Archives for September 2019

Technical analysis is identifying indicators that show reoccurring results. Candlestick signals are the ultimate Technical analysis indicators. The signals have been identified over centuries of observations. The utilization of the Candlestick signals, in conjunction with other technical analysis indicators, produces a strong visual format for investors.

The purpose of investing is to maximize profits. The most powerful element of the Candlestick signals is revealing reversals in price trends. Understanding the investor psychology that creates the signals, provides a powerful insight for investors. That insight not only helps the investor to recognize price reversals, it also gives the investor the knowledge of what moves prices in general. This is a very potent investment tool. That knowledge makes technical analysis a highly profitable format for consistent extraction of profits of the markets. Candlestick charts make these profit probabilities much easier to visualize.

The study of Candlestick analysis not only identifies price trend reversals, but some simple technical analysis applications help identify powerful trend reversals. One of the most compelling trade set-ups is the use of a Candlestick reversal signal followed by a gap in price. Gaps, or in Japanese terminology “Windows”, provide very relevant investment information. The Candlestick signals represent a reversal of investor sentiment from the previous trend. A gap following that signal illustrates dramatic strength in the new sentiment.

Good profits can be made knowing where a reversal is occurring. Big profits can be made knowing which reversals have the biggest potential. This is the ultimate usage of Technical analysis. Most Technical analysis methods will “suggest” where a reversal might occur. The Candlestick signals illustrate exactly when and where a trend reversal occurs. Identifying a Doji in an oversold condition followed by a gap-up, or recognizing a Kicker signal forming, allows a Candlestick investor to participate in the early stages of a very strong trend reversal.

Option Trading – Having the ability to recognize the beginning of powerful price moves not only makes for high profit stock trades, it becomes a strong technical analysis format for option trading strategies. Being able to recognize a high probability high profit move in a stock price makes the analysis of an option trade much easier.

A gap-up after a Candlestick signal incorporates three major factors involved in stock option technical analysis. Direction, time, and magnitude are much easier to assimilate into an option trade evaluation when a gap occurs.
The Whirlpool Corp. chart clearly illustrates a beneficial use of Candlestick analysis.

July 18th shows a Kicker signal. A Kicker signal is formed when the price gaps up to where it is opening at or above the previous day’s open. From there, the price continues to move in opposite direction of the previous day’s price direction. The signal indicates a dramatic change of investor sentiment. Not only did that sentiment change, it did so with great force. Understanding the implications of the Kicker signal not only provides for a strong stock trade, it also produces excellent option trades.

Kicker Signal Whirlpool

When the direction of a price is identified, and the potential of a strong move occurring during a certain time period can be projected, a multitude of options strategies can be implemented. In this case, the force-potential of the move produced a specific option strategy due to the amount of time until the next option expiration. Had the expiration time been much shorter, a strategy such as buying the July 75 calls and selling the July 80 calls would have been a much more profitable trade program. (Option trading strategies will be discussed in more detail in the ‘Members Only’ chat session on Monday night, August 1.)

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. The 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.

Profitable stock trading over the long term does not come from luck. It does not come from stock tips. Profitable stock trading is the result of applying the best trading practices to stock trading. Profits come from using the best trading practices day in and day out for weeks, months, and years. Best trading practices include technical analysis of stocks with profitable trading tools like Candlestick analysis as well routine fundamental analysis to identify a stock’s margin of safety and intrinsic stock value. Best trading practices may vary from stock trader to stock trader, depending upon whether the trader is seeking profits in options trading, scalping profits from movements in stock price, or employing other trading strategies. No matter what strategy and tactics traders choose to employ, best trading practices will include the routine review of trading results in order to identify what works and what does not. Profit comes from a sound trading strategy and greater profit comes from a continuously improved trading strategy.

Because stock price patterns repeat themselves the alert trader using technical analysis tools like Candlestick pattern formations can profitably anticipate changes in stock prices. The underlying reasons for why stock price patterns develop vary according to market conditions. Part of a pattern will be due to stock fundamentals and part will be due to market reaction. The technical trader will always be wise to be aware of the fundamentals driving a stock price. However, his best trading practices will typically revolve around trading according to technical analysis of Candlestick patterns. These easy to recognize stock trading signals have been around for centuries, having evolved in commodities trading of rice in ancient Japan. These representations of stock price patterns are excellent predictors of market trends as well as market reversal.

They are equally useful in trading futures, commodities, stocks, options, and Forex.

Although there are best trading practices applicable to direct stock trading, options trading, or futures trading there are also best trading practices principles that apply to changing tactics as market conditions vary. For example, a trader may find profits in scalping in a market that is in an upswing but has a fair amount of stock volatility. However, if the volatility becomes extreme the trader may switch to options trading in order to reduce investment risk while still using Candlestick chart analysis to predict price movement and gain profits. Using strategies such as a long straddle the trader can buy both a call and a put on the same stock with the same options expiration date. In such a way he will profit if the stock goes up or down and will limit his risk to the price of there premiums paid.

