Commodities Trading Online
Introduction to Commodities Trading Online
Commodities trading online is an investment strategy that many investors deem profitable during these trying times with the economy. Some investors find it difficult to invest in the stock market and have turned to commodity investing as an alternative strategy for investing money. The commodities markets are markets in which raw or primary products are exchanged on regulated commodities exchanges, where they are bought and sold in standardized contracts. Like other forms of investing, there is always a buyer and seller, however with this type of trading, the buyer and the seller do not have to own the commodity in order to place a trade.
Commodities trading online take place when traders trade contracts for goods such as oil or corn; however, the traders donít actually have to deliver the goods to the consumer. Instead these traders buy a contract (futures contract) for those commodities that he or she thinks will appreciate in the future and then he or she would sell the contract if the commodity price looks as if it is going to depreciate. The main requirement when trading commodities is that the trader has deposited enough capital through a brokerage firm to make sure that he or she is able to pay for potential losses if the trade is unsuccessful.
Tools that are used by investors who practice commodities trading online include two terms called margin and leverage. Margin trades can be very useful however they can also be very dangerous tools if commodities traders don't know what they are doing. These tools are used by traders to magnify their leverage on a market. The idea behind it is that brokerage firms will have a margin ratio that is the total amount of dollars each investor must contribute for each dollar of leverage obtained. If not used appropriately it can eat into your profit, but if used wisely can make for great investing.
Like with other types of investing, trading commodities online has its advantages and disadvantages. One advantage is that trading online gives you most everything that you will need and fast. You can see real time information, utilize technical analysis programs, and you can utilize charts provided. On the other hand, this freedom allowed by online trading can be dangerous for investors who have less experience. Many investors feel that it is important to first utilize the services of a commodity broker until you have the experience to do it on your own. That way you have a mentor that can assist you through the learning process that you wouldnít otherwise have. This can help to prevent investors from overtrading when commodities trading online, which is unfortunately a mistake that many investors make. Investors sometimes make the mistake of overtrading due to lower commissions, not realizing that these small commissions add up very quickly. Rather than making money on small breaks in the market, inexperienced traders will often hold trades too long resulting in great loss.
Commodities trading online is a great way to invest your hard earned money, but donít be fooled by the lower commission cost and sophisticated online tools. This type of trading requires just as must discipline as trading stocks and you may opt to utilize the services of a broker at first in order to minimize losses while you are still learning. Continue to learn about commodity trading and see if this type of trading is a good fit for you.
Market Direction: What interesting e-mails today!!! The investment gurus are sending out e-mails promoting that they had been saying to remain patient, the bottom was getting close. Continue to hold the long positions, they will come back. That type of advice seems to be indicating knowledge after the horse is out of the barn. Another advertisement on TV is touting the pile of gold in their hand and on the table could be worth $160,000 if gold goes to $2000 an ounce. And if elephants could fly, they would be very big birds. It seems amazing that these types of advertising statements are still even considered by relatively intelligent investors. Wouldn't it be better to have seen this downdraft in the market coming? That way you wouldn't have to be worried about 'continuing' to hold your long positions.
Candlestick analysis has the benefit of being able to project what the next price move should do. This is based upon the signals/patterns producing expected results. Not theoretical results! But actual results that have been witnessed and profited over the past four centuries. As has been seen, the Candlestick Forum's market projections and stock recommendations have been fairly benign over the past three months. That was due to the market conditions that were in existence. There was definite indecision as well as the development of a major candlestick pattern over that timeframe. The Dumpling Top, as described in the past few newsletters, produce the expectation of a major downdraft. That information allowed our members to be relatively heavy in cash and/or positioned in the short funds. The indecisive nature of the markets produced a trading plan that warranted establishing any long positions to be done so with a relatively quick trigger. Very few longs remained open for more than a day or two.
When this phenomenon kept occurring week after week, the market was telling us that it was not moving higher. The identification of the potential Dumpling Top produced the insight not to be in any long positions, especially if the markets started breaking down after the completion of the Dumpling Top. That made it clear that 'long' positions should not be open. Obviously, this is a much more comfortable investment strategy than being advised to hold the long positions because the bottom will eventually come.
As a candlestick investor, what is expected at the bottom? Panic selling, dramatic price moves. Instead of waiting for long positions to eventually turn around, the candlestick investor was sitting in cash looking to buy deep discounted opportunities. Simple analytical indications allowed for identifying when the panic selling at the bottom was occurring. As discussed in our evening chat sessions, one of the major signals that a candlestick buy signal may be in the making is witnessing a gap down in oversold conditions. When the panic selling occurs, prices move in a much exaggerated manner. This is a combination of the weak capitulating and margin calls adding fuel to that fire. The benefit of being prepared for this event, both identifying it and having cash available when it occurs can make huge profits in a very short period of time. What happens when the turnaround occurs? Investor sentiment which caused the panic selling and exaggeratedly oversold prices now starts creating panic buying when the smart money seems that the investor sentiment has finally turned. These types of bounces produce very large profits in a short period of time.
The Dow is forming a very powerful Morning Star signal today. All that was required was a bullish trading day after the long legged Doji on Friday. The Dow closed up 936 points. Needless to say, this is bullish confirmation. The Dumpling Top provided a very clear projection of what the market trend was going to do. The long legged Doji on Friday revealed the first possible change of investor sentiment. Today's Morning Star signal adds more evidence the reversal is occurring. What is the market going to do from here? Probabilities indicate that it should move higher. How much higher? That will be based upon what types of signals continue to form if the next rally gets moving. As candlestick investors, we are at least mentally prepared for what type of patterns can be created from the current market conditions. Initially there should be a test of the T-line. After a strong price move to the downside, will there be a bearish Jay-hook pattern? Or will there be an uptrend with a bullish Jay-hook pattern? That is what we can easily identify knowing what the individual candlestick signals reveal.
The term "huge profits" are often used in many of the "secret trading program" promos. Of course they would not get anybody's attention unless they professed that their system could produce huge profits. Candlestick analysis is more realistic. Learning how to use candlesticks correctly will allow you to make good and consistent profits based upon what the market is providing. As we have experienced over the past three months, making any profits was very difficult. However, it has just been within the last two or three days that the profit potential description from the Candlestick Forum has now included the word "huge!"
Panic selling is usually the precursor to panic buying. The conditions that were seen over the past two weeks pushed on the extremes of investor emotions. Sadly, there are too many stories of people liquidating their retirement funds completely from the market over the past couple days. The panic buying is created by the huge amounts of cash that are accumulated with stock positions being liquidated on the way down. When everybody sees the buying coming back into the markets, they can't get back in fast enough. When you are sitting in cash, you have a much clearer perspective of when it is time to buy.
Knowing what to look for at the bottom, using the common sense logic built into candlestick analysis, allows for making huge profits. There are not many times where the opportunities to make 'huge' gains present themselves. This recent scenario of the markets is one of them. Candlestick signals and pattern analysis makes identifying and executing at the correct times a very feasible probability.
Chat session tonight 8 PM ET for members only.
Good investing,The Candlestick Forum Team