Archives for January 2020

Psychology of Investing

The psychology of investing not only affects individual investors but also affects the market as a whole. Many investors often underestimate or are unaware of the affects that our emotions have on our return on investment. Many well educated and competent traders lose money due to trading anxiety and trading emotions. In today’s article we will discuss various emotions felt everyday by online stock investors and how each emotion affects trading decisions and trading performance.

The Psychology of Investing Emotions

Greed and Fear

Greed causes traders to buy at high prices or buy a large amount of the same share, therefore increasing risk. Fear causes investors to exit the markets too early causing a loss of otherwise attained profits. Traders suffering from fear are afraid that the price will decrease further so they get out before the timing is correct, instead of letting the trade play out.


Traders who are overconfident tend to trade more rapidly and tend to overtrade. These traders lose money in commissions, taxes in addition to simply losing out on trades themselves due to the illusion of control. Greater participation in trading stock makes some traders feel more in control even though they are not. These traders also tend to invest in smaller and riskier companies and lack portfolio diversification.


The psychology of investing tells us that many investors tend to follow the crowd. They hear of hot stocks and they jump on the bandwagon only to lose money. What they fail to realize is that those stocks were hot until you and everyone else in “the herd” heard about them. Pass on these hot stock market picks. Even if they were money makers at some point, that time has passed. Find your own stocks to invest in based on your own proven research and analysis.

Confirmation Bias

Too often investors believe what they want to believe. We pay attention only to the information that supports what we believe, and ignore information that does not support what we “think we know.” Confirmation bias directly results in poor investment decisions and a loss of profits. An example of confirmation bias is when we become attached to a certain stock. Perhaps it performed very well in the past so we ignore all signs that it is currently not performing as well as it did and we invest anyway.

There are many factors to consider when studying the psychology of investing and how it affects stock traders everyday. Successful investors understand investment psychology and all it entails, they have determined their strengths and their weaknesses, and they proactively practice and develop the skills necessary to controlling their trading emotions so that they are successful in the stock market.

Learn more about Eliminating Emotions; The most profitable skill that can’t be taught!

Market Direction

“If this trading system works so well, why can’t I make money with it?” Have you ever asked yourself this question? It would seem logical that a proven trading technique should work for everybody all the time. What is the element that is different between somebody using a trading technique successfully and somebody else using the technique unsuccessfully? Emotions!

Being taught the mechanics of a successful trading program is fairly easy. Unfortunately, this education usually assumes investors will automatically implement the program based upon controlling their own emotions. Most trainings do not address this very important element of investing. Why? Because most investors want to hear how easy it is for them to make money with a new trading technique. They do not want to hear about the difficulties they will run into when utilizing any trading method.

A major facet of successful investing involves eliminating fear and greed from the decision-making process. This is the most difficult part of successful investing. Rational decision-making gets thrown out of the window when it comes to making investment decisions. Learning to control our emotions is the most difficult aspect of successful investing. We have to teach our own thought processes to respond completely different than the normal emotional reactions. Most investors do not even know they have to address this problem, let alone correct it.

Learning how to trade successfully is a two-part process. Implementing the correct executions based upon the information provided from your trading program and controlling your emotions while the trade is proceeding. Learning how to use candlestick analysis is easy. Learning to control your investment emotions becomes much easier when using candlestick signals correctly. The Candlestick Forum will be spending more time showing investors not only why and how candlestick analysis is profitable but also demonstrating what each investor needs to know about their own emotions to make investing successful. Look for the new e-book.

Does candlestick signals produce consistent profits? That may be a slightly different question than does candlestick signals consistently produce profits. Candlestick analysis is the proven investment technique that puts the probabilities of being in profitable trades in the investors favor. This does not necessarily mean the results are in a consistent style of return. It merely places an investors funds into situations where the probabilities are likely to produce a profit. This is why using a consistent money management system is important. Not every trade is going to work out as expected. There will be losses. However, based upon the results that candlestick signals have produced over the past 400 years, when all aspects of candlestick signals are in alignment, the total results should be a strong positive  return.

This has been  clearly illustrated in these market conditions. The morning and afternoon member commentary should have conveyed market conditions that are not overly bullish. Somewhat bearish as a matter of fact! But during the past few weeks, there have been excellent profits made by being in the correct sectors. The identification of these sectors were strictly due to the information illustrated from strong candlestick buy signals. The shipping sector and the mining sector have produced excellent profits over the past few weeks.

