Archives for November 2019

Sell Currency

When you sell currency in the forex market there is actually no physical exchange of currencies. The trades that are placed are only computer entries and the profits and losses are recorded on the trader’s account after they are calculated. The FX market is purely speculative in nature and the only reason that it exists today is to assist in the exchange of one currency to another for those company’s that constantly trade currencies. These companies trade currencies for many reasons some of which include for the costs of services and goods from foreign vendors as well as for payroll needs.

As you learn to trade currency as a FX trader keep in mind that only about 20% of the market volume for forex is due to company needs and about 80% of the actual trades that take place on the currency exchange are speculative.  The 80% of the market volume actually consists of hedge funds, and large financial institutions, as well as individual forex traders.

As you learn about forex trading you will find that currency is always traded in pairs. There are many currency pairs and then there are the major currency pairs that are mostly traded on the forex market. As you sell currency you learn that when a forex trader makes a trade he or she is long one currency and is short the other currency. For example, when looking at the currency pair USD/EUR you will learn that you are short the dollar and long the Euro.
There are forex trading strategies that you will learn about as well as you learn to sell currency. These techniques can include shorting, going long or trading options. Shorting currencies is similar to shorting stocks in that the same concepts apply. If you short a stock or currency then you think that the value of the security will go down (compared to another currency). Going long follows the same concept with stocks as it does with currencies as well. When you go long it means that the trader things that the currency will increase in value (compared to another currency).

There are two options strategies called a strangle and a straddle. They also apply to stocks as well as to currencies. The strangle occurs when the investor buys an out-of-the-money call and an out-of-the-money put option. This trading strategy is only profitable is if there are major movements in the price of the currency. The straddle occurs when the investor believes that the currency’s price will make a significant move but he or she is unsure of the direction it will take. This is a very risky strategy because if the currency moves either way, but with a small movement instead of a major movement, then the investor will lose out on the trade.

Market Direction

Eat like a bird and poop like an elephant! That is the description of most investors mental attitude. It represents what most investors have a tendency to do. When they buy a stock, and it goes up, they are very quick to take profits.

How foolish they would look if they had profits that they allowed to turn back into a loss. To escape that embarrassment, they take their profits very quickly, usually leaving some good potential gains on the table. On the other hand, if a stock price immediately goes down, the ego does not allow investors to say I made a mistake, get out of the position immediately. They will hold a position with the hope that it will turn around and go positive. After a while, they hope the price will get them back to break even, where they will intend to come out of the position. As the price continues to go lower, the hope gets bigger. They are just waiting for the price the turn around. Finally, when they cannot stand the pain any longer, they sell out. This is usually near the bottom.

How do you keep yourself from cutting your profits short and letting your losses run? Candlestick analysis provides a very easy solution. When you buy a position, it was done on the basis that a candlestick signal was showing the Bulls were taking control. If/when the price comes back down and negates the bullish signal, close out the position immediately.

When prices go up, most investors feel the anxiety that they need to take profits. The further prices continue to move, the more the fear of losing gains become. Candlestick analysis provides some very simple parameters for relieving that anxiety. When do you buy? When you see a candlestick buy signal! When do sell? When you see a candlestick sell signal. However, that ‘sell’ signal needs to be more compelling as a trend continues. The same facets to show a candlestick reversal signal are also built into a price trend. The longer a price trend continues, the more ‘set’ investor sentiment becomes. The trend will continue until a dramatic change of investor sentiment occurs. This usually requires a candlestick sell signal AND a close below the T-line.

Sell Currency, DOW Example


The T-line creates some very simple strategic parameters. The candlestick signals illustrate a possible change in investor sentiment. A close below the T-line illustrates high probability confirmation a change in investor sentiment has occurred. If you know what each candlestick signal represents, you gain an immense amount of clarity about a trend move when it is applied to other successful indicators. Understanding the relationship of candlestick signals and the T-line will provide a dramatic improvement in portfolio profits. It provides a twofold affect. Profits are improved by executing trades at more appropriate price levels and an investors minds remains much more clear for making investment decisions. This clarity dramatically improves an investors analytical confidence.

