Archives for December 2019

Traders will sell commodity futures when they believe that the price of the commodity will drop substantially between the time they sell the commodities contract and the contract settlement date. The trader will rarely hold contracts to settlement but will buy a commodity futures contract with the same settlement date in order to exit the commodities trading position. When the spot price is sufficiently below the contract price it is profitable to sell commodity futures and then buy at the lower price to profit from trading commodities. Traders will commonly use both fundamental and technical analysis tools in order accurately predict commodity price movements. Technical analysis tools such as Candlestick analysis have helped commodities traders for centuries in anticipating how a commodity will trade in coming hours, days, weeks, and months. Anyone beginning commodity futures trading will do well to take Commodity and Futures training in order to understand basic commodity trading and to profit by successfully trading commodity futures.

Although a trader will enter into a contract to sell commodity futures he or she will only rarely deliver on the contract. This is the business of producers and buyers of commodities and is called hedging. In this case a gold mining company may sell gold futures or an agricultural cooperative may sell corn futures. An oil company could, in fact, sell oil futures. In each case the seller will be in the business of the commodity in question and will, in fact, be able to produce the commodity for delivery. The company is hedging as a technique of controlling investment risk. This is a common practice and the backbone of the commodities markets. The large volume and liquidity caused by large buyers hedging risk provide the trader with an excellent opportunity to buy commodity futures or sell commodity futures for profit. The trader learns to predict market movement with the use of Candlestick pattern formations and similar technical analysis tools in order to decide whether it will be profitable to buy or to sell commodity futures.

Although a trader may sell commodity futures with settlement dates long in the future he or she need not wait for the settlement date to exit the contract. A commodity trader will watch the market for the commodity using market price tracking and prediction tools like Candlestick charting techniques. When a gap opens up between the contract price for the commodity future and the current commodity futures price the trader can exit his of her position for a profit and never worry about sleeping through the settlement date and having to deliver several hundred head of live cattle to a stockyard in Kansas City or Chicago! Like much of trading derivatives the trader enjoys a fair amount of leverage when he or she decides to sell commodity futures. With a relatively small investment compared to the actual price of the commodity, in contract volume, the trader can make a substantial profit as compared to his invested capital by careful and well practiced use of technical analysis using Candlestick basics.

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Market Direction

Why did candlestick investor’s buy aggressively on Wednesday while other investors invested timidly? The candlestick investor had a very high probability trade signal being confirmed. The Inverted Hammer signal is one of the 12 major signals. It does not occur as often as the other signals, however when it does occur, the results can be depended upon for its high percentage correct trade results. A candlestick Inverted Hammer signal, followed by a positive open the next day, will result in somewhere around a 95% probability the uptrend has started. With probabilities like this, the candlestick investor can invest aggressively upon seeing the confirmation. This is what we witnessed in the Dow on Wednesday. Tuesday formed an Inverted Hammer signal. Wednesday’s pre-market futures were opening positive. A number of individual stock charts were setting up for very bullish price move.

DOW

Being able to analyze the direction of the market creates a huge advantage for the magnitude and aggressiveness an investor can enter a trade. Knowing the probabilities of a successful uptrend on an Inverted Hammer confirmation, buying immediately into individual stock charts that were confirming price patterns becomes an easy process. Where is a good portion of profits usually generated? Just as the trend is turning. There is a rush for investors to get back into a price move once they see a reversal has occurred. Fortunately, the candlestick investor can take advantage of the reversal immediately where most investors will require additional confirmation.

Being prepared for a bullish move in the markets allows for aggressive buying into individual charts that are showing high probability/high profit trade situations. PWER was purchased on the open today when the markets were confirming continued positive moves after the Inverted Hammer confirmation. A positive move would have revealed a breakout of an obvious resistance level. Knowing the expectation of a breakout, this allows an investor to be participating in a price move that has big profit potential.