Psychology of Investing, Dow

Candlestick signals and patterns are created by investor sentiment. Candlestick price patterns reveal information that most investors overlook. Common sense! A bullish price pattern  developes for a certain reason. It becomes more pronounced when the general market conditions are bearish. Simple logic implies that if the general market trend is down and a price pattern in a specific stock is moving positive, buyers are entering that position with the knowledge the rest of the market is selling off. EYE is a perfect example of utilizing a price pattern, a Fry Pan bottom. This candlestick pattern clearly illustrates bullish sentiment coming into the stock price. This was occurring when the Dow could clearly be seen as in a negative trend. The Candlestick Forum recommended this position based upon what the pattern was revealing. Was there any knowledge that a buyout bid was in the making? Definitely not! Unless any of us have an extensive research department to monitor each and every opportunity in the market, the best strategy is to use a trading technique that reveals what other investors are doing, Candlesticks!

Pscyhology of Investing, EYE

EYE produced better than 150% return in a three-day period. Obviously, this does not happen all the time. The important fact is that the candlestick signals/patterns allowed for the analysis of the possibility of a big price move. Having the good fortune of being in the right place at the right time is a result of the probabilities created by these patterns. It does not take a large number of situations such as this to produce a much better return annually than other trading programs.

Learn how to use candlestick signals correctly. The proper use of money management and emotional control produces a much greater potential result than any other trading program available.

Chat session tonight for members 8 PM ET.

Good investing,
The Candlestick Forum Team

Online Training Sessions with Stephen Bigalow

Now Scheduling for

January 24th & 25th, 2009
Click here for details

Group size is limited; Sessions fill quickly – Pre-register early

This Week’s Special – NEW RELEASE!

Stephen Bigalow’s latest ebook on Eliminating Emotions retail price of $129 reduced to $69 for our Introductory Special Price to Newsletter Subscribers

Click here for more details

Website special reflects current newsletter. If you are reading an archived newsletter you will be directed to Current Website Special.

Sell Stock

Sell Stock and Buy Stock with Technical Analysis

There is so much to technical analysis that it takes many investors quite some time before they have a full understanding of it concepts and terminology. Once understood, however it can lead to successful trading and great profit potential. In today’s article we discuss important steps that every investor should take if looking to sell stock or buy stock using stock technical analysis.

Keep it Simple

You may become overwhelmed at the number of technical indicators available to investors to use when short term stock trading. You should have an understanding of the majority of them however you should not use all of them when you are trying to trade. You should use two or three in conjunction with one another. Some of the most popular technical indicators include the moving average, candlestick patterns, as well as support and resistance levels.

Back-Test Technical Indicators

Investors should back-test their technical indicators against historical data. You should do an ample number of tests in order to develop a trading system that works for you.

Paper Trade

Stock traders should practice paper trading before trading with real money. Investors should sell stock and buy stock using their trading plan and technical indicators on paper first in order to ensure that they have a plan for success in place. Online paper trading is very popular among investors these days. Just be sure that you don’t develop a fear for stock trading with real money. You will need to enter the market at some point! You will also need to work out the kinks with our trading plan in order to tweak it so it works to its full potential.

Stop Loss Orders

Just as you should know your entry points, you also need to set your exit strategies. Investors use stop loss orders in order to do this. This prevents the investor from holding onto a losing trade for too long with the hopes that it will reverse. While you still lose, you are limiting your losses significantly through understanding and implementing stop loss strategies. You must however be sure that you practice discipline and follow your strategy when you sell stock.

Many investors have found that technical analysis tools are extremely helpful when investing in the stock market. Keep in mind many investors opt to utilize the tools associated with fundamental analysis in order to practice long term investing. You can do both if you would like. It really depends on your philosophy and what you feel comfortable doing.

Market Direction

Let the market tell you what the market is going to do! This is professed by the Japanese Rice traders. It may seem like a very simplistic statement but it has some very powerful consequences. As observed in the Dow chart and the NASDAQ chart, the recent pullback looked exactly like the pullback of mid August. After the pullback, there were a couple of indecisive trading days. For the candlestick investor, this provides valuable information. One of two things was going to happen. Had the markets traded lower after those indecisive trading days, breaching the potential formation of a trend channel, it would be obvious the bears were in control.