Having the ability to decipher between a profit-taking pullback and a full-scale reversal allows an investor to take advantage of price patterns. This becomes important when trying to identify the optimal spots to have investment funds. All boats will rise in a rising tide. The advantage candlestick analysis provides is the predetermined results of candlestick patterns. Whereas a normal price move in a bullish market might produce a 10% gain, the results of a Fry pan bottom, scoop pattern, or cradle pattern may produce a 30%, 50%, or hundred percent gain in the same market conditions.

CSIQ illustrates high profit pattern potential. The initial cradle pattern is followed by a Jay hook pattern. A Jay hook pattern confirms at an obvious breakout area. Having the knowledge of where to sell and where to buy back provides a powerful trading platform. Not taking advantage of the information produced in a candlestick chart is like investing with one leg of the stool missing.

Sell Currency, CSIQ Example


There is nothing difficult about candlestick analysis. Once you learn the common sense built into the signals and patterns, you gain a very valuable investment tool that you will be able to apply for the rest of your investment career. Whether you are trading stocks, options, bonds, currency, or commodities, prices move based upon investor decision-making. If you acknowledge the fact the Japanese Rice traders merely mapped out what investor sentiment was doing, your investment returns will improve dramatically.

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Good investing,

The Candlestick Forum Team

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Trading the Upside Gap Three Method


The Upside Gap Three Method is a simplistic pattern, similar to the Upside Tasuki Gap, occurring in a strong trending market. In an uptrend, a gap occurs between two white candles. The final day opens within the top white body and closes in the lower white body, filling the gap between them.

Upside Gap Three Method

Upside Gap Three Method


  1. In an uptrend, two white candles form, having the second one gapping above the first.
  2. The third day opens lower, int he body of the top white candle and closes int he body of the first white candle.

Pattern Psychology

A market has been moving in a direction,t hen a gap appears between two white candles. Gaps have significance in that they eventually have to be filled. The fact that it becomes filled immediately leads investors to think that the pullback is just a profit taking pullback. The trend should resume immediately after the gap filling is satisfied.

Back to Continuation Patterns

Defining Futures Orders

Futures orders have a simple definition but a wide variety of possibilities. Not unlike options trading in the stock market, futures orders cover a number of different trading scenarios.

Market Orders

This is the most basic of futures orders. It is the same for either buying or selling; once the order reaches the trading pit, it is executed for the best price available.

  1. Limit Orders – A limit order is a futures order used for buying or selling when a certain price is reached. A limit order to buy is placed below the current market price and a limit order to sell is placed above the current market price. When the target price is reached, a market order is executed to buy or sell based on the limit order.
  2. Stop Orders – Stop orders are used in futures markets as protective techniques for either buying or selling. Three purposes of stop orders are:

    1. Reducing losses on long or short positions
    2. Opening new long or short positions
    3. Protecting a profit on an existing long or short position

    A buy stop order is placed above the market and a sell stop order is implemented below the market.

  1. Market If Touched – This futures order is the direct opposite of a stop order. Sell Market If Touched orders are only executed if the price is above the market while but buy Market If Touched orders are only executed if the target price is below the market when implemented. An MIT order is usually used to enter the market or initiate a trade. In commodities trading, an MIT order is similar to a limit order in that a specific price is placed on the order. However, an MIT order becomes a market order once the limit price is touched or passed through. An execution may be at, above, or below the originally specified price. An MIT order will not be executed if the market fails to touch the MIT specified price.
  2. Stop Limit Order – A stop limit order is a futures order that lists two prices and is an attempt to gain more control over the price at which your stop is filled. The first part of the order is written like a regular stop order. The second part of the order specifies a limit price. This indicates that once your stop is triggered, you do not wish to be filled beyond the limit price. Stop limit orders should usually not be used in commodity trading when trying to exit a position.
  3. Market On Opening – This is a futures order that is to be executed within the opening range of trading.
  4. Market On Close – This is the opposite of a Market On Opening. This futures order is given to execute a trade in the closing seconds at the best available price.
  5. Fill Or Kill – Fill Or Kills are futures orders used by customers wishing an immediate fill, but at a specified price. A floor broker will likely bid the order two or three times and immediately return either a fill or an unable.
  6. Spread – An investor is likely to use a Spread to take advantage of the differences in two prices. For this futures order, a long and short position will both be taken hoping to exploit the difference in price. For example, buy 15 October Corn Futures , sell 15 November Corn Futures plus 2 to the November sell side.  This spread order means to sell the spread when the November corn is 2 points higher than the October corn.


