjoy, and Happy Trading!

-Shawn

 

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Warning: This Post May Cause…

Disneyland Prop 65 WarningCAUTION

We all know everything in California is known to cause cancer, right? How could you miss it when there are warning signs posted on your grocery bags, in your hotel room, a restaurant, and even as you enter the Disneyland Resort. If simply entering the state is known to ‘cause cancer and birth defects,’ then why do 38.8 million people live there?

And we all know trading forex is dangerous. The warning that a bunch of power hungry wall street suits are scrambling around just to steal your money. You might as well be gambling, right? Then why are millions of trading transactions taking place every day?

Trading Forex is about as dangerous as going to California for vacation. Sure,  California has the potential to be harmful…if you go around licking signposts, eating wrappers, and sunbathing without sunscreen. Trading Forex might not be as relaxing as a nice trip to California, but it’s not a dangerous slot machine either. As long as you follow some common trading sense rules, you’ll avoid the substantial losses that instill hefty doses of fear in each of us.

Take time to learn how to trade safely, and you don’t need to fear the market. The Apiary Fund teaches and funds traders in the currency market, so you’re covered as you start the learning curve that comes with a new skill. Learn more at apiaryfund.com

Happy Trading!

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Delusions Every Trader Faces

Usually when we think of delusions we imagine mental disorders: someone struggling with schizophrenia or hypochondria. We may even imagine somebody we know–somebody who is high-strung with anxiety and convinced the world is out to get them. There are some pretty bizarre delusions out there:

  • Ever feel like you’re life is a movie? For people suffering from the Truman Show Delusion, they’re literally convinced that their life is a reality show they can’t escape from. This article on Buzzfeed reports that a man actually sued HBO for putting him on a secret reality show.
  • As if living your life in a reality tv show wasn’t bad enough, imagine your life was a video game! Want to score points to win? Steal cars, avoid police, and receive your instructions through your gaming headphones. Even if you’re arrested, it’s just another level to the game. (Source)
  • Do you know someone who lives their life in denial–to the point that they don’t even think they exist? A rare condition known as ‘Walking Corpse Syndrome’ is a delusion where the individual is convinced that they’re already dead or don’t exist. Some even claim to be able to smell their own rotting flesh.

I think most of us suffer from multiple delusions (hopefully not that serious, though). A delusion is a belief or impression that is firmly maintained despite being contradicted by what is generally accepted as reality or rational. I’d like to think that I’m connected with reality and don’t belong in an asylum (my family might tell you differently, especially when I’m even remotely lacking sleep), but as I’ve grown older I’ve been able to look back and recognize the delusions I used to live by. Most traders experience delusions as well.

Traders, both new and old, often experience delusions in the currency market. Some common ones we might face:

  • “If I just keep trading, I can make a little more money.” That’s a scary delusion. You can be following the charts all day making trades, but it’s not about how many it’s about how well. The quality of your trades is much more important than the quantity.
  • “I can make some quick, easy cash in Forex.” The economy is not a magic box where you put a little money in and get a lot of money out. Trading requires discipline and strategy–not luck.
  • “It’s going to come back soon…”  This delusion can bring you down. Fast. When you hit your stop loss, it’s time to get out. Trying to hang on to a losing trade is like trying to hang onto a hangnail–it’s a lot less painful to just cut it off.

We’re all at least a little guilty of these delusions, but a diagnostic is the first step to a cure. Review some of your past trades, and identify any delusions that affected the outcome. Then, find a way to overcome them; you can share it with a friend or mentor, keep a reminder next to your computer, or even watch a cheesy motivational trading video. Whatever you need to do, don’t let yourself be the reason you don’t succeed.
Happy Trading!

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Why The Little Guys Can Still Win In The Currency Market

Bigger is better, right? Well, traditionally, yes. However, sometimes a new way or an original idea is just downright better than conventional methods. Take, for example, a fight between the big guy and the little guy. What advantages does each one have, and who will win?

Big Guy Little Guy
Muscle Mass Not muscle bound
Powerful hits Fast, successive strikes
More damage per connection Better angle for body striking
Better long range Better short range

 

Take a look at this epic fight from Sherlock Holmes 2:

Even though he’s up against a larger opponent, Sherlock effectively uses his speed and strategy to make quick work of that guy! I wouldn’t want to be on the wrong side of team Sherlock. Ever.

Now parallel this to The Apiary Fund. We’re definitely a smaller company made up of the little guys. Most of our traders don’t have years of schooling and finance degrees under our belts; however, we aren’t hung up in corporations, worried about whether or not the new kid in the next cubicle is out trading us, or whether or not we’ll still have our jobs at the end of the month. We don’t have to move massive amount of money bulk: our smaller individual portfolio’s can quickly jump into the perfect set up for a quick jab at the market. You’re free from corporate stress while still enjoying the benefits of having a company back you up! You guys bring us the ‘Little Guy’ advantages, and together we create the ‘Big Guy’ perks (for example, everyone coming together and shorting the euro at the Manhattan Beach Summit).

Also, please note Sherlock’s line, “This mustn’t register on an emotional level,” and then how he mapped out his strategy and followed throuh. Remind you of something you’ve been told a hundred times?? 😉

Happy Trading!

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