As was witnessed, after the indecisive trading days, the small Spinning Top followed by a small Bullish Engulfing signal, the trend started moving back up. This made for a situation where profits could confidently be made. The positive trading of Thursday, Friday, and today confirmed the upward trading channel was still the predominant analytical factor. Having that knowledge, made easier to see with the candlestick signals, alerted the candlestick investor to close out short positions and build up the long positions of the portfolio. The visual aspects of the signals and the trend makes for easier and more decisive decisions.

Sell Stock, Dow

The pullback of last week appears to be profit taking. This short-term selling atmosphere, prior to the last three days, has created Jay hook pattern’s. This now allows for the exploitation of the next price move. Knowing what a Jay hook pattern foretells allows an investor to pinpoint where the most powerful price moves may be occurring. As demonstrated in the XIDE chart, the strong price move was followed by a pullback and now the new buying can be witnessed.

Sell Stock, XIDE

Knowing the correlation between the first wave and the third wave, an investor to develop the appropriate investment strategy to maximize the profits from the potential next move. This could either be buying stocks or buying options strategies. Understanding what a pattern will produce creates more than one advantage for the investor. It not only identifies the appropriate time to be reestablishing a position, it identifies which price moves should have more strength than a conventional price move. Wave three can be measured based upon the magnitude of wave one.

The Scoop pattern also is providing some big price move opportunities. Placing positions in the portfolio that are the result of a price pattern identification creates a much stronger probability that at least one, if not more, positions in the portfolio might have the potential to provide a huge price move. That potential can be seen in the ASH chart and in the NUAN chart.
Sell Stock, ASH


Sell Stock, NUAN

Consistently adding positions to the portfolio that have high probability results produces a self disciplined trading program. It helps an investor to make decisions that constantly improve the probabilities of being in the right place at the right time. When the force of a trend can be analyzed utilizing candlestick signals, an additional benefit is the ‘protection’ to the downside. Even during a strong reversal in the overall market trend, the charts that had shown inordinant strength before the reversal will usually have enough ‘carry through’ to allow the liquidation of that position with much less loss compared to other positions.

The added strength of a candlestick chart pattern makes options strategies an extremely viable trading platform. The direction of a price movement can be well defined with candlestick signals. Those price moves become much better leveraged when applying simple option strategies. Candlestick analysis is merely the identification of a price trend based upon the signals created by investor sentiment. Profitable investing is the result of taking advantage of those price trends.

Good investing,

The Candlestick Forum Team


This Week’s Specials

Options Trading with Stephen Bigalow

2-Day Training Webinar


Selling Stock

Not only is it important to know when you should buy stock, but you obviously need to know when you should sell stock as well. In today’s article we discuss a few reasons why an investor may want to sell their stock when investing in the stock market.

One reason an investor may choose to sell their stock is if they determine that the stock is overvalued. It is important to study the market and analyze the value of your stock so that you don’t end up losing big. Often times, stocks are pushed past their true value only then to fall in value significantly. The goal when stock investing and selling stock, is to sell a stock when it is over valued and then buy the stock back after the market has had a chance to correct itself. This is not exactly easy to do as this takes accurate knowledge of pricing in the stock market as well as consistency, however many stock traders and stock investors are able to make a significant profit.

Another reason that investors opt to sell stock is when they decide to rebalance their stock portfolio. Perhaps financial circumstances have changed and the ratio of stocks to bonds to cash needs to be adjusted. Selling stock is one way to do this and the investor must be sure that not only is selling the stock profitable, but that his or her investment portfolio is still well diversified afterwards.

The last reason for selling stock that we discuss today may be for personal reasons. Perhaps you have some major unexpected bills and you need some cash in hand. This is especially relevant in the current economy and many investors are reevaluating their asset allocation as a result. This is a good time to determine which stocks may be under-performing. Liquidating stocks to pay bills should of course be a last result, but it is one option that some individuals these days have to do.

There are many additional reasons for selling stock in addition to the above. Investors should look elsewhere first before using money that is tied up in investments in the stock market and they must be sure that they understand the consequences. It is not the end of the world is it is necessary, and once the economy and most individuals’ financial circumstances change, there will be more opportunities to invest in stocks in the future.

Price To Earnings Ratio – How Does It Affect Your Bottