Archives for January 2020

Options Analysis – Trading the Hype For Success

If you have ever browsed the Internet looking for stock tips, the offers jump off of the page literally screaming at you. “Start trading for BIG PROFITS by turning less money in MORE MONEY!” or “93% Winners, $18k Profit” or my favorite “Find out how to make over 87% gain monthly. Up 954% since Jan 2006!”

In spite of any promises that might be made to you, investing in the stock market has not been turned into some easy-to-learn program with astounding results, especially in the options markets. Substantial profits can be made but not because of some miracle program; if such a program existed, we would all spend the $49.95 to buy it and be incredible rich. In reality, profits are usually the result of strong options analysis, successful stock trading plans and technical analysis.

In theory, options analysis and options trading are easy; all you need to do is find stocks that are going up and buy calls on them. Then you find stocks that are dropping and sell puts on them. That’s pretty easy, right? Well if it’s easy the reason is that you have spent the time researching, not because of some program off the Internet. Technical analysis and charting give you the silver bullet to increase your success in the stock market and a trading system like Japanese Candlesticks is the most powerful system available for options analysis.

What is Japanese Candlesticks?

Japanese Candlestick signals were invented around 1700 as a method of analysis in the country’s rice markets. The Japanese Rice traders analyzed reoccurring signals on trading charts when trying to pinpoint the exact times to get in and get out of their positions. Analysis with these signals made the Honshu family immensely wealthy. The signals they identified are as effective today in options analysis as they were centuries ago because while they were developed for futures analysis, they are equally powerful in options analysis.

Options analysis with Candlesticks

Candlestick charting is superior to standard bar charting. Bar charts are limited to showing you a price range for a given time period; it does not show you patterns which can help with identifying trading patterns. Japanese Candlesticks provides the type of insight needed for successful option analysis. Candlesticks is extremely powerful for options analysis because it provides the user with the three criteria of options trading: direction, time and magnitude.

  • Direction – Most investors have difficulty in identifying the direction of a price move. Utilizing Candlestick analysis greatly increases the probabilities of at least having a price move analyzed in the proper direction. Knowing the direction of a trend with a relatively high degree of probability allows the trader to produce high profit option strategies.
  • Time – The amount of time available for a movement in price is also an important factor. The strategy for a trade will be vastly different when considering a trade that will expire in one week versus a trade that will expire in two months.
  • Magnitude – Magnitude, the third key element, indicates stock volatility. Volatility is both the friend and the foe of investors. The Candlestick signals provide the ideal search technique for finding the trades that will move in the magnitude required to make successful trades. Utilizing gaps located by the Candlestick charts provides a source of high profit potential trades. Gaps, or Windows, appear during options analysis and indicate to investors when they should get in or out of a position with vigor.


Because an investor is able to analyze direction, time and magnitude with Japanese Candlestick charts he or she is better equipped for options analysis and for knowing when to enter or exit positions. Options analysis with Japanese Candlesticks is not a magic wand for conjuring successful trades but a valuable tool for identifying conditions in the market and finding the profitable times to enter and exit trades.

An Overview of Trade Options

Trading investment options. If you search the Internet for “trade options” you will be flooded with two types of responses. The first will be “use my system to trade options and you will be insanely rich”. The second thing you will notice in your search results is that trade options and futures options seem to be linked together like two star-crossed lovers from a soap opera. While the two are similar, they are definitely different animals altogether.

Differences Between Futures and Options

The main similarity between trade options and futures is that both are “derivatives”, meaning that they have no independent value. Futures and options are contracts binding two parties and the terms of those contracts make the difference between the two.

A futures contract gives its buyer the obligation to purchase the asset in the futures market and the seller to sell it at a preset date. If the futures holder liquidates his position prior to expiration, the delivery clause is voided, obviously.

By contrast, an options contract or stock order, whether it is a call (an agreement to purchase) or a put (an agreement to sell), gives the holder the right to trade options; in addition, the holder is entitled to simply let the option expire without investing further. Options can be low-risk ways to make money in the stock market because many times you can exit a trade option that is unfavorable for only the price of the premium.

Types of Trade Options
Trade options cover in a number of different scenarios, offering the investor the ability to buy or sell and setting conditions for the transactions. The following are samples of the trade options that are available:

  • Buying Calls – Buying a Call is a bullish position on an underlying stock value. The investor has the opportunity to speculate on the rise of the stock’s value for the term of the contract with a predetermined risk. Most investors will look to sell their contract at a profit, while others may intend to exercise their right and purchase the underlying shares.
  • Buying Puts – Buying Puts is a bearish, somewhat speculative technique in which the investor anticipates that a stock will decrease in price during a set period of time. The trader realizes a profit when the stock and its underlying put option decrease in price during a set amount of time.
  • Selling Puts – When you sell puts, you are selling someone the right to sell you the underlying asset at a fixed price, on or before the expiration date of the option. When you are bullish on the market and feel that it isn’t likely to go down in the short term, you can sell puts on a quality asset that you would like to own at a discount.
  • Selling Covered Calls – Selling a covered call means that there are investors willing to pay for the right to take a stock if it reaches a much higher price. It is an excellent strategy to implement while waiting for a stock to reach your identified sell point.
  • Put Hedge – A Put Hedge is the technique of buying puts during a bearish market to protect stock shares that, while the trader is reluctant to sell, are vulnerable to a decline in the market. Successful traders utilize strategies such as Put Hedges to insulate their portfolios from loss in a bearish market. This method also has the potential of unlimited profits, while at the same time limiting the potential loss by the investor.


There are quite a few more trade options available for your use; discussing you trade options with your broker can help to identify those that are available to you. Whether you are looking to capitalize on an upward movement of a stock or make defensive profits in a bear market, options are an excellent way to make money investing in the stock market.

Futures Exchanges – Knowing Where To do Business

Good for you! You’ve been reading, you’ve put together a trading rules to lay the foundation for your futures trading plan and you’ve even been paper trading to prove your trading plan. Now you are ready to learn more about where you will be doing your business; it’s time to talk about the futures exchanges.

General Futures Exchange Information

As you know at this point, you will not actually do business with the futures exchanges listed below. You will work with your broker who will take your futures orders to the exchange floor for you. Since you have been paper trading, you probably have already established an account for commodities trading so we won’t go over that again. While there are futures exchanges throughout the world, we will focus on the ones in the US. The markets we will outline are in Minneapolis, Kansas City, New York and Chicago.

History of Futures Exchanges in the US

The modern futures trading began in Chicago, IL in the early 1800s. Chicago, with its location at the base of the Great Lakes, is close to the farm of the U.S. Midwest which made it a natural center for transportation, distribution and trading of agricultural produce. Gluts and shortages of these products caused extreme changes in price. An exchange was needed that would bring together a market to find potential buyers and sellers of a commodity instead of making people bear the burden of finding a buyer or seller. In 1848, the Chicago Board of Trade (CBOT), the world’s first futures market, or futures exchange, was formed. Trading was originally in futures and the first contract was written on March 13, 1851.

Futures Exchanges

Different futures exchanges trade different commodities. In addition, each future exchange accepts different futures orders. Since not every exchange allows every order it is necessary to talk with you broker about which orders are permitted in the markets you trade. The following is a list of the major commodity exchanges, their commodities, and the orders that they accept:

Chicago Board of Trade
Location: Chicago, IL

  • Corn
  • Oats
  • Soybeans
  • Soybean Oil
  • Soybean Meal
  • T-Bonds
  • T-Notes
  • Muni Bonds
  • 5 Year Notes
  • 2 Year Notes
  • DJIA Index

Acceptable orders: Market, Market on Close, Limit, Stop, and Fill or Kill Orders

Chicago Mercantile Exchange
Location: Chicago, IL

  • Live Cattle
  • Lean Hogs
  • Lumber
  • Feeder Cattle
  • Pork Bellies

Acceptable orders: All futures orders are acceptable.

Index and Option Market

  • S&P 500
  • Mid-cap 400
  • NASDAQ 100

Acceptable orders: All futures orders are acceptable.

International Monetary Exchange
Location: Chicago, IL

  • T-Bills
  • Euro Dollars
  • Canadian Dollar
  • Euro Currency
  • Australian Dollar
  • Mexican Peso
  • Euro Yen
  • Japanese Yen
  • British Pound
  • Swiss Franc

Acceptable orders: All futures orders are acceptable.

New York Comex
Location: New York, NY

  • Copper

Acceptable orders: For Copper only, acceptable are Market, Market on Close, Limit, Stop, and Fill or Kill.

  • Gold
  • Silver

Acceptable orders: For Gold and Silver, acceptable are Market, Market on Close, Limit, Stop, and Fill or Kill. Stop Limits are acceptable only on a not-held basis.

New York Cotton Exchange
Location: New York, NY

  • Cotton
  • Orange Juice
  • Dollar Index

Acceptable orders: Market, Market on Close, Limit, Stop, and Fill or Kill.

New York Coffee, Sugar & Cocoa Exchange
Location: New York, NY

  • Coffee
  • Sugar
  • Cocoa

Acceptable orders: All futures orders are acceptable.

New York Mercantile Exchange
Location: New York, NY

  • Unleaded Gasoline
  • Platinum
  • Palladium
  • Heating Oil
  • Crude Oil Natural Gas

Acceptable orders: All futures orders are acceptable.

New York Futures Exchange
Location: New York, NY

  • New York Stock Exchange Index
  • CRB Index

Acceptable orders: All futures orders are acceptable.