PWER

The investment psychology behind candlestick signals is very simple. This makes the logic very simple for applying positive trade situations. Unfortunately, most investors learn how to invest based upon the sage advice that comes from Wall Street. As has been experienced through many years, the accepted practices of the Wall Street culture provides mediocre returns at best. Candlestick analysis pinpoints the high profit, low risk trade situations. This technique of investing permits an investor to control their own profitability. The analysis of which signals and patterns can produce the biggest profits is not a difficult process to learn. The Candlestick Forum provides a two day training program that puts the logic that is built into candlestick signals into a very orderly learning process. This is not theoretical information. This is the nuts and bolts that has been utilized for centuries for very successful rice trading. You may not have any background in technical analysis. With candlestick signals, you do not need it.

The Candlestick Forum two day training program, scheduled for July 10 and 11 has been postponed until July 24 and 25th. If you have been attending the Thursday night and Monday night training sessions, you should have noticed the methodical, common sense applications used for analyzing trades. Candlestick analysis, unlike fundamental analysis, reveals what prices are doing, not what prices might do in the future. If you are serious about improving your trading and investing techniques, please take the time to attend a two-day training session. You will be amazed how much more clearly you understand the concept of candlestick analysis when it is presented in an orderly manner. Click here for more details.

Chat session tonight 8 PM ET
Good Investing,
The Candlestick Forum Team

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laying the stock market becomes a much easier process when knowing which direction the markets are moving. The information incorporated in the Candlestick signals makes analyzing the market direction very easy. When playing the stock market, profits expand dramatically when being positioned correctly in the trends.

Understanding what the Candlestick signals demonstrate when in the overbought or oversold conditions allows the Candlestick investor to greatly reduce market exposure risk. Most investors playing the stock market want to be long all the time. The advantage of the Candlestick signals allows an investor to analyze whether to be long, short, or have positions in both directions. Having the ability to analyze the signals correctly makes analyzing the market direction very easy.

The past few weeks, it has been recommended to be positioned towards the ‘long’ side, although not aggressively. The analysis of the market indicated that a pullback was in progress but not a very convincing pullback. Under these conditions, specific sectors/stocks produce some very good profits on the long side. Had the Candlestick signals illustrated more severe selling possibilities, a different strategy would have been put in place. This summer, usually the slow time of year for trading, has produced some significant gains while playing the stock market.

Market Direction

As can be seen in the Dow chart, the decline over the past month and a half has been very slow and calculated. Numerous indecisive trading days revealed that there was no great urgency to take money out of the markets. With that analysis, putting investment funds into the strong sectors was not going to be influenced greatly by severe negative market sentiment. A large number of stocks were showing buy signals once they came back and tested the 50 day moving averages. This provided on another indication of the presence of buyers in the market.

Over the past few days, the Dow has shown some good bottoming signals as the stochastics were turning up out of the oversold condition. Monday formed a Bullish Engulfing signal. Although Tuesday sold off again, it produced a significant bottoming signal. Note how the lows of both Monday and Tuesday were exactly the same. This created a Tweezer Bottom. A Tweezer Bottom has significance in that it illustrates a level where the buyers step in more than once. Wednesday’s trading also produced a tail to the downside that almost tested the same a low level. The strong close on Wednesday formed a second Bullish Engulfing signal in the last three days. This would be a strong indication that the buyers have bottomed out the markets.

The NASDAQ formed a Bullish Engulfing signal right at the 50 day moving average. The next day it formed a Doji/Hammer signal followed by a bullish candle that breached the 50 day moving average. The stochastics have now turned back up. All this occurred when the news reports were telling how terrible the oil shortage may be. Continue to buy on strength.

Option Trades – The Candlestick signal analysis makes for some very successful option trades. Being able to analyze what the signals are doing, in respect to creating a high profit pattern, allows for the implementation of high profit option trading strategies.

Stock market technical analysis is dramatically improved when applying Candlestick signals. Working off the premise that the Candlestick signals are the cumulative knowledge of everyone who is buying or selling during a specific time frame, the evaluation of technical trends becomes better formatted when understanding what the signals are telling you. The effectiveness of Candlestick signals in stock market technical analysis is more clearly evident in the past couple of weeks when experiencing world events such as terrorist attacks.

Stock market technical analysis using Candlestick analysis allowed for a trading strategy on the morning of the bombings. The Candlestick signals indicate what investor sentiment is doing during any particular time frame. What were the market conditions on the morning of the London bombings? The stochastics were in the oversold condition. The previous two weeks had been showing Candlestick bottoming signals. Two sets of Morning Star signals had formed as stochastics had approached the oversold condition. This stock market technical analysis, without an extracurricular world event, was indicating that investor sentiment was starting to turn bullish once more.

With this stock market technical analysis in mind, upon hearing the news of the London bombings, an event that could dramatically influence investor sentiment, a trading strategy could be implemented. Knowing that the markets were already in a short-term oversold condition, where the Dow had appeared to hold the 10,300 level, a simple analysis could be made after hearing the news. Our stock market technical analysis indicated to allow the Candlestick signal of that day dictate what our strategy should be.

Utilizing stock market technical analysis in this manner becomes very simple. What was going to be the Candlestick formation that day? The markets immediately sold off that morning. They did so with good strength very early in the day. What should become the investment strategy? Our stock market technical analysis already told as we are in an oversold condition. Our Candlestick signals indicated that buying had been trying to start for the past two weeks. Prices were already down big early in the day. As we had advised in our members’ morning comments, it was a day to hold the long positions until we saw what Candlestick formation was going to occur. The candlestick charts clearly identify when signals may occur.

Had the day closed at the lower end of the trading range, it would have provided a completely different scenario than the formation of a Hammer signal. The Hammer signal revealed that investor sentiment was not in a massive selling mode. This provided the signal to buy aggressively upon seeing more strength the following day.

HAMMERS
(Takuri)

Description

The Hammer is composed of one candle. It is easily identified by the presence of a small body with a shadow at least two times greater than the body. Found at the bottom of a downtrend, this shows evidence that the bulls have started to step in. The color of the small body is not important but a white candle has slightly more bullish implications than the black candle. A positive day is required the following day to confirm this signal.

Criteria

1. The lower shadow should be at least two times the length of the body.
2. The real body is at the upper end of the trading range. The color of the body is not important although a white body should have slightly more bullish implications.
3. There should be no upper shadow or a very small upper shadow.
4. The following day needs to confirm the Hammer signal with a strong bullish day.
   
   Signal Enhancements
   1. The longer the lower shadow, the higher the potential of a reversal occurring.
   2. A gap down from the previous day’s close sets up for a stronger reversal move provided the day after the Hammer signal opens higher.
   3. Large volume on the Hammer day increases the chances that a blow off day has occurred.

   Pattern Psychology
   
   After a downtrend has been in effect, the atmosphere is very bearish. The price opens and starts to trade lower. The bears are still in control. The bulls then step in. They start bringing the price back up towards the top of the trading range. This creates a small body with a large lower shadow. This represents that the bears could not maintain control. The long lower shadow now has the bears questioning whether the decline is still intact. A higher open the next day would confirm that the bulls had taken control.

   

   Market Direction – The series of Morning Star signals, confirmed with the bullish candle after the London bombing Hammer day, started the market uptrend. Friday, an option expiration day, started to show some toppiness. Both the Dow, the NASDAQ, and the S&P 500 showed indecisive trading. This was not unexpected on a Friday in the summertime and on an options expiration day. However, the stochastics in all of the indexes have now reached the overbought area.

   It would not be unusual to see some pullback occurring from these levels. This pullback would be more of a profit-taking process versus a reversal. The uptrend appears to be intact. The fear of the feds continuing to raise interest rates as well as oil prices in high trading areas has not produced any euphoric buying as of yet. This becomes a good indicator that the uptrend should persist.