In addition to these futures orders, there are additional orders that some but not all markets recognize.  It is important to discuss your futures orders with your broker so that you are aware of the available orders.  If you are trading oil futures your broker can tell you whether you can implement Spreads or if Fill Or Kill is unavailable in your particular market.  Knowing the terms involved with futures orders will help you to be a more successful trader in the futures market.

Small Cap Stock Investing

Small cap stock investing is, by definition, investing in a company with a capitalization less than $500 million. Research indicates that smaller companies provide a higher rate of return on investment than middle sized and larger companies defined as between $500 million and $2 billion and above $2 billion respectively. However, in small cap stock investing it is important to understand that small cap stocks are more volatile with greater stock market risk and are even more prone to failure. On the other hand large cap stocks were once small cap stocks. Thus you can hit a home run in small cap stock investing if you invest in the next Microsoft, Google, or Cisco when they are starting up.

The risk in small cap stock investing is that the small company will fail and you will lose your money. Despite this fact a basket of small cap stocks will outperform a basket of large cap stocks or mid cap stocks in the stock market over the years. This is because when a small cap stock is very successful its stock price may well multiply by a hundred or more over a few years. A couple of big gainers in small cap stocks will more than make up for a few bankruptcies. A common estimate of how many small cap stocks you need to invest in to average out the risk is 40. A common estimate for large cap stocks is 10. If one takes a basket of 40 small cap stocks, for example, it will outperform a basket of 10 large cap stocks over the years.

Because small caps are more volatile, this comparison may well not work comparing one low cap stock to one high cap stock. The high cap stock is a company that has been around for years and is usually quite stable. However, to be secure while investing in stock, statistically you need ten large caps to average out the risk of disaster in one company whereas you need forty small caps to take advantage of this investment opportunity and balance your risk.
Stock investors expect a higher return for taking a risk. Thus investors will pay less for the presumed value of a small cap stock, deducting for risk. A common estimate of long term gains on small cap stock investing versus investing in large cap stocks is that you will make two percent per year more on your stock investment.

In stock day trading, you are buying shares and selling shares by the day, hour, or minute so your concerns are mostly with technical analysis. In stock investing, especially buy and hold investing, you are interested in long term performance and avoidance of the overhead cost of repeated transactions. In small cap stock investing you want to take advantage of a potentially higher rate of return on a small cap stock or stocks. The stock market risk of dealing with one small cap stock is diminished by buying a basket of up to 40 stocks or by investing in a small cap stock index fund.

It is not the purpose of this article to give stock advice on small cap stocks versus large cap stocks or to recommend long term investing versus day trading. It is to educate you in one aspect of stock market investing. Good luck!

There will not be a Market Direction today.

Good investing,

The Candlestick Forum Team


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Penny Stocks Trading

In today’s article we discuss general information and tips for investors when penny stocks trading. Penny stocks are low priced and speculative stocks of very small or very young companies. These types of stocks typically have market caps under $500 million, are priced below $5.00, and can also be referred to as over the counter stocks.
When penny stocks trading, there are certain things that you should keep in mind. These are explained below.

  1. Investors should look for positive single day movers with higher than average volume when investing money in penny stocks. They should also look for those companies that are developing new products, services, or technology as well as those companies that do well in the marketplace when compared to their competitors.
  2. Penny stock trader should also build a list of penny stocks (about 10 – 20) to focus on. This enables the investor to manage their portfolio and monitor their stocks.
  3. Take a look at the history of those penny stocks that you choose to trade. You can use stock charts, when penny stocks trading, in order to find stock chart patterns. Those stocks with a history of odd trading patterns will most likely not sell due to their unpredictability.
  4. Research the current financial status for those companies who you are going to invest in. Those companies that have either no debt or a small amount of debt, and those companies that show a pattern or increasing profit margins are good stocks to add to your list. Investors should also find out how many shares the company has in its float, and if the company’s product is patented. A patent will affect the consumer demand as well as the competition. If these things check out you may want to consider this company one of your best penny stocks.
  5. Stock traders can also find these stocks in the pink sheets and the Over the Counter Big Board (OTCBB). The companies listed here are typically new companies that are rolling out new products and once they are more established companies they will most likely move onto one of the other major markets. In fact, many of the stocks that are now traded on the major stock exchanges such as the NYSE were at one time listed on the Pink Sheets or the OTCBB.

