Archives for August 2019

To trade commodities successfully traders ought to start by learning the basics of commodity trading. Trading commodities is really commodities futures trading. Producers and processors of commodities buy and sell futures contracts for delivery on a specific date during any of the next months or years. Producers and processors are typically hedging their investment risk and helping to provide a stable market for the commodity in question. Speculators can trade the same commodity futures contracts by buying and selling futures or they can buy options and sell options on futures contracts. Commodity and futures training is a good place to start learning the basics of commodity trading. For those interested options trading in commodities markets, Options Training with Stephen Bigalow will provide basic knowledge as well as the deeper insight gained from experience trading options in commodity futures.

Commodity futures as an asset class differ from stocks or long term bonds. A standard futures contract for corn futures, oil futures, or gold futures is a claim or a promise relating to a standardized quantity of a tangible asset. The claim for delivery or promise to deliver is on the contract expiration date. As a matter of fact, traders seldom hold a contract through to expiration but rather execute the opposite trade on the same commodity and expiration date in order to exit the trade. Because a futures contract has an expiration date it is not a claim upon the assets of a corporation. Supply and demand often cause pronounced commodity price shifts. Agricultural commodities are especially prone to large fluctuations in price as variation in weather conditions and amounts of crops planted or cattle culled from herds affect supply. The basics of commodity trading are that a trader in commodities is not concerned with competence of management, a margin of safety, or diversifying a stock portfolio into various market sectors. He or she is concerned with drought in Argentina or Russia, the opening of markets in Asia, or, in the case of gold, the seemingly continual devaluation of the US dollar.

The basics of commodity trading are that some commodities can be stored, like gold, oil, and corn. Some commodities, such as milk, have a short shelf life. Knowing the basics of commodity trading for a given set of commodities is essential for trading them. Traders should know that the decisions of large producers and buyers of commodities typically drive the markets in various commodities. Therefore, not all fluctuation in commodity prices is based upon the fundamentals of production and demand. It is also based on anticipation of market factors by large buyers and sellers. Thus, successful commodities trading requires the ability to anticipate the actions of other traders, the commodities market. Using technical analysis tools such as Candlestick chart patterns helps the trader see where the market is going. This is because trading patterns in commodity prices tend to repeat themselves. Knowing the basic Candlestick analysis patterns helps the smart trader with useful knowledge to successfully trade and profit from trading commodities.

Market Direction

What is the most important indicator when analyzing candlesticks signals? There are numerous confirming indicators that improve the effectiveness of candlestick signals. Stochastics play an important role for adding credence to the candlestick signals. Major moving averages demonstrate good support or resistance potentials. The T-line demonstrates whether a trend is going to continue or possibly reverse. However, the most important aspect when using candlestick analysis is the signals themselves.

This was clearly demonstrated today in both the Dow and the NASDAQ. Yesterday both indexes closed just at the T-line. However, each had formed an indecisive Spinning Top formation. Both the Dow and the NASDAQ had stochastics showing oversold conditions. This would have suggested there was going to be more upside movement. The accuracy of trend analysis is greatly enhanced by knowing what each individual signal represents. Also, there are a few basic rules that can be applied to each signal.

DOW

Although the stochastics were in the oversold condition, starting to curl up, knowing what should occur after specific signals made today’s trading relatively simple. The trend/price is going to move in the direction of how prices open after a Doji/spinning top. When the premarket futures were slightly soggy and the markets immediately started selling off, this produced immediate information. The Bulls were not yet able to take the market up through the T-line. How was this information useful?

A weaker open after a Spinning Top, right at the T-line, would have made any buying of long positions today not be executed until prices showed bullish strength. The weak open provided the prospect that the tee line was still acting as resistance. The uptrend had to be confirmed with a candlestick buy signal, which both indexes demonstrated a few days ago, and a close above the T-line. The weaker open today should have delayed any long position buying and instigated closing any long positions that were showing weakness or also not able to break through the T-line.

This is not sophisticated trend analysis. The visual aspects of candlestick signals and the simple rules that are associated with them provide a common sense trading format. There are many if/then trading rules that illustrate what reoccurring investor sentiment is doing. Those thought processes are very consistent.
The effectiveness of reoccurring patterns provides huge profit potential in all trading entities. As illustrated in the October Live Cattle chart, the uptrend contained a number of pullbacks. Each time the price pulled back, it could be observed  the formations each day showed indecisive selling. This is a common indication the uptrend is just resting.