   

   If a pullback should start appearing, with the evidence of selling starting on Monday or Tuesday, a logical pullback target would be the 50 day and 200 day moving averages. Weakness, confirming Friday’s Doji signals, would be the time to be taking some profits from this recent rally. The strategy, after the test of the MA’s, would be to analyze which sectors appear to be the next strong movers.

   

   If the markets start pulling back from here, anticipating that the markets are in an uptrend, the Candlestick signals make it very easy to identify when the pullback is over.

   As illustrated in our recommendation of CTTY, once the breakout occurred and the profit-taking came into the stock, the Inverted Hammer, followed by a Bullish Engulfing signal, made for a very profitable trade. CTTY formed another Inverted Hammer on Thursday with some confirmed buying on Friday. Watch for the next leg up.

   

   There are always opportunities being revealed when Candlestick signals are used for finding high profit trades.

Candlestick signals become important for swing trading. Understanding what the signals are telling you will produces a very accurate format for swing trading as well as all other forms of investing. Swing trading, with a short-term outlook, requires being able to see exactly what the trends are doing over a 3 to 10 day period. The use of Candlestick’s become much more important especially in a market trend that is not showing very much conviction one way or the other. Understanding what the Candlestick signals are telling you becomes an important factor for making profits and for limiting losses. Interpreting what the signals are telling you is very easy. Whether swing trading, day-trading, or long term investing, the probabilities of being on the correct side of the trade grows dramatically when utilizing the information conveyed in a Candlestick signal.

Market Direction

As was noted late last week and early this week, two Harami signals indicated that the downtrend had stopped. At that time, with the trend apparently bottoming midway between the 50 day moving average in the 200 day moving average, a quick analysis would have suggested an up move to test either the 20 day moving average or the 50 day moving average. However, Thursday produced a doji, demonstrating indecision, and Friday created a bearish candle in the Dow, that closed more than halfway down the bullish candle the day prior to the doji. The last three days formed an Evening Star signal. A true Evening Star signal would be witnessed when the stochastics are in the overbought area.

Dow

Even though the Evening Star signal did not occur in overbought area, the formation still has to be evaluated as to what is the investor sentiment appearing to be at this time. Very simply stated, after Thursday’s doji, there was an opportunity for the Bulls to continue the rally. But we saw that the selling had stepped back in. Had we seen a bullish day on Friday, the evaluation of the market trend would have been simple, they are still moving this market up. After the big sell-off on Friday, and the stochastics coming out of the oversold area but turning back down, now allows us to analyze what Monday’s market action could produce.

Before the appearance of the two haramis last week, the Dow’s pullback had been fairly severe. The projection had been that it may test the 200 day moving average down near the 9800 level. The market action, as seen this past week reveals a mild bounce in a down-trending market. Friday’s action, after the doji, and forming a an evening Star signal, should now tell us that if we see weakness on Monday, the last weeks bounce may be over and we are now still heading for the 200 day moving average.

Is this a complete change of projections for just a few days ago? Yes, but that is what using the candlestick signals tell you to do. What could have been the possibilities from the market indications a few days ago has been completely altered by what the candlestick signals are telling us now. That is the whole premise of using candlestick analysis. It changes the investment strategy from being positioned in the direction of what you ” think” the market is going to do to a market strategy based upon what the candlestick signals are indicating the investor sentiment is now.

What may have been the correct analysis five days ago may not be the same analysis today. Most investors lose money because once they make an analysis of the market direction, their ego holds them to that analysis versus being willing to alter their analysis when things change, whether it be three days, three weeks, or three months. What looked like could be a test of the 50 day moving average in the Dow just a few days ago, now has the probabilities reverting back to testing the 200 day moving average if further weakness as seen in the market on Monday.

Over the past 10 years, the number of stock trading methods that have been revealed on the Internet has exploded. Everybody promotes their stock trading methods that are reported to have been working. It seems surprising that these stock trading methods didn’t seem to be around before the internet showed up.

There are always the fantastic claims about the returns that these stock trading methods are producing. Yet you never find anybody that has been participating in these fantastic returns. That becomes another learning process in most investor’s investment education. The one basic rule, in regards to investing, is that when you find something that works consistently, continue to use it and try to improve upon it.

Candlestick analysis investing is most tested and proven investment methodology. It has been in existence for hundreds the years. The one predominant point that is demonstrated on the Candlestick Forum site is that the candlestick patterns put the probabilities of being in a correct trade highly in your favor. Are you going to get rich quick with candlestick signals? Are you going to make money on every single trade you do with candlesticks? Probably not! But you will have the opportunity to use a stock trading method as a framework for producing consistent profits. The common-sense rationale that is used for forming the signals allows you to develop investment strategies that can implement new computer-technology processes and/or establish optimal timing strategies for fundamental research recommendations.

When you learn how to utilize the candlestick signals correctly, you now have the knowledge that will improve your trading techniques for whatever trading entities you want to trade. You do not have to depend on canned programs that sometimes work and sometimes don’t work. You do not have to buy or sell stock recommendations blindly when a research analyst recommends a stock. The candlestick signals give you guidance as to what investors are actually doing at that point in time. There is something in the dynamics of Candlesticks. Learn them and your investments perceptions will be improved for the rest of your life.  Utilizing candlestick charts will greatly improve your analytical abilities

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Market Direction

The NASDAQ had a hard time getting through the 50 day moving average. At the same time, Thursday, the DOW did a bearish engulfing signal. Thursday confirmed the selling after they’d tried to push it up through the 50 day moving average one more time in the Nasdaq. The lower open on Friday confirmed the selling, or the lack of buying at the 50 day moving average area. The stochastics also were starting to turnover in the overbought area.

NASDAQ

Note how the Doji just touched the 200 day moving average, showing weakness at an important level. Also notice how the Doji/Harami revealed the buying starting five days earlier. Again, this is to illustrate that when you see a Candlestick signal at an important technical level, this acts as an additional confirmation that something important has occurred at those levels when combined with a Candlestick signal.

As you have seen in the “morning comments” and more specifically in the member “market comments”, it has been recommended for the past few days to be taking profits in the weak “long” positions and start adding to the short positions. This was nothing more than witnessing potential candlesticks sell signals occurring at important resistance levels. Over the past few days, a portfolio would have been shifting from being predominantly long, equally balanced, and then predominantly short. This makes moving with the trends an easy process.

As with every other type of investing, trading commodities forces the investor to understand the relationship between knowledge and success. There is an old saying that if you completely understand a problem it is nearly solved; this is very true when you are trading commodities. While it is true there are many people that succeed at commodities trading, the typical investor will lose money. Most investors do not accomplish the things necessary to be successful and failure is the only other option. Your investing is a business that requires training, experience and plenty of digging through facts and information, things that occur in most successful businesses.

The Potential of Trading Commodities

Trading commodities has is viewed by some as being much riskier than investing in the stock market. While there is risk, the truth is an investor can raise or lower that level of risk. If your approach to your trades is conservative, you accept reasonable returns and you take the approach that this is a business, then the probability of success in commodity trading rises dramatically.

Trading commodities has its risks but the rewards can be very nice as well. One example of rewards in commodity trading is a man who is said to have borrowed less than $2,000 and amassed a $200 million fortune in ten years. While these results are extraordinary and not everyone can expect the level of successful trading he achieved, it is possible for you to make money trading commodities.

What is Involved When Trading Commodities?

Trading commodities is unlike investing in the stock market or bonds. When you are trading commodities, you don’t actually own anything. You are speculating on the future direction of the price for the commodity you are trading. The terms “buy” and “sell” merely suggest the direction you think future prices will take.