Kansas City Board of Trade
Location: Kansas City, MO

  • Kansas City Value Line
  • Kansas City Mini Value Line

Acceptable orders: All futures orders are acceptable.

  • Kansas City Wheat

Acceptable orders: Market, Market on Close, Limit, Stop and Fill or Kill.

Minneapolis Board of Trade
Location: Minneapolis, MN

  • Minneapolis Wheat
  • Minneapolis White Wheat

Acceptable orders: All futures orders are acceptable.

Learning To Trade Futures

It has been said that success in this life is made up of equal parts of learning and yearning. For nearly everyone, it’s possible to accomplish your goals if you have sufficient desire and education. If your desire is to trade futures, you already have a direction; next, you need to couple a relentless pursuit of education with a strong desire to succeed at something very interesting and potentially rewarding. Commodity trading can be complex and frustrating but it is also well worth the effort.

Necessary Traits to Trade Futures

What are the four things necessary to trade futures? They are:

  1. You Need to Have the Desire to Succeed As a Trader – There is a certain air that is needed to trade futures…part student, part bulldog, part daredevil. Desire to succeed will push you to learn more and trade futures smarter.
  2. Persistence and Motivation – This is a by-product of your desire. Once you have the desire to succeed, you will be willing to put in the time to learn to trade futures and the motivation to make your new business a success.
  3. Discipline, Discipline, Discipline – Discipline to learn the nuances of how to trade futures, discipline to do technical analysis, and the discipline to make smart futures trades. If you trade futures like it is a business you will acquire the discipline to be successful.
  4. Someone to Help You Get Started – Whether you learn from someone you know, from going to seminars, or reading books, you will need some help when you start to trade futures. It is important to learn the terminology, techniques and practices that make a successful trader and that knowledge is best passed down from person to person.

An Overview of Futures Trading

Futures trading is different that investing in the stock market or bonds since you don’t actually own anything; in futures trading, you are speculating on the future direction of the price in the commodity you are trading. This is like a bet on future price direction. The terms “buy” and “sell” merely indicate the direction you expect future prices will take. He or she must only deposit sufficient capital with a brokerage firm to insure that he will be able to pay the losses if his trades lose money.

Futures trading is a sort of insurance plan for those who are trading and investing. A farmer may sell futures on his wheat crop if he thinks the price will go down before the harvest; conversely, a bread manufacturer may buy futures if they think the price of wheat is going to rise before the harvest. Regardless of the price movement, both are guaranteed their price. The final component of the equation is the investor in futures trading who looks for changes in the futures markets and seeks to gain advantages by buying or selling at a profit.

The Potential of Futures Trading

Trading futures is an excellent way to make money. It is said that Richard Dennis, a famed commodities trader, was able to parlay $1,600 of borrowed money into $200 million over ten years. Futures trading has a bad reputation as being filled with risk and while there is risk, the truth is that futures trading is only as risky as a trader makes it. This is not the lottery or a trip to the casino; if you take a conservative approach, look for a reasonable return and make this a business then the probability of success in commodity trading is very good.
Some of the better known futures markets are:

  • Agriculture – This is a broad, commonly traded futures which includes such things as wheat, soybean and corn futures.
  • Currency Trading – Currency trading, also known as FOREX (foreign exchange) trading, this involves buying and selling currency from many different countries such as the US dollar, the British pound and the Japanese yen.
  • Interest Rate Futures – This market focuses on financial transactions, interest rates and bonds.
  • Energy Futures – This market centers its attention on gas and oil futures.
  • Foods – This sector includes items such as coffee, sugar and orange juice.
  • Metals – This is one of the more popular and better known sectors. The typical commodities in metals are gold and silver.

Trade Anywhere

One of the real advantages when you trade futures is that you can literally do it anywhere. Since market data can be delivered easily via the Internet, you are free from any geographic restrictions, allowing you to implement trades from almost any location in the world.

Getting Started

In order to get started, you need to equip yourself with a good understanding of how to trade futures, which markets you will target, and above all, you need a trading plan. The trading rules in your plan will help you to understanding yourself and your responses to the things you see on the charts. You need an unemotional approach, backed up by the confidence that you can do it. This confidence comes from proving to yourself that you can win more often than you lose when you trade futures.

Futures Markets

When formulating a trading plan for futures, it is important to think about the futures markets where you trade. There are a number of futures markets with adequate liquidity for speculation, but when choosing a market it is important to choose based on your account size, level of risk and investment philosophy. Above all it is important to be diversified; each market has its big move every year. Being diversified helps increase your chances of catch those big moves that make for successful trading.