There is a lot more to penny stocks trading and you should continue to do your research to find out if this is a market for you.

Market Direction

Understanding the results of patterns  is vital for successful investing. There are two major reasons successful investors utilize trading patterns. First, it allows an investor to take advantage of what the market is doing right now. Being able to visualize what the current trend is doing dramatically improves the probabilities of profitable short-term trades. Secondly, it keeps an investor prepared for taking action at specific technical levels.

As viewed in the Dow chart, the short term trend has been pushing up against the upper trend channel. The longer-term trend has been using the 50 day moving average as a support level. The shorter term trend has been using the tee line as support. Today’s trading produced a Morning Star signal supported on the tee line. This obviously negated the bearish sentiment that could have been forming over the past two days of trading. The upper trend channel could be seen as a resistance level. Another test of the upper trend channel will have valuable information.

A failure of that level could produce another pullback. Would that pullback be to the 50 day moving average? That is where the first target area should be projected. Could the Dow finally break through the 50 day moving average and have a much stronger downtrend?

Penny Stocks, DOW chart example


Analyzing the Dow by itself does not give the full picture of what is occurring in the overall market. The NASDAQ chart is showing a different downside potential. There are two factors that should be well noted. The past three tops in the NASDAQ chart had been exactly at the top of a trend channel. The exactness of that resistance level is usually a precursor to a possible hard selloff. There is another factor that should be added to the analysis. The NASDAQ has been forming a Spreading Formation. A failure of point 5 could start a very powerful down move. It will be important to see what type of candlestick signals occur as the top of the trend channel is tested again.

Penny Stocks, NASDAQ chart example


Point 1, 3 and 5 are at the top of the spreading channel,  Point 2 and 4  at the bottom of the pattern. A failure to break up through the current point 5 level could induce hard selling.

Utilizing candlestick signals and price patterns creates a huge advantage. Expected results occur after specific price patterns. A failure to break out of the top trend channel has  expected result based upon historical analysis. The next wave could be a very strong downside move. A breakthrough of the upper trend channel makes for a different analysis. The short term pattern would be giving a different evaluation. A price move through the recent high would  confirm a Jay hook pattern, indicating more upside potential. This would also negate the development of the Spreading pattern.

The result of this if/then situation is much easier to evaluate when witnessing which candlestick signals are forming at the upper trend resistance level. Knowing what could result from a breakthrough or a failure of that level allows the candlestick investor to be prepared for establishing the direction of the portfolio. This pattern analysis works effectively in stocks, commodities, currencies, or any trading entity that involves human input.

Take advantage of the information that can be provided by the combination of candlestick signals and patterns. It allows you to maintain control of your investment analysis. High probability expected-results occur after recognized patterns setups. It is not difficult to visually learn when to reverse a portfolio or add to the direction of a portfolio.

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Good investing,

The Candlestick Forum Team

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Money Management and its Importance in Stock Investing

In 2001, we watched the stock market plummet like a rock because the Internet bubble burst. Millions of traders and investors lost money, but quite a few didn’t. Investors who didn’t lose it all were either lucky, or good at their game. Successful money management techniques and their intense desire to learn how to play the stock market is what saved them.

If you want to make money investing in stocks, you need to be good at money management, not lucky. A lucky streak is always well received, but the moment you require luck to succeed you’ll not make the grade. They key to consistently making money by trading and investing in the stock market is dependent on your knowledge of how to lose money correctly via strict money management techniques.

Although this seems opposite to our usual way of thinking, it actually makes a lot of sense. If you expect to trade and not be willing to accept losses from time to time, it should be understood that this is not a realistic approach. The truth is many of the most successful traders lose money more often than the unsuccessful ones. However, they are still able to achieve success in the long run. There are two reasons for this:

First of all, successful traders never lose a large outlay of cash on a solitary transaction.

Trades have five possible outcomes:

  • Lose a large amount of money
  • Lose a small amount of money
  • Lose no money and make no money
  • Make a small amount of money
  • Make a large amount of money

Here’s the secret: Find ways to diminish or eliminate the first possibility!

Second, successful traders refrain from investing too much money into a “favorite” position.

If you invest too much money into your “pet stock of the moment”, you are setting yourself up for disaster.

Successful traders, not unlike successful casino gamblers, establish a maximum value that can be risked in a single trade (or bet). And when even a small loss from that investment results in a large dent in your account, you are not trading optimally.

If your accounts total $1000, and you never want to risk over 5% of that on a single trade, does that imply that you can only purchase a $50 position? Absolutely not, you couldn’t make money that way. In the scenario where the most you’re willing to lose on any one trade is $50, you could set up a $500 trade in a way where you are guaranteed not to lose over $50. This can be done with a pre-set “stop-loss” where you instruct your broker (or program it into your stock market online investing system), to get you out of that position if that limitation is ever reached. This technique gives you the ability to know your maximum risk before making the trade.

Although not absolute, stop losses work as intended most of the time. Occasionally, various market conditions cause your broker to miss your stop-loss price. Smart traders establish stop losses while keeping this possibility in mind as part of their overall stock trading plan.

Money management is the single most overlooked aspect of trading. It’s far more important to manage your account’s value correctly than it is to locate the exact bottom or top of the market. Money management can make the difference between success and failure. If you’re considering stock trading and investing, or if your stock market investing strategy isn’t as successful as you’d like it to be, you owe it yourself to become an expert at this technique.

Stock Value Analysis

Stock value analysis comes in two forms, long and short term. In long term investing the individual does fundamental analysis and looks for intrinsic stock value in the form of anticipated forward looking earnings. In short term stock trading and stock investing traders look for stock price fluctuations using technical analysis with Candlestick patterns. They apply Candlestick trading tactics to profit from these fluctuations in the stock market and individual stock prices. Both types of stock value analysis can lead to profits in stocks. Long term stock value analysis coupled with Candlestick analysis assisted short term stock value analysis can be doubly profitable. The long term investor typically ties his hopes and aspirations to solid stocks with the likelihood of long term growth and the substance to weather economic storms along the way. By using Candlestick patterns as a guide this investor will not only profit from the long term growth of a company but will greatly enhance these profits by adding the stock to his portfolio at the most advantageous price.

Stock value analysis is especially useful and, perhaps, the most profitable after stock market crashes. This is the blood in the streets scenario. Everyone, except those who anticipated the crash using Candlestick charting techniques, has suffered gigantic losses. The general feeling, as opposed to a rational belief, is that things could get worse, the economy could collapse, and that the stock market, much less ones own stocks, will never recover. Using short term stock value analysis of prices with Candlestick stock charts, the investor and trader can anticipate price changes and pick up the best deals by buying at the bottom. The savvy investor or trader knows that extremes of a market crash often have to do more with a contraction of credit and a panicked psychology of investing than with the true state of the economy or an individual stock’s fortunes. He will buy heavily and profit as the market and individuals stocks recover. The Candlestick devotee will have bought puts on his stocks before the market went south and will, thus, sell at the strike price of his options contracts and purchase promising stocks when they are cheap. He may even buy back the stocks on which he was buying puts just before the crash.

Considering the blood in the streets scenario above we can see that stock value analysis can run full circle. One profits from picking stocks with long term promise and resistance to economic down turns. The investor then uses both long term and short term analysis to anticipate a market reversal. He either sells stock or buys puts to protect himself against loss. Using Candlestick chart analysis he can successfully predict the bottom of a stock price and reinvest his money in stocks with both long and short term promise. Maintaining perspective is critical to successful stock value analysis. Remembering that when there is blood in the streets is often the best time to be hunting for stocks is how many successful investors profit from the predictable ups and downs of the stock market.

Market Direction

Has the selling of the past two days indicated a market reversal or a profit-taking pullback? This is the question always asked when selling comes into an uptrend. The candlestick investor can analyze a trend with a more accurate view when knowing if candlestick signals appeared at the reversal or not. The lack of candlestick sell signals in a reversal area provides completely different information than if a candlestick sell signal has been identified. The lack of a candlestick sell signal will usually indicate merely profit-taking versus a change of investor sentiment.

Stock Value Analysis, Dow


Stock Value Analysis, NASDAQ


Today is selling was mostly in the NASDAQ. Wednesday’s trading had formed a Doji in the Dow. The S&P 500 formed an evening star signal. However, the NASDAQ demonstrated a hard selling day but without a candlestick sell signal. The selling in the NASDAQ today was much more significant compared to the Dow and the S&P 500. Both of those indexes showed indecisive trading after candlestick sell signals. Although the downtrend probabilities are still relatively high, the strength of the downtrend does not appear to be very strong. This is based upon the lack of collaborating sell indications by all the indexes.

Stock Value Analysis, S&P 500

S&P 500



A three candle pattern at the top of an uptrend. The body of the first candle is white, confirming the current uptrend. The second candle is an indecisive formation. The third candle is black and should close at least halfway down the white candle.Pattern Psychology: After an apparent uptrend the Bears step in and open the price lower than the previous day’s open. The price finishes lower for the day and the Bulls are concerned and begin selling to take their profits.Related Articles: How to Trade the Evening Star Signal Swing Trading with an Evening Star Signal Training Tutorial: Morning Star & Evening Star Signals.

What is the best strategy for these market conditions? Most investors do not have a clear perspective of what to be doing under these market conditions. This is mainly due to the fact that they do not have the insights that candlestick analysis is able to provide. The commonsense elements built into candlestick signals allows a candlestick investor to make a relatively accurate prognosis. This helps establish the correct trade positioning in a portfolio. After the appearance of potential sell signals yesterday, the premarket futures help indicate where a market direction is heading. A lower open after the appearance of candlestick sell signals should instigate the closing of long positions that are looking weak and establishing short positions.

CRUS was a short recommendation on the Candlestick Forum site. It had formed a bearish left/right combo on Wednesday. The bearish engulfing signal closed below the T line. Stochastics were starting to turn down. The gap down on today’s open was clear confirmation of the strong sell signal. The Doji trading day of today provides another opportunity to go short if the price opens lower tomorrow. A major advantage of candlestick analysis is that trade strategies are made very easy based upon the expected results after a candlestick reversal signal or pattern breakout.

Stock Value Analysis, CRUS


Please take advantage of the immense amount of information that is built into candlestick signals. Learning the commonsense aspects of candlestick analysis allows each investor to have a high probability game plan put in place. This is whether you are a day trader, swing trader, or a long-term investor. The visual aspects of candlestick analysis makes it easy to identify high profit pattern breakouts as well as when to take profits.

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The Candlestick Forum Team

Profitable Candlstick Trading

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The truth is that I am pretty new to trading. First small trade ever was 10/7/08. I was only semi serious by December and I took your class in late January. I find that you and Rick have very different styles but obviously a great deal of respect for each other. After the January class I felt kind of paralyzed by that dichotomy. And February was a pretty messy month for traders also. It took me weeks to make another trade. That said, the following months really were profitable beyond my wildest dreams.

Jeanne Price – Denver, CO

I trade in the Forex markets, and time and again I refer to the your slides from the 2 day clinic to offer me comfort on the trades. Without hesitation I can say that the lessons learnt have held me in good stead. I have learnt to ignore the news that flows 24/7 and just focus on the candles.

Sarath Chandran – Mississanga, Ontario

I attended the January Online Clinic. It was a birthday present to myself and one of my best presents ever. Steve and Rick provide professional presentations with real world applications. They cover actual charts and trades, including entries and exits. They explain why the trades worked or didn’t. Their methods, which have been perfected over the years in the markets provide a “Jump Start” to profitability. Their Online Clinic is the most efficient and economical training I have experienced in over 40 years of trading. It was wonderful to sit in my own office, relaxed, drinking coffee while attending a professional seminar without the hassles of airlines and hotels.