Trading commodities allows those who are involved with a particular commodity to lock in the price to avoid devastating changes later. A drilling company may sell oil futures if it believes that crude oil prices are going to fall in the future; in turn a refinery might buy futures if prices appear ready to rise. No matter which direction the prices move after that, both the drilling company and the refinery are guaranteed their price. The investor is the one who looks for changes in the commodities markets and attempts to gain advantages by buying or selling for a profit.

Is Substantial Risk Unavoidable Trading Commodities?

There is a potential of tremendous risk when trading commodities but reducing that risk can be easier than you may think. Some of the things that can be done when investing in the futures markets to limit risk include:

1. Being Conservative – Deciding to follow a conservative approach can limit your risk; avoiding greed and fear can go a long way to improving your chances for success. Those who follow an aggressive trading pattern expose themselves to much higher risk.
2. Doing Your Research – Knowing your commodity and the conditions that move it will help you to avoid changes that put your positions in danger.
3. Learning Techniques for Avoiding Loss – There are techniques you can use to help minimize loss. For example, instead of accepting a loss by taking or making a delivery, an investor can offset the position before the delivery date. If the commodity eventually makes the right move, the investor has improved his or her position.
4. Having a trading system – Using a system like Japanese Candlesticks to track commodities and predict their future movements is not only a conservative move but a profitable one as well. Candlesticks originated in the commodities markets in Japan hundreds of years ago and it is perfect for trading commodities today.
   

Conclusion

While not everyone will want to start trading commodities, it is still potentially very profitable. The danger is that the risks can be limitless to an uninformed, undisciplined investor. The good news is that if you create a set of solid trading rules and educate yourself on the markets and techniques required trading commodities can be a very rewarding and exciting adventure.

Commodity Price Introduction

When looking at commodity trading and each commodity price, it can be very confusing at first. Most of the trading works by investors buying and selling futures contracts, instead of trading directly in commodities.  Futures trading is very similar to trading stocks and bonds. The only difference is that the futures contracts have an expiration date unlike stocks and bonds. The main component when discussing commodities is the commodity prices and the quotes associated with each. There are a lot of commodities that can be traded, a few of which include gold, coffee, live cattle, natural gas and corn. Depending on the type of commodity you are trading, you will find that you must trade on a specific exchange and that each commodity has a different commodity price. They are not all traded on the same commodity exchanges.

Gold is a commodity that most new traders begin trading in due to its historical track record regarding its commodity price. It is very accessible, and has very few troubles in the commodities markets. Coffee is referred to as a soft commodity when compared to metal, energy, grain and the commodity price for coffee is quoted in cents per pound.  Live cattle futures are traded on one of the oldest exchanges in the United States, the Chicago Mercantile Exchange (CME), and the commodity price is established in cents per hundredweight. When commodity investing, that natural gas is noted as dollars per million on the New York Mercantile Exchange (NYMEX). Corn is also another commodity frequently traded and is known to have the longest history in commodities.

Commodity prices have gone through the roof recently and are one of the fastest growing market sectors of the financial markets. When trading commodities, there are a slew of them to choose from. In addition to the few mentioned above, other commodities include wheat, soy meal, sugar, steel, copper, platinum, crude oil, soy beans, oats, and gasoline. When commodity trading, you should aim to buy low and sell high, or sell high and buy low. You must also understand the concept of commodity trading hedgers. Hedgers aim to guarantee each commodity price in order to lock in profits or to avoid excessive losses. There is also the concept of commodity trading speculators.  They are on the opposite end of the hedger and they have no business interest in the commodities. They simply bet on whether or not the price of the commodities will go up or down. It requires very little margin, but it can lead to very big losses as well. If you plan to trade commodities, it is very important that you have a good credit standing when you go to apply for a commodity trading account.  It is more important than when trading commodities, than it is when trading stocks.

The above is just a quick introduction to the commodity price and various commodities trading concepts. If you are seriously interested in getting involved in this financial market, there is a wealth of free knowledge available to you on the internet. It is important, to however, invest in some sort of commodity training classes, e-books, etc, before you get started.