Other Factors in Choosing Markets

Another key to choosing your futures markets is history. Futures markets that have more big trending moves are more likely to have them in the future as well. The following list represents some of the best trending futures markets:

  • Currencies – Currency trading is the sector that trends the best. The best currencies to trade are the Swiss franc, the German mark, the Japanese yen and the British pound.
  • Interest Rate Futures – T-Bonds represent long-term interest rates and Eurodollars are for short-term interest rates.
  • Energy Futures – Natural gas, heating oil and crude oil futures all make for good trades.
  • Food Sector – Coffee, orange juice and sugar are the recommended commodities.
  • Metals – Gold, silver and copper are traditionally strong commodities.
  • Agricultural – Cotton, soybeans, oats and corn futures outperform the others

Now you have a short list of commodities that have a history of trending well. The next step is to solidify your trading rules or your trading plan.

These rules should include:

  1. Reviewing – This is a critical part of the process. You wouldn’t jump out of an airplane with a parachute that wasn’t inspected prior to being strapped to your back; the same principle is true with your trading plan.
  2. Strict Guidelines – Your trading plan must be specific and precise. Having a tested, reliable trading plan we give you something solid when you hit a losing period.
  3. Testing – Thanks to the computer age, you can successfully test your trading plan. Without this ability, your trading plan is left to chance. Does it work or fail? Testing will give you the confidence you need to be a successful trader.

The final step is to go live with your new wisdom. You’ve identified your target markets, formulated, reviewed and tested your trading plan; now is the time to put your hard work to use. The futures markets have something in common with the stock market; a well informed, patient investor is more likely to succeed than someone just stabbing in the dark.

Is there anything else you can do to increase your chances of success in the futures markets? Yes, there is. Implementing a trading system like Japanese Candlesticks adds a powerful charting system, especially in the futures markets. Candlesticks was invented over 300 years ago as a method for trading in the rice markets of ancient Japan . The success of the system has grown and developed and it is an amazing tool for today’s futures markets. With the candlestick charting abilities you will gain you could literally have a view inside the directions of futures before they even move. Added to your trading plan, Candlesticks can put you in the right company for successful trading in the futures markets.

Stock Portfolio – Seven Questions For Stock Market Success

Any time an investor is looking at companies for stock portfolio diversification; there is a list of seven questions that should come to mind before buying. These questions will help successful traders to discover the strengths and weaknesses of a company, as well as helping to understand the business economics and market position of the company. Such an investigation of a company would fall in the category of fundamental analysis and is important to making a wise decision on the purchase of a company’s shares and to understand the stock portfolio advice that you might receive.

Where does the company get its cash flow?

The value of any asset is the net value of its discounted cash flows. A trader can’t even evaluate a company or give stock portfolio advice unless he or she knows how the company is generating its cash. This is critical and needs to be specific and void of assumptions. Domino’s Pizza is a perfect example of such a need for understanding cash flow. Millions of people recognize the brand for Domino’s. It’s easy to assume that the company generates their revenue from their pizza sales. While Domino’s does make pizzas, many of the actual stores are franchises, separately owned and making products according to the ingredients and recipes of the parent company. In other words, Domino’s creates the pizza and other products that its franchises make. After making this connection, it is easy to see how important the relationship between Domino’s and its franchises is to the company’s value in the stock market.

How much cash does the company generate and how quickly?

After identifying where a company gets its cash flow, the investor need to understand approximately how much income it generates and the timing of the cash flows before giving stock portfolio advice about the company. Because of the time value of money, a company that makes a million dollars today is worth more than a company that makes two million over the next twenty years. Making such connections between cash flow and time is critical to implementing a successful stock market strategy.

Can the company sustain its cash flows?

In a time that many traders can still remember, the American steel industry was considered a blue chip stock and countless analysts advised adding it to a stock portfolio. An extended stock price history of profitability led many investors and analysts to believe that this business would always be strong investment. The past, however, is of little value in projecting future cash flows. One way to evaluate whether a company can sustain its cash flows is to look at the barriers of entry for the industry sector in which the company operates. A new pharmaceutical manufacturer will no doubt struggle trying to enter that sector due to industry giants and oppressive costs of dealing with the Food and Drug Administration. Because of this, such a company might not prove to be a successful investment and its purchase might end up being a bad stock portfolio investment option.

How costly is a business to operate?

Some companies require a great deal of capital to make their profits, while others can operate successfully on very little revenue. A utility company needs billions of dollars each time it opens a new power plant, yet an Internet company can survive on a small amount of ad revenue while it develops its product. The less money it takes to run a business, the more attractive it will be for someone investing in the stock market and the more desirable it is to give investors the advice to add it to their stock portfolio.

Does the company managed in a shareholder-friendly manner?

The approach of a management team towards the shareholders is extremely important in the company?s success. A company that looks at its own investment options, such as repurchasing shares when the stock prices have fallen rather than invest in another company is more likely to create wealth than a one only looking to build its ?kingdom?. A company?s own actions can usually be the best stock market investing advice.

Is the management team true to its word?