As a result of the clinic, I joined both of their trading rooms and really appreciate listening and participating in their online communities during market hours. The rooms provide many watchful eyes on the market with thoughtful comments. It breaks up the solitary isolation of trading alone in your office and provides multiple viewpoints for consideration.

John Sloop – Dripping Springs, TX

Just a note to comment on the weekend webinar put on by Stephen Bigalow and Rick Saddler on candlestick recognition and pattern trading…Quite simply, you will not get better value in market trading principles anywhere, for any price.

What may seem complicated is made simple, what you thought was hidden in the charts becomes obvious once these fellas open your eyes.

And, if you have attended before, no matter, you will always learn something new. Playbacks of the seminars are provided, so that one can review the material – and these guys are very willing to answer subsequent questions freely, openly, honestly, and clearly.

Believe me, it is quite easy to lose the price of tuition in the markets if one is not prepared…take my advice and consider investing in your education, before speculating. Or, you may find that you are contributing to someone else’s retirement rather than your own!

Steve Grove – Barrow, AK

Stock Market Average Returns – Are They Important?

The saying is so often repeated that even newcomers know it. Over time, the average stock market return is 10% annually. This seems to suggest that if you’re investing in the stock market, you will earn 10% if you can just stay in the market long enough. The problem with a statement like that is incompleteness of thought and downright deceptiveness. The stock market average return is 10% annually? Let’s discuss this statement and its implications further.

Put Your Money Where Your Mouth Is

Maybe the people saying it are promoting a new e-book or they just don’t know any better. In any case, this statement purports the idea that if you can only buy a few (or maybe only one) stocks you are going to achieve that famous 10%. That is some really good Wall Street news! Oh, by the way, which stock was that?

It’s sad but true that there are people who really believe in this mythical 10% stock market average return investment philosophy. For that matter, what really are stock market average returns? What is your definition of the market? If it was the S&P 500 in 2004, it didn’t even make it. Mutual funds? The same year neither the Russell 3000 nor the Russell 500 made it.

The Truth About Stock Market Average Returns

The flaw in the entire discussion is that the performance of “the market” doesn’t matter; what matters is the performance of the investments in your stock portfolio. If you make a 100% return on your portfolio, you had a great year regardless of the S&P 500. If the Dow made 2% and you beat it with 2.5%, did the net result in your portfolio really give you something to brag about?

For successful traders, the only comparison necessary is your bottom line. Comparing average stock returns against the NASDAQ is fun and it gives you something to brag about to your buddies, but it means nothing to your investment portfolio.

How To Quantify Your Stock Market Average Returns

Remember, you’re not buying “the market” so any comparison with the market indexes is purely for entertainment purposes. It’s time to dust off your stock trading plan and go from there. What are your goals for your investing? If you are looking at long term investing, your approach will rely on good returns but also strong investments that likely include dividends. In addition, you can supplement your income with options trading. If you are near retirement age you will likely take a more conservative approach than someone in their 20s or 30s who has time to rebuild their account if they run into problems.

The analysis of stock market average returns is to determine which types of equities should be the focus of your investing in order to get to where you want to be financially. At the end of each quarter or at the end of the year you can ask yourself if your performance in the stock market is meeting your goals.


The stock market is a great tool for meeting your financial goals and dreams but it must be approached like a business. Careful planning, fundamental analysis and frequent review of your performance against your goals are always better than dwelling on average market returns. For investors who are building for the future the key is to buy stocks from solidly performing companies and let someone else try to find out where the mythical 10% went!

Currency Futures

Currency futures are transferable futures contracts that specify the price at which a specific currency can be bought or sold at future date. These contracts allow the forex investor to hedge against foreign exchange risk. With this type of currency, the investor is able to close out of their position and exit from the obligation to buy or sell the currency prior to the contract’s delivery date.

In today’s article we discuss terminology that you may come across when learning about forex and futures.