A trader’s best trading practices will be those that work the best for him. Taking time to learn about individual stocks or about new stock trading tactics is a basic necessity for successful trading. Learning how to trade individual stocks while still maintaining a broader view of the stock market is one of the best trading practices as it will continually help the trader find the next profitable trading opportunity even as he is executing trades on the current one. Because none of us is perfect we all make mistakes. It is through the review of trading results that traders learn and continually improve trading profits.

Market Direction

Understanding the underlying forces that are involved with the creation of candlestick reversal signals becomes an extremely important factor for analyzing a market trend. The signals demonstrate the bias of investor sentiment. Utilizing this information allows for a much more comfortable trading process for the candlestick investor. There will always be times when prices appear to be going against what the predominant signal has revealed. Stepping back and analyzing which signal is still the predominant signal will allow an investor to make entry and exit decisions more accurately. A price trend is not always going to go in one direction without some waffling. Understanding which signal is still the predominant signal keeps an investor from exiting a trade too early.

The April Live Cattle chart demonstrates how respecting the latest candlestick signal can keep an investor from exiting a trade too early. The Evening Star/Bearish Engulfing signal, that closed below the T-line, was considered the predominant signal. Monday’s trading would have been very uncomfortable for the short positions that had shorted based upon the candlestick sell signal. As can be seen, the following three days after the big sell signal, investor sentiment was indecisive. However, there was nothing that indicated the sell signal was still not the predominant analytical factor. Today’s trading saw bullish trading early in the day. Unless today’s trading finished very strong, nothing yet had changed the message conveyed from the large sell signal. The Evening Star signal would have been negated had today’s trading closed more than halfway up the large bearish candle.

Live Cattle April

Before the end of the day, the buying disappeared and the sellers came back. This obviously continued the downtrend. Suspecting the downtrend was not over at least allowed an investor to decide that if they covered their short positions, they should be prepared to reestablish the position if the selling became evident again. There are a number of simple common sense nuances associated with candlestick analysis that can greatly improve how an investor interprets a price trend.

The Dow made a strong showing today, closing above the T-line. Visually analyze the Dow as a possible J-hook type pattern. This provides evidence the uptrend may still be in progress for a few more weeks. The NASDAQ is showing the same strength, but on different days. The combination of the two indexes provide a good indication to be relatively bullish in the portfolio. Where many analysts are advising to be cautious, thus limiting the potential gains of a bullish trend, candlestick analysis more clearly reveals the direction of the market. This allows for establishing positions in the portfolio with more confidence.

DOW

There are many aspects to candlestick analysis that diminish the emotions involved with trading. Once an individual understands the benefits of candlestick signals information, they can trade with more confidence and react less to outside factors that play more upon investors emotions than they do the reality of price moves.

Chat session tonight at 8 PM ET.

Good Investing,
The Candlestick Forum Team

Current Website Special

Candlestick Profits – Eliminating Emotions With Candlestick Analysis

How do most people attempt to make money investing in stock? Buying a recommendation from somebody else and “hoping” that they make money. Unfortunately, to make money investing in stock requires a much more systematic program. Candlestick analysis provides that format. Japanese Rice traders, over the past few centuries, learned to identify patterns on charts that revealed a high probability of a reversal occurring. To make money investing in stock, an investor requires a trading plan that has validity.

Most investors try to make money investing in stock by using whatever popular investment program seems to be working at the time. The downfall of this approach is that when a program or trading method does not work, instead of trying to understand why, most investors move on to find the next trading program that seems to be working.

Utilizing candlestick signals, while trying to make money investing in stock is one important common sense aspect. Investor psychology is built into the candlestick signals. Understanding the investor psychology allows an investor to fine-tune a high probability trading method. Being that candlestick signals is the oldest and most proven trading method in the world, the assumption can be that it works. If it doesn’t seem to be working for you, then going back and analyzing what was wrong with your interpretation leads to better education of the trading program. This constant education builds knowledge that can be utilized for any trading market in the future.

Where do candlestick signals work most effectively? Candlestick signals work effectively on their own. However, the more confirming indicators an investor can apply to the analysis of a trend, the higher the probability of being in a correct trade. A candlestick buy signal, in an oversold condition, indicates a high probability that an uptrend is going to start. A candlestick buy signal in an oversold condition and forming at a major support level such as a moving average or a trend line gives that signal that much more credibility. Conversely, a candlestick sell signal in overbought condition forming right at a major moving average is a strong indication that a downtrend is going to occur. This is not rocket science! This is having the ability to analyze, through candlestick signals, what investor sentiment is doing at important support or resistance levels.

As illustrated in the Lear Corp. chart, Doji’s forming at the 200 day moving average reveal that the uptrend is becoming indecisive at a major resistance level. If a trend fails a major resistance area such as a moving average, what becomes the next target? The next moving average below. Notice that a short position established as weakness appeared just below the 200 day moving average has already produced a relatively good profit. However, analyzing the stochastics and not seeing any candlestick buy signals should create the evaluation of the downtrend still in place, the 50 day moving average being a logical target.

LEA

The same scenario is illustrated in the SIFY chart. The Doji shows indecision at the 50 day moving average. When a moving average is failed, two levels became the obvious targets. The recent low at approximately the $11 area was the first target. If that level was breached, 200 day moving average becomes the next target. This is a common chart pattern.