A big part of learning how to play the stock market is learning to decipher the difference between a company?s public statements and its actions. An investor’s stock portfolio will suffer if a company is included that doesn?t operate honestly is not a good investment.

Is the price attractive?

Simply put, price is the single most important technical analysis tool. The most common metrics for stock technical analysis are found because of the share price. A $20 per share company that earns $6 per share has a yield of 30%, but a $100 per share stock that returns the same $6 only turned a 6% yield, hardly anything that will excite investors or cause a company to be included in anyone?s stock portfolio.

The best investment advice happens to also be the best stock portfolio advice; follow the money flow. If a company is successful at making and sharing its money, it will be a company that has strong investment potential.

Market Direction

The end of the year is an excellent time to evaluate your investing. Not so much the prospects for the coming year, but what could have been improved during the past year. Most investors optimistically project that they will do better the coming year. But they spent little time analyzing what they could have improved upon from the previous year. That is a function of not having an accountable investment program. Did you buy some stocks because some of analysts said that was going to be a strong industry? Did you buy some stocks because the price of gold/crude oil/corn was going to go higher? Did you buy some stocks that were going to improve in price as trade improved with China? There is a multitude of reasons for adding stock positions to a portfolio. Unfortunately, the results of most investment decisions do not have a basis for analyzing whether those decisions were correct.

Candlestick analysis contains one very basic element. The results of specific candlestick reversal signals and patterns can be visually analyzed. Did prices move in the proper manner after the appearance of a specific signal? What was the quantitative result of the returns coming out of a specific candlestick pattern? What other market conditions were occurring that might have made the results of a signal/pattern successful or unsuccessful? The huge advantage for using candlestick analysis is exploiting high probability results based upon centuries of actual experience. Using that information correctly dramatically improves an investor’s potential return.

Candlestick signals are merely the graphic depiction of investor sentiment. Investor sentiment has not changed since the beginning of mankind. Investor psychology is directly influenced by emotions. Fear and greed, involved when investors have their equity on the line, will dictate how prices move. Prices will move in an expected manner based upon historical data, the reoccurring thought processes of investors. Candlestick signals are merely the graphic depiction of that data. Learning how to analyze what the result should be after the appearance of candlestick signals/patterns is a very simple but valuable educational process.

“The markets will tell you what the markets are doing.” This is one of the first lessons Japanese Rice traders conveyed. Are you just learning how to use candlestick signals? Then go back through your trades from this past year. Analyze each position that was established. Did it work as expected? What were the confirming indicators doing? What were the market/sector indices revealing at the time? Did you come out of a trade too early? Why? Did you stay in a trade too long? Why? It is one thing to analyze charts to learn when to enter or exit trades. It is a much more valuable process to analyze the trade you actually established. Reviewing your trades from the previous year produces a much greater learning process. The analysis can be done with one major factor included. You can dramatically reinforce your investment abilities by recognizing what you have done correctly or incorrectly in the past AND remember what your emotions were doing at the time you were participating in the trade.

What makes a seasoned investor successful? Investing in proven situations that were successful in the past, without the emotional element. That is what the candlestick investor benefits from when using candlestick signals. Nobody is entitled to profits. Profits are the results of buying and selling at the correct times. That has to be learned. The signals, occurring in the proper conditions, produce high probabilities of producing profits. Learn how to utilize candlestick analysis.

“The markets will tell you what the markets are doing.” This may seem like a very simplistic statement. But what are all investors searching for? The indicators that show where the profits can be made! The first of the year is a time that most investors reflect upon the previous year and analyze where they want to put their investment funds in the coming year. The holidays are a time when extra time and effort is put into the analytical projections for the coming year. The last two weeks of any year becomes a period where analysis becomes highly concentrated going in the next year. What is the result of that extensive analysis? This information is clearly conveyed through candlestick signals.

Remember the first day of trading for 2006? Specific sectors revealed very strong candlestick buy signals. The oil industry, mining stocks, and the biotech industry came out of the chute last year on the first day of trading. Those signals reviewed immediately what sectors the big money was buying going into 2006.

Stock Portfolio, ATI

Whether a technical investor or a fundamental investor, the signals immediately reveal what investor sentiment is doing. Being able to identify where the strong buying is coming into the markets produces a number of benefits. The technical trader can immediately take advantage of a strong price move. The fundamental investor can pinpoint their research analysis to investigate why a specific sector is picking up strength. The candlestick signals are the accumulative knowledge of everybody that was buying or selling during a specific time frame. When a strong candlestick buy signal occurs, this becomes a valuable alert to start researching why a stock/commodity is being bought.

When does the smart money buy? At the bottoms! A strong candlestick buy signal in an oversold condition reveals that somebody has decided that the future has potential. Most investors do not understand what that potential is until the price has moved substantially. The candlestick investor has the advantage of recognizing when to start looking into the fundamental aspects of a company well before the masses. Learn how to use the candlestick signals and patterns correctly. The powerful information conveyed in the signals will dramatically improve your investment analysis.

