In order to understand what the stock exchange is, it is important to first understand what an exchange is. An exchange is an institution that hosts a market where stocks and bonds, options and futures, and commodities are traded. It is where buyers and sellers can come together during specified hours to trade on business days. Rules are enforced by the exchange for you to learn depending on which exchange you choose to use when you begin investing in the stock market. A few exchanges include the American Stock Exchange, the London Stock Exchange, the NASDAQ, and the New York Stock Exchange (NYSE). These are among the most popular exchanges. There are also rules that are enforced by them and include regulations on the brokers and firms that work with them.

The origination of the Stock Exchange can be dated back to the 17th century. It is said that a group of stock brokers started to set up grounds on their own at the corner of Thread Needle Street and Sweetings Alley so that they could begin to buy and sell securities. By the 19th century the two primary functions of the exchange included buying stock, selling stocks and shares and also raising money for new ventures.

A stock exchange also provides facilities for the issue and redemption of securities and also provides for the payment of income and stock dividends. In order to be able to trade a security on an exchange, a company must be listed. Companies that are not listed on an exchange are sold Over the Counter (OTC). These companies are typically smaller and riskier because they do not meet the requirements to be listed on a stock exchange. This is actually the usual way that bonds are traded.  In dealing with Over the Counter trading brokers and dealers have to negotiate directly among themselves via the internet or via the phone. (There are no traders waiting to buy or sell unlisted securities). The National Association of Securities Dealers (NASD) monitors the transactions to ensure there is no illegal activity or stock price manipulation. The securities that are traded on an exchange include shares issued by listed companies, bonds, unit trusts, and other investment products. The original offering to investors of stocks and bonds is completed in the primary market, while the trading is completed in the secondary market. The stock exchange is the most important component of the stock market and is determined by supply and demand. Supply and demand is influenced by many factors that in turn affect the stock prices.

Of the stock exchanges, the NYSE is the largest and the oldest in the world. It is because of this and the fact that it is the exchange in which most major U.S. Blue Chip companies trade in, that it tends to control policy in playing the stock market. Blue chip stocks are issues of companies who are well established in their industry and who also have a reputation of producing earnings and paying stock dividends over a long period of time. Small cap stocks (as opposed to blue chip stocks) are issues of companies that are not as established, but have the potential for enormous growth for those successful companies. Following the NYSE in terms of ranking is the Tokyo Stock Exchange, with the NASDAQ following in third place and the London Stock Exchange ranked fourth in terms of market capitalization.

As can be seen in the Dow chart, the past week of trading has provided indications that the Bulls may have stopped the downtrend. However, the indications of bullish confirmation immediately fizzle. When markets become a choppy, there are often many false starts. Note the extremely large Bullish Engulfing signal in the oversold condition last week. That Bullish Engulfing signal occurred after an Inverted Hammer signal. This was the time to start establishing long positions. But two days later, the Dow closed more than half way down the Bullish Engulfing signal candle. This is a very simple evaluation based upon the Japanese Rice traders' experience. If a signal indicates the Bulls are now in control, and the bears can knock the price back down more than half way into that candle, it simply reveals the bears are still in control. The following day formed a Bullish Harami, which should tell us the selling has probably stopped. Monday's trading was another hard sell off.

DOW

The purpose of technical analysis is to take advantage of signals or indicators that have produced expected results a high percentage of the time. Candlestick signals are the purest form of technical analysis. Unfortunately, the most pure of any market analysis is not a 100% guarantee. Although prices move with a high probability expectation after witnessing candlestick signals or patterns, there is still a probability that a price trend is not moving as expected. This is the purpose of knowing when reversal signals are confirmed. Markets trend up. Markets trend down. Markets move sideways. A sideways moving market can be otherwise described as a choppy market. When it can be analyzed that a possible choppy market might be in progress, that becomes the proper time to be nimble. Positions should be established in chart patterns or signals that show it is time to buy or short. But if the market conditions demonstrate a lack of bullish or bearish commitment, be prepared to close those positions immediately. The point of learning candlestick analysis is to put the probabilities of being in the right place at the right time dramatically in your favor. Learning the 12 major signals provides the format for identifying when a reversal is likely to occur. Part of that learning process is understanding what confirms the reversal signals. The lack of confirmation for buy signals in oversold conditions can obviously produce a choppy market environment. Common sense dictates when you cannot clearly identify which way prices are moving, the sole function of using technical analysis, then stay in cash. There will be times when you need to be ready to commit available funds when a trend becomes more clear.

Even in choppy markets, candlestick signals provide the benefit of being able to identify which stocks/sectors are moving well. Relative strength does not need to be demonstrated by a formula. Relative strength can be instantly analyzed on a candlestick chart. If it is obvious that prices have been moving to the downside in the markets in general, and a stock/sector has been moving sideways or even positive during that downtrend, the obvious relative strength can be immediately seen. Currently, the solar energy companies have been holding up well in the recent market pullback. That does not necessarily mean the price moves positive every single day. Witnessing an up trending stock in a down trending market should reveal where money is moving to. This does not take a high degree of technical analysis acumen. The candlestick signals make it much easier to identify which stocks are acting strong during a weak market.

JASO

JASO has been moving up reasonably well ever since the profit-taking pullback just touched the 50 day moving average. The following day produced a Bullish Harami, revealing the selling may have stopped. It was clearly evident that the Bulls were stepping back into this stock when the rest of the market was generally selling off. The 12 major candlestick reversal signals provide a clear visualization of where and when funds are moving in or out of a price.