Futures Contracts

Futures contracts are agreements to buy or sell a particular commodity or financial instrument at a pre-set price in the future. This contract contains the quality and quantity of the underlying asset and some futures contracts call for the physical delivery of the asset. Most however are settled in cash. When learning about currency futures you should also learn about the foreign exchange risk mentioned above. There are two pieces to the foreign exchange risk. First, it is the risk of an investment’s value changing due to changes in currency exchange rates. Second, there is the risk that an investor will have to close out of a long or short position (see short selling) in a foreign currency at a loss due to adverse movements in exchange rates.

Currency Forward

A currency forward is a forward contract in the forex market that locks in the price at which an entity can buy or sell a currency on a future date. The currency forward is also referred to as an outright forward currency transaction or forward outright or FX forward. These contracts are non transferable. Spot Exchange Rate – this is the rate of a foreign exchange contract for immediate delivery. These rates represent the price at which a buyer expects that he or she will pay for a foreign currency in another currency.

Currency Pair

The currency pair is the how the pricing structure of currency futures are traded in the forex market. The actual value of a currency is determined by its comparison to another currency. The first currency of a currency pair is referred to as the base currency and the second currency is referred to as the quote currency. The currency pair shows how much of the quote currency is needed to purchase one unite of the base currency when forex trading.

There is a lot more to learn about as it relates to currency futures. Not only do you need to understand the forex market but you must also understand the futures market as well.

Market Direction

The Nasdaq has been up 12 days in a row. It has done this eight times since 1986. The result is higher moves afterwards on a longer-term basis. However, with the big price move in the market today, this exuberant buying needs to be watched carefully over the next few days. On a short-term basis, be watching for a candlestick ‘sell’ signal. Obviously, this has been  a very profitable trend for those that were cognizant of what should happen after a cradle pattern. If the markets show more exuberant buying tomorrow, definitely be prepared for a profit-taking reversal. A gap up tomorrow would warrant setting profit taking stops immediately.

How do you take emotions out of your investment decisions? By knowing what each signal and pattern illustrate. The expected result of a Cradle pattern has kept us in this uptrend until we see a candlestick reversal signal. Today’s exuberant buying prepares us for a possible candlestick sell signal. Candlestick signals and patterns provide a visual map of the direction of the markets. The more you can utilize the maps, the less guesswork or emotional decision-making you will do.

Currency Futures, DOW


Why do candlestick patterns work? They are the reoccurring representation of what occurs in investor sentiment. The reason they are recognized is because of the predicted results occurring after a pattern/signal is witnessed. As illustrated in our recent recommendation of VCI, there were expected results if a Fry pan bottom pattern shows a breakout. The formation of the pattern was the result of investor sentiment slowly turning positive, eventually reaching to the exuberant stage. If you always return to the basic description of a candlestick signal or pattern, you will trade with much more calmness. Candlestick signals are formed by the accumulative knowledge of everybody buying or selling during a certain time frame.

Unless you have access to a huge research department, the individual trader cannot know what is going on in every company. However, it has to be assumed that there are some people that follow specific companies/sectors will they very high degree of interest. The candlestick signals provide a visual thermometer of what the smart money is going. As seen in the VCI chart, the development of a Fry pan bottom pattern was the result of waning investor interest slowly building back up. The Candlestick Forums recommendation to buy the stock on July 16 was based upon the potential of a Fry Pan Bottom breakout.

Will there are always be a Fry pan bottom breakout? Not always, but there is an extremely high  percentage  probabilty that  makes this chart pattern extremely valuable to learn.

Currency Futures, VCI


The confirmation of a Fry pan bottom breakout is very easy to view. It is instigated by a gap up or a big trading day coming out of the level where the Fry Pan Bottom pattern started. This allows for excellent timeliness for option trades. That creates extremely good opportunities for option trading. First, it allows an investor to immediately enter option trades before most investors recognize a new dynamic had come into the price. Secondly, because the pattern has been so lethargic for the previous three weeks/3 months/6 months, the price of the options are usually very low.

Currency Futures, MICC


Do you want to learn how to trade options correctly? Then first learn how to identify when the big price moves will occur using candlestick analysis. Once you have achieved that, then you can apply very simple and correct option trading strategies. This is not rocket science. This is merely common sense put into a graphic depiction.

Good investing,

The Candlestick Forum Team