Dec Live Cattle

Obviously, knowing when  high probability buy setups occur, profits for the account can build up extremely fast. Having the ability to accurately analyze which direction the daily price chart will move allows for very profitable intraday trading. Knowing the daily bias is up, a trader can take advantage of the profit-taking during the day and buy back when the intraday buy signals occur. Once again, this is not sophisticated analysis. This is merely understanding the common sense information built into candlestick signals.

Chat session tonight at 8 PM ET — Everybody is welcome. Tonight we will discuss how to fine tune your trend analysis capabilities.

Good Investing,
The Candlestick Forum Team

Gap Analysis – Big profits with candlestick signals

The correct gap analysis for price movements can produce extremely large profits. One of the major advantages of candlestick signals is that it allows in investor to interpret the investor sentiment after a gap up in price. Being able to recognize strong buy patterns through gap analysis produces a very powerful trading format. Gap analysis includes gaps up in price after a major candlestick signal as well as evaluating a breakout candle. Being able to utilize the information conveyed from the candlestick formations allows an investor to exploit entry positions with maximum benefits.  Candlestick charts reveal these opportunities.

Candlestick signals provide two major functions for extracting profits from trading markets. The most common use is having the ability to identify trend reversals. Reversals can be witnessed in index trends, sector trends, and individual stock prices. They can also be used for analyzing other markets or trading entities that can affect the trading markets an investor is directly participating in.

Another highly profitable function of candlestick signals is using gap analysis for strong trend reversal situations or breakout situations. The analysis of a gap is very simple. It is a graphic illustration of the investors wanting to get in or out of a trading entity with such enthusiasm that it gaps the price away from the previous trading range of the prior time frame/day. In the case of a gap up from a candlestick signal at the bottom of a trend, the buying enthusiasm is apparent. This is the exact type of trend in which an investor wants to participate. A price in an oversold condition, demonstrating a candlestick reversal, followed by massive buying. Does a candlestick buy signal in an oversold condition, followed by a bullish candle illustrate a high probability reversal situation? Certainly! But what would be better? Witnessing a candlestick buy signal in an oversold condition followed by extremely strong buying, a gap up in price. Extremely large profits can be made in a portfolio when successfully utilizing gap analysis.

Breakouts

Breakouts illustrate a very strong change of investor sentiment towards a trading entity/stock. A specific announcement or a world event can create a dramatic change for a company’s future. Unless an investor has the time or the immediate accessibility to a very large research staff, most investors will shy away from a price move that may be up 20%, 50%, 100%, or greater. However, utilizing candlestick signals, an investor can successfully evaluate whether to, and when to, get into a stock position after the price has broken out. The information incorporated into candlestick signals makes the analysis of when to get in to a large price move very easy.

Breakouts for specific stocks are usually induced by an announcement directly related to the company’s future. The announcement usually pertains to things such as breakthroughs in technology or huge contract situations that should affect the cash flow of the company for a long time to come. The study of breakouts can be put into very simple steps. How does the announcement affect the future of the company? What did the candle formation on the day of the announcement indicate as far as investor sentiment? Will the results of the announcement be a short-term or long-term benefit to the company? All these questions can be very easily answered. The first function of the candlestick signals is to illustrate what investor sentiment conveyed at the end of that first day.

What is the strongest candlestick signal? The Kicker signal! It demonstrates a severe change an investor sentiment. A good rule of thumb is that if an investor sees a Kicker signal, he/she should go long or short depending on whether it is a Bullish Kicker or a Bearish Kicker.

And that is exactly what we saw happen today in the NASDAQ index. The Bearish Kicker signal, especially with the stochastics in the overbought area, indicates that we want to be out of our long positions, either sitting in cash or shorting the market.

KICKER SIGNAL
( Keri Ashi )

Description

The Kicker signal is the most powerful signal of all. It works equally well in both directions. Its relevance is magnified when occurring in the overbought or oversold area. It is formed by two candles. The first candle opens and moves in the direction of the current trend. The second candle opens at the same open of the previous day, a gap open, and heads in the opposite direction of the previous day’s candle. The bodies of the candles are opposite colors. This formation is indicative of a dramatic change in investor sentiment. The candlesticks visually depict the magnitude of the change.