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Chat session – There will be a chat session on Thursday night at 8 p.m. ET. – Chat Instructions
Speaking sessions – Mr. Bigalow gets many requests to speak in front of clubs and organizations around the nation. If you have a club or a group that would be interested in a two-hour free session on candlestick signals, please feel free to e-mail us. A group of 50 people or more will make the travel expenses viable. In some areas, two or three smaller groups combine for the meeting.

Seminar at Sea – April 2007 — Clear your schedule for a fun and informational investment training seminar on the high seas. Mr. Bigalow, along with other well-known speakers, presents a very informative investment training schedule while cruising in the sun. This becomes an excellent method for combining investment strategies. Each investor has the opportunity to learn valuable investment techniques from highly acclaimed sources at the same time. This produces the opportunity to combine investment techniques. Do not miss this opportunity to gain a wealth of investment knowledge. Not only are these trips informational, but they are also very fun. The speakers are fully accessible for the full week. Full seminar schedule will be posted in our Events & Training category in the future. Interested parties should send an email to receive notification when registration is available. These sessions are in great demand – get on the pre-registration list now to be sure to get your room. Pre-register by emailing us with this line in your email message, “Steve, be sure to keep me informed about the 2007 Seminar at Sea.”

Good investing,

The Candlestick Forum Staff

Stock Charting The Common Thread of Great Businesses

All great businesses have it, that special feature that sets them apart from the competition. Whether it is the ability to introduce new products fastest, that name or slogan that people can’t forget, or that company that grabs the market share by the throat and won’t let go, stock charting successful businesses will show successful traders that most excellent businesses have specific traits in common. Or to phrase it a different way, there are important stock charting factors that separate a good stock from an ordinary stock. Among these factors, several of the non-financial characteristics that you can consider when stock charting successful businesses are product lines, competitive advantages and market leadership. Without these traits, it is highly unlikely that a company will be able to sustain any kind of leadership position.

Product Lines

When stock charting successful businesses, it is important to look at their picture from a long term investing perspective. Will anyone want, or even remember, the company’s product tomorrow? If a company’s source of identity is based on something that is a fad or quickly passing technology, the company’s success will fade as fast as its product. 8-track tape players were top-of-the-line technology at one time, but you will probably only find a player in a museum these days. Great companies with success you can track using candlestick charting have products and services that people desire year after year because of their universal appeal or because the company keeps the products fresh by responding to changing consumer demands.

Competitive Advantage

Competitive advantages, often called the “deep moat”, protect great companies from their competitors and allow them to chart a successful business course that translates to the stock market. Such advantages can be high costs of entry, such as in heavy manufacturing or brand recognition like McDonald’s, Coca Cola or Wal-Mart. These types of advantages make it difficult for competitors to grab market share, and at the same time easy to conduct stock charting on the success of these businesses. Dell Computer’s well-organized operations let it build personal computers cheaper than its competitors. Dell was able to grab and hold on to positive stock market results and significant market share. Southwest Airlines is another company that did the same things as its competitors, but did it cheaper and better, carving out a solid piece of the highly competitive airline business with a work ethic that successful businesses love to chart.

Market Leadership

Market leadership is undoubtedly a stock charting characteristic of a successful company. Stock market movers are in the position to largely dictate the agenda and direction for their entire industry. General Motors dictated the direction of the automotive industry for fifty years on the strength of their position as the number one car maker in the world. Unfortunately, the downside of this position is that everyone is trying to knock off number one and with one mistake or sluggish response; others can begin to chip away at this position and create struggling stocks. GM is the perfect example of this situation as well with Toyota poised to move into the number one position.


Stock charting of highly successful businesses is easy due to their common characteristics. Chartable success will usually follow any successful business because the factors appear in the stock market. A successful trader can use these signals of successful businesses in combination with his or her stock trading plan and stock trading system to identify potential purchases. Japanese Candlesticks is a powerful stock investing system that will help any investor conduct stock charting of successful businesses. With a centuries-old record of accomplishment, a trader can truly identify successful companies and include them in a profitable portfolio.

Stock Charts: Why Use Them?

Stock charts provide the investor a visual representation of a stock over a period of time. This allows you to assess stock market trends (uptrend or downtrend), to determine which levels are providing support and resistance, and many other aspects.

Technical analysts and chartists use stock charts to analyze an extensive display of securities and forecast future price movements. The word “securities” refers to any tradable financial tool or quantifiable index such as stocks, commodities, bonds, market indices, or futures. Any security with price data over a period of time can be used to form a stock chart for analysis.

Stock charts are helpful for use in stock market technical analysis and can also be useful in fundamental analysis. A graphical historical record makes it easy to see the effect of significant key events on a security’s price, its performance over a period of time and whether it’s trading near its highs, its lows, or in between.

