Trading System – Finding The Trends
It is safe to say that everyone who is trading commodities wants to make money. In spite of that incredibly obvious observation, there is a kernel of truth to be found. While everyone wants to make money with their investment strategies, there are investors who do not prepare for success. Trading plans, technical analysis and trading systems are all valuable parts of the equation yet many people don’t take the time to implement them, hindering their own success.
The Whole Picture
The recipe for a successful investment philosophy is only as good as the sum of its parts. If your trading plan is solid but you don’t do technical analysis, you going to have problems. If you perform your technical and fundamental analysis but you don’t have a trading system, you will struggle to succeed. If you don’t have the best trading system available, you are likely to leave profits on the table during your futures and options trading. No matter which part you consider, if you don’t emphasize them all, you are going to be weak in a very important facet of your trading.
Trading Plan
This is where it all begins. While you may rely on your trading system to help you ultimately find the targets for you acquisitions, your trading plan is what will get you to the place where you are ready to search. Will you invest in the stock market or commodities trading? What plans will you put in for stop loss strategies? What about your investment philosophy? A well constructed trading plan will help you with these questions and many more, especially when trades are happening quickly and you are tempted to react with your emotions. Just as a trading system is the voice of common sense for your target acquisitions, your trading plan is your voice of reason for your business decisions.
Technical Analysis
After you know what you are going to do and have your plans on how to do it, you can get down to the business of learning. Technical analysis is really about education. If you understand the commodities that you are trading and the factors that affect their prices, you have a distinct advantage in picking profitable trades. You don’t know about pork bellies? Don’t trade them. You have researched oil futures and understand the dynamics of their price movements? Seriously consider investing there. This is important because if you understand a commodity, you are likely to understand the things that make its price move, whether it is the weather, demand or the latest news report on the 6 o’clock news.
Trading System
Once you have a trading plan and you have started performing fundamental and technical analysis, you need to put a trading system into place. The trading system represents your approach to following price movements of your target commodities. Trading systems can be simple like bar charting or more sophisticated like Japanese Candlesticks. Bar charts will give you information like the open and close of a particular stock. With a bar chart you can get a general idea of how a commodity has been trending but nothing about where it is going in the future.
Japanese Candlestick charts offer you much more. This trading system offers opening prices, closing prices, highs, lows and whether the stock was up or down overall for the day. In addition, this trading system offers powerful analysis tools based on several hundred years of use.
Conclusion
Each part of a successful trader’s approach to his or her investments is crucial. The trading plan, the technical analysis and the trading system all contribute to the investor’s ability to create profitable investments.
Market Direction: Is investor sentiment very difficult to understand? Not really! What makes investors buy? Usually it is a function of someone, whether a manager of trading funds or an individual investor, who has put their mental evaluation into the analysis of a trading entity. That analysis is based upon the information they have accumulated for making that decision. That function also incorporates the activity of the price movement. Candlestick signals and formations are the accumulative result of all those investment decisions between the buyers and the sellers. The one crucial element that is inherently built into each buy and sell decision is somebody's mental input. The majority of the time, the price movement will alter an investors reasoning after they have established the trade.
An often asked question in the Candlestick Forum's training sessions is "Where do people sell?" Most investors panic sell at the bottom. What ever the rationale was for buying a position is thrown out the window when prices move severely against them. Investors dramatically reduce their rational thinking for buying when prices start moving dramatically after long sustained uptrends. The candlestick signals demonstrate when the same reoccurring investment thought processes come into play. Those practices are usually based upon emotional factors. Candlestick signals are not interpretations of what the fundamentals are doing. Candlestick signals are the graphic depiction of investor perception of those fundamentals.
The summertime is usually when the markets slow down in their activity. That becomes a good time to concentrate on learning the different elements that influence price movements. The most compelling feature for indicating a trend reversal is the candlestick reversal signal. Applying knowledge of the other indicators to the analysis improves the probabilities of being in the right trend at the right time and whether to continue to remain in a trend. The Candlestick Forum provides extensive training information for many technical indicators that improve the probabilities of the candlestick signals. What is the best order to learn these indicators? That has been greatly simplified by a comprehensive training process built around the Houston Candlestick Training seminar. The learning process put forth in the candlestick training seminar provides an easy format for investors to learn and utilize the signals correctly. Can learning a new investment technique be overwhelming? Definitely, but if you put the learning process in a simple step-by-step program, the commonsense rationale will fall into place. Investment techniques, such as effective entry strategies, stop loss procedures, and when to take profits can be done much easier without the emotional baggage. Click here for the Candlestick Forum Seminar Training CD package special.
The point of investing is to put the probabilities in your favor. The December cotton chart clearly illustrates the techniques that can be utilized for taking advantage of analyzing correct price trend procedures. A Bullish Harami, followed by a gap up, reveals a strong reversal. Utilizing the moving averages correctly provides the trading format for maintaining a long position.
Dec Cotton
Were there potential sell points during the uptrend? Yes, but using the information provided by the other technical indicators, the moving averages, the candlestick analyst can easily decipher what might be profit taking during an uptrend versus a full scale reversal. If you understand the commonsense built into candlestick analysis, you will maintain a very strong grasp on how to trade successfully.
Those simple techniques can be applied to analyze a market trend in general. The Dow is creating a very simple trading pattern. Over the past six trading days, after the bullish signal off the 50 day moving average, the current uptrend has brought prices back up to the top of the trading channel. A break out from this level will produce the next leg of the uptrend. A failure at this level will indicate the continuation of the sideways congestion. Continue to hold long positions until evidence of a break out or a failure is confirmed.
Dow
There will not be a public stock chat on Thursday July 5, 2007. Please join us next Thursday, July 12th for our next public stock chat at 8PM ET.
Good investing,
The Candlestick Forum Team
The decision to manage your own investments is a serious matter. The professionals never stop advancing their education. As a matter of fact - Earlier this year Steve was asked by the Marketing Technicians Association to provide the written course on Japanese Candlesticks for the Certified Market Technician exam review. This is a high honor considering the CMT is the only designation for Technical Analysts that qualifies as a Series 86 exemption and is recognized by the NYSE and NASD.