Criteria

1. The first day’s open and the second day’s open are the same. The price movement is in opposite directions from the opening price.
2. The trend has no relevance in a Kicker situation.
3. The signal is usually formed by surprise news before or after market hours.
4. The price never retraces into the previous day’s trading range.

Signal Enhancements

1. The longer the candles, the more dramatic the price reversal.
2. Opening from yesterday’s close to yesterday’s open already is a gap. However, gapping away from the previous day’s open further enhances the reversal.

Pattern Psychology

The Kicker signal demonstrates a dramatic change in the investor sentiment. Something has occurred to violently change the direction of the price. Usually a surprise news item is the cause of this type of move. The signal illustrates such a change in the current direction that the new direction will persist with strength for a good while.

There is one caveat to this signal. If the next day prices gap back the other way, liquidate the trade immediately. This does not happen very often, but when it does, get out immediately.

Even the beginner can engage in successful commodities trading. Traders can make money in successful commodities trading by choosing commodities that they have an interest in and knowledge of. Commodities traders can use technical analysis tools such as Candlestick chart analysis to track and predict price changes in a given commodity. Successful commodities trading comes down to combining technical analysis with fundamental analysis. A good place to gain a firm knowledge of the fundamentals of commodities trading is with Commodity and Futures Training. Once traders have learned the fundamentals of trading commodities they will choose a commodity to trade such as oil futures or gold futures. Those with an agricultural background or interest may consider live cattle commodity trading or corn futures. Discipline, a trading strategy, and attention to detail will convert knowledge and commodity price patterns into profits for the hard working trader.

The list of commodities to trade is long. Corn, mini-corn, corn swaps, corn calendar spread options, distiller’s dried grain futures, wheat, mini-wheat, wheat swaps, wheat calendar spread, soybean, min—soybean, soybean swaps and so forth is how the Nymex list of commodities products starts. Metals traded include industrial metals such as copper futures and precious metals with some industrial use such as gold and platinum. Energy products include crude oil futures as well as natural gas futures, coal futures, and energy credits. For successful commodities trading it is important to have a strong working knowledge of ones own traded commodities. It is always important to remember that the biggest traders in the commodities markets include the producers, processors, and commercial and industrial buyers of commodities. These companies are hedging their investment risk in buying and selling commodities. Having only a passing knowledge of a commodity that you are trading puts you at a distinct disadvantage compared to someone with a background in the industry in question and decades of trading experience.

Despite the fact that traders are working in markets where the biggest players are experts it is absolutely possible to be successful in commodities trading. Part of why traders are successful is that they learn each commodity that they trade very well. They learn the Candlestick pattern formations in current trading and in the past. They follow the appropriate information sources to stay current on fundamentals. And, they get to choose which commodities to trade. A wheat trader working for a multinational grain company may work to hedge his company’s investment risk in grains but will likely not be trading gold futures, silver futures, platinum, or palladium. The wise trade will be knowledge across several commodities and will be able to trade where the action is or avoid markets that are so volatile as to be dangerous. Successful commodities trading can often come from trading the right commodities at the right time as much as from technical skill.

Anyone successful in commodities trading is always a student of the art of trading and a student of the commodities that he or she trades. A successful trader maintains a keen interest in just how a successful trade came about and how an unsuccessful trade happened. Experience leads to success and failure. Reviewing Candlestick chart formations, becoming a student of Commodity market history, and always working to improve a commodity trading system by review of produces results. Learning from experience leads to successful commodities trading.

A major advantage of Candlestick formations is that they can identify dramatic changes in investor sentiment. One of the highest profit potentials for making money on big stock market trades is being able to analyze the investor sentiment upon a stock “breakout” situation. Utilizing the candlestick patterns to interpret the results of a breakout situation provides a huge advantage to the Candlestick investor.

A breakout is almost self-explanatory. It is the dramatic movement of a stock market trade moving out of its normal trading area. It also has the element of a significant percentage increase in its normal daily trading range. This is usually accompanied by a massive increase in volume. A breakout is usually the result of an unexpected event or surprise result of a company’s operations. This can be affected by both internal as well as external factors. A prime example was Invision Technologies, the company that manufactures the luggage scanning machines at airports. 9/11 brought this company to the forefront. The huge move, an extremely large white candle in that stock price, far above its trading range for the prior six months, immediately revealed a definite change of investor sentiment towards this company. Breakouts, revealed using Candlestick analysis, immediately identify the stock market trades that have huge percentage gains potential.