Bar charts, line charts, point & figure charts and candlestick charts are four of the most popular methods for exhibiting price data using stock charting. A brief description of each is provided below.

Bar Stock Charts

The high, low and close are required to form the price plot for each period of a bar stock chart. The high and low are represented by the top and bottom of the vertical bar. The close is the short horizontal line crossing the vertical bar. On a daily stock chart, each bar represents the high, low and close for a particular day when trading in the stock market.

Line Stock Charts

Some successful traders consider the closing level to be more important than the open, high or low. Line stock charts are also used when open; high and low data points are not available. At times only closing data are available for certain indices, thinly traded stocks and intraday prices.

Point & Figure Stock Charts

Point & Figure stock charts are based only on stock price movement, and do not take time into consideration. Little or no price movement is considered irrelevant and therefore only price movements that surpass specifically indicated levels on stock charts are recorded. The focus on price movement makes it easier to identify support and resistance levels, bearish breakdowns, and bullish stock price breakouts.

Candlestick Stock Charts

For candlestick charts, a daily candlestick is based on the open price, the intraday high and low, and the close. The open, high, low and close are all required. A weekly candlestick analysis is based on Monday’s open, the weekly high-low range and Friday’s close. Black candlesticks form on stock charts when the close is lower than the open and white candlesticks form when the close is higher than the open. This is also known as the black body or white body. The lines above and below on stock charts are called shadows and represent the high and low. Candlestick stock charts have become very popular in recent years since their origination in Japan 300 plus years ago. Many traders and investors believe that candlestick chart patterns are simple to read.

Earnings Per Share – Where The Rubber Meets The Road

It’s a classic saying. Simply put, it says that the proof is the result. It’s the same with investing in the stock market. It is possible to have the best stock trading plan, but the measurement of all your wisdom is found in one place; it all comes down to the bottom line, which is to say earnings per share.

Obviously that statement has a couple of different interpretations. One is the measurement of an investor’s performance; the other is a method of stock technical analysis which can help you to determine if a company’s stock price accurately reflects its worth. Once you are able to determine a stock’s value, you have a better understanding of whether the stock price is high, low or just right. There are a number of sources and techniques for evaluating stocks but it is generally agreed that the best method is earnings per share.

For the typical investor, stock evaluation is based on the company’s earnings. This becomes the central source of information and everything else adds to, or takes away from, the earnings report. Earnings are nothing more than a company’s profit and a reflection of how much money a company made during a certain period. And while it is normal to look for a positive earnings statement, it is not necessarily true that a small or rapidly growing company with negative earnings should be ignored. All technical analysis tools should be kept in their proper context and earnings per share can help to do that.

As can be seen in any given day on the stock market, established companies are expected to have positive earnings. If a giant like General Motors has a low quarter, the stock will likely fall as well unless there is a reason that explains the problem as a one-time event. A new company might go for years with negative earnings and still have favor with the market if investors believe in the future of the company. As a result, actual earnings are linked to expected earnings. Even if a company has actual earnings in a quarter but they fall short of expectations, it is common to see their stocks drop. Earnings, or a steady movement towards earnings, indicates the health of a company and if the stock will pay dividends or realize higher stock prices.

The most common metric of earnings is earnings per share. This calculation simply divides the earnings by the number of outstanding shares. For example, a company that realizes $10 million in earnings and has 5 million shares of stock has an earnings per share of $2.00. Earnings per share is important because it is difficult to compare companies of vastly sizes. Two companies that both earn $10 million dollars look the same, but when one company has 10 million shares and the other has 2 million, it is easy to see the difference. Looking at earnings per share can make the difference between successful trading and investing mistakes.

Earnings per share can be performed in one of three time frames: against the past, in the present or against future earnings. Each measurement has a different emphasis and the results imply different conclusions. It is important for a successful investor to review a number of different variables when selecting stocks and earnings per share can be valuable stock market trading tools in this analysis.

When analyzing a company for a potential stock purchase, earnings per share are always ?where the rubber meets the road?. The earnings per share ratio is one of the best technical analysis tools for identifying a company’s success at the bottom line.

Market Direction

How do you analyze what a trend should be doing? Easy! What are the candlestick signals revealing? That is the first analysis. If the candlestick signals are not showing anything definite, what are the next most revealing indicators? As can be seen in this current uptrend, the 20 day moving average has acted as a definite support level. When that can be ascertained, what candlestick formations occur at that level become more informational.
The weakness in the Dow at the end of last week demonstrated that the 20 day moving average was an important factor. When trying to figure out the direction of the market, being able to analyze what the investor sentiment is doing at technical levels that have previously shown some influence becomes important. Witnessing indecisive signals at a major moving average reveals the lack of selling conviction. This can be seen in the Dow chart.

Earnings Per Share, Dow


The NASDAQ has demonstrated that it does not want to close below the 20 day moving average. The sideways action of the NASDAQ while the Dow was showing some weakness produces a simple analysis. Selling sentiment has not taken control of the markets. What becomes the obvious predominant factor? The trend in general!

Earnings Per Share, NASDAQ


“The market will tell you what the market is doing.” That is what the Japanese Rice traders profess. The candlestick signals are the ‘pieces’ that fine tune the understanding of what the markets are telling you. Learn the candlestick signals. Not learning proper interpretation being conveyed in candlestick signals dramatically reduces an investors potential of being in the right trends at the right times.

The simplicity of what occurs in investor sentiment can produce high probability profits. Investor sentiment produces reoccurring patterns that have occurred since the beginning of investing. The candlestick signals encapsulate simple rules. Candlestick analysis is a very easy and simple investment method for identifying when to be in a trade and when to be out.

BRLC is a recent recommendation on the Candlestick Forum. Stochastics in the oversold condition with a Doji being confirmed right at the 50 day moving average makes for a high probability trade. The stock has been in a long uptrend. It has reasonably pulled back to the 50 day moving average. This is an excellent set up for another ‘buy’ situation. The stop loss procedures are simple when using candlestick analysis. The potential target/targets are simple when using candlestick analysis. Establishing the proper exit points is very simple when using candlestick analysis.

Most investors learn how to invest backwards. They are advised to find companies that have good balance sheets and earnings growth. Through the years, they discover that criteria doesn’t work well. The best performing companies may not move for a long time until somebody else discovers the reasons for being in that position. Candlestick signals circumvent that process. Candlestick signals are formed by the cumulative knowledge everybody buying or selling during a specific time period. Understanding what the candlestick signals reveal incorporates the knowledge that other investors have done the research required for making an investment buy or sell decision. Utilizing that information produces a huge advantage for the candlestick investor. It not only indicates what the buyers and sellers are doing, it shows when they are doing it. Click here for more information on how to learn about candlesticks signals.

Chat session tonight for members 8 p.m. ET
January 11 2007- Houston, TX 6:30PM – 9:00PM

Steve will speaking to the Houston TC Users Group, meeting at HAL-PC located at 4543 Post Oak Place Dr.

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Good Investing
The Candlestick Forum staff

Beginning Investing in the Stock Market Made Easy with Candlestick Signals

Beginning investing in the stock market is usually an overwhelming process. Investors try to research a multitude of investment methods. Trying to single out an effective investing program can be very difficult. But, there is one  investment method that makes beginning investing in the stock market very easy to understand. Candlestick signals! Candlestick signals incorporate one very simple element. They are formed by the cumulative knowledge of everybody that was buying or selling that trading entity during a specific time period. This makes beginning investing in the stock market much easier to comprehend.

The candlestick signals have been a time-tested investment method, the results of centuries of observations. Japanese Rice traders became legendarily wealthy utilizing the information provided by candlestick reversal signals. Not only did the visual recognition of the signals become important, understanding why those signals were formed became invaluable information. Having the knowledge of why a reversal signal is forming provides the insights for understanding market trends. It allows an investor to eliminate the biggest hurdle for somebody beginning investing in the stock market. Emotions!

Investment patterns in the market are easily recognized. Investors throughout the centuries and throughout the future centuries will have the same emotional based thought processes when it comes to investing. The fear and greed factor. Candlestick signals are clear visual graphic depictions of those emotions. Learning what the signals represent produces a huge advantage for the candlestick investor. Learning the 12 major signals and the secondary signals produces a tremendous benefit for anyone just beginning investing in the stock market. It greatly reduces  learning  the wrong investment techniques to which most new investors are exposed . Learn how to use the candlestick signals effectively and you’ll have control of your investment future for the rest of your life.

Start your education beginning investing in the stock market with candlestick signals and their proper usage by reviewing the 12 Major Candlestick Patterns, all Secondary reversal signals, and the Continuation Patterns. Check back each week as we add new signals and patterns to continue your candlestick education.

Deliberation Candlestick Pattern



Another pattern close to the Three White  Soldiers pattern is the Deliberation pattern. It is formed by two long white bodies. These are followed by a small white candle. This last candle may have opened at or near the previous day’s close or it may have gapped up. The Japanese say that this is the time for deliberation. The slow down in the advance is time for the bulls to get out.


  1. The first two white candles are relatively equal long candles.
  2. The third day is a small body.
  3. The small body opened at or very near the previous day’s close. Or it may have gapped up slightly.

Pattern Psychology

After an up trend or a bounce up during a long downtrend, the deliberation signal can occur. Like the Advance Block signal, this pattern also represents buyer weakness. In this case, it shows the weakness in one day. This pattern is slightly more difficult to recognize than the Advance Block Pattern.