SIFY

This pattern is named the Blue Ice Failure by David Elliott of WallStreetteachers.com.

If you are interested in learning about stock trading software and its realistic advantages, the following information should be helpful.

Stock Trading Software – How does it Work?

Before choosing any stock trading software, you should have moved beyond the level of beginner stock market investing. At that point, you will be able to define your rules, or criteria, for the stock trading software. The software will then scan and find stocks that match your criteria. Buy or sell signals are made evident by the software.
Once the trading signals are recognized, orders are executed. You can program the stock market investing software to place orders or they can be done manually, depending on how you’ve programmed the software.

So, the process is:

• Rules or criteria are written for the software
• The stock trading software matches up stocks to your criteria and makes trading signals for buying or selling.
• The execution of orders is done.

As stated before, it is important that you have enough trading experience in the stock market and you are familiar with basic stock investing concepts. This means that you probably shouldn’t begin using stock trading software until you have a good understanding of technical analysis and enough experience with stock trading to create profitable criteria for scanning and finding stocks.

A question you may be asking is: Why do I need the software if I have enough experience?

There are several advantages of using stock trading software.

• Manage your portfolio – You can control your investment risk reward ratios and monitor your stocks effectively.
• Avoid greed and fear – The improper management of emotions is one of the most important reasons why investors lose money. Even though investors are aware of this and try to avoid decision-making based on their emotions, they always seem to fall into this trap again and again. Using software you help you control your emotions.
• Time savings – Because there are so many stocks for investing, software tools scan many stocks in a short time period for investment opportunities based on your best stock market investing strategy.

Using Stock Trading Software

• Choose software that is a good fit for your goals. There are various kinds of software on the market with differing price points for picking stocks. Find on that is suitable for your needs. There are both semi-automatic and fully automatic trading software packages available. When using semi-automatic software, you yourself place the orders. Fully automatic software can be programmed to sell and buy stocks automatically if that is your desire.
• Short term investors consider trading software a necessity. Software is indispensable for option traders, swing traders, and stock market day trading. In general, software is suitable for short term investors. It may not be as much a necessity for long term investors.

Before you buy any stock trading software, choose one with a 100% money-back guarantee.

Sometimes, we can use some help from our friends. When stock trading, this help can really be appreciated and it comes from a firm’s trading assistants. Assigned to help the stock brokers, trading assistants perform a number of important tasks and can be the face of the firm for many stock and futures brokers.

Trading assistants are responsible for much of the day-to-day operations of brokerages and they perform numerous tasks with a wide range of responsibilities. Many of these tasks involve recording data pertaining to securities transactions. Trading assistants may contact customers, take orders, and provide limited help with investing to clients. Some of these responsibilities only require a high school diploma, while others are considered entry-level positions requiring a bachelor’s degree. Trading assistants often work in the operations departments of securities firms, on the stock market trading floors, and in branch offices. Trading assistants are also known as margin clerks, dividend clerks and transfer clerks.

Sometimes called a sales assistant, this is the most common type of clerical worker in a brokerage firm. These workers are usually assigned to two brokers. They will take calls from clients, input order tickets, open and close accounts, record client purchases and sales, and inform clients of changes to their accounts. Trading assistants must understand various investment options so that they can communicate clearly with clients. Those with a “Series 7” license can offer stock market tips to clients at the instruction of the broker. Possessing this license allows them to provide advice on securities to the public.

Trading assistants in the operations areas of securities firms may have many more duties relating to stocks, bonds, and commodities trading. Trading assistants produce the necessary records of all transactions that take place in their area of the business. Job titles for them can vary depending on the type of work they do:

• Purchase-and-sale clerks – These trading assistants match stock orders to buy with orders to sell
• Dividend clerks – These trading assistants ensure timely payments of cash or stock dividends to clients of a particular brokerage firm.
• Transfer clerks – This is a group of trading assistants that execute customer requests for changes to security registration and examine stock certificates to make sure that they adhere basic stock information.
• Receive-and-deliver clerks – This type of trading assistant facilitate the receipt and delivery of securities to fulfill stock orders.
• Margin clerks – These assistants record and monitor activity in customers’ accounts.

Changing The Nature of Business

Computer technology has been influential in changing the nature of many of these jobs. A significant and growing number of brokerage clerks use stock market investing software to process transactions more quickly.  In most cases, only a few customized accounts are still handled manually.  In addition, the rapid expansion of online stock market trading greatly reduces the amount of paperwork because brokerage clerks are able to make trades electronically.

An Important Position

Whether helping commodity brokers or stock brokers, trading assistants hold many important positions.  Whether they are directly assisting clients or learning the profession from the brokers that they will one day join in trading and investing, trading assistants are valuable and important parts of any successful brokerage firm.  Many times possessing college degrees and being a visible part of the firm’s contact with investors, trading assistants provide a valuable service to both the brokers and the customers alike.  Sometimes we need a little help from our friends and in the brokerage houses that help many times comes from those who work as trading assistants.