Other breakouts are usually caused by new fundamental potentials within a company’s product potential. Whatever causes the new investor sentiment in a stock, the resulting candle or candles provide the information needed that would indicate the upside strength of a new move in a stock price. Dynamic Materials Corp., BOOM, is a good illustration of a breakout. Note in the November chart, after trading for four years between $3 and $4 dollars a share, a news item created a new investor perspective on this company. The fact that the white candle, that broke this stock out, closed near the high end of the trading range was an indication that upon this stock doubling in price in one day, investors still felt confident to stay in the stock and not take profits yet.

BOOM

Very rarely is a breakout on strong volume and a huge percentage price move going to immediately fizzle and move back down to the previous normal trading area. However, not all breakouts immediately go up. But an inordinately large percentage do eventually move to much higher ground after the initial breakout. For those investors that have been following the stock picks over the past few years, AVII is one of our long-term holds. That “hold” recommendation was based on the promising future potential of this company’s products. But when will that potential become evident?

Seven trading days ago, an announcement about receiving patents created a breakout in AVII. A stock that trades approximately 100,000 to 300,000 shares per day moved up over 100% on over 40 million shares traded. This was a dramatic change of ownership in the stock. The Bearish Harami the following day indicated that there would be some pullback action. Friday’s chart, as can be seen below, formed a Bullish Engulfing signal right at the base of the bullish candle that formed the breakout. The last six days of trading have seen an average of 5 million shares traded each day. The Bullish Engulfing signal reveals that the profit-taking selling may have stopped.

AVII

The breakout tells us something. There is now a new dynamic in this stock. As with most breakouts, the stock trend has an extremely high probability of moving higher, the first target testing the breakout candle high at approximately $4.20. However, over the longer-term, meaning six weeks and greater, the upside potential could be higher. This is not a specific stock recommendation but it provides some educational background on breakout situations. AVII fits into that category.

On Wall Street, the old saying that “no news is good news” does not seem to hold true with struggling stocks. During the first week of November, 2006, the stock market struggled amid subdued trading as traders waited for indicators on the overall health of the US economy. Although oil prices fell and Boeing Co. was a stock market mover with its huge military contract victory, there was very little to talk about as stocks struggled.

Although the stock market news of the Democratic victory in the mid-term elections did spur a sell-off, stocks struggled as experts and analysts attempted to predict the changes in store as the Republicans lost power. This shift in the balance of power touched off concern about industries from health care and pharmaceuticals to energy and defense. Experts opined that while the news of falling oil prices was a positive, the markets seemed to be taking a rest in the absence of an announcement or event that could provide a boast. Finding a successful trade when the stocks are struggling is the mark of truly knowing how to invest in stocks.

With the general end of the “earning season” for most companies, investors are looking for signs in the economy that indicate a general slowdown in the rate of inflation. The possibility of additional interest rate hikes continues to loom over the stock market and dampen the enthusiasm of positive news in the market. In these times, investors spend more time looking for hot stock market picks when, as a whole, stocks are struggling.

In times such as these when stocks struggle, traders require a strong stock trading plan. First, an investor needs a successful stock trading system such as Japanese Candlesticks. This provides the trader the ability to successfully analyze the markets. After understanding the movements in the market, the investor can implement trades expecting to make money. When stocks struggle and the market lacks volatility, the trader can look for companies to buy straddle options or buy strangle options. Such moves provide limited risk but unlimited profit potential. Other strategies include: selling covered calls, and buying or selling puts. Since the market is somewhat bearish during a period such as this, the strategies involved tend to have lower risk reward ratios. Although the market is struggling to find profit, that doesn’t mean that the successful trader must struggle. The key is for the investor to shift his, or her, thinking to a more conservative approach and look for opportunities that while offering lower returns, also offer lower risk.

Stock investing systems offer the trader a valuable way to perform technical analysis on companies and their stock to find trading patterns and be able to identify investment opportunities. In spite of the fact that stocks may be struggling, following a trading plan helps the investor to find the companies that are moving and implement trades. A trader cannot simply develop a plan and follow it. This plan should be living and changing as the market evolves. Struggling stocks should only cause an investor to adapt the trading plan, not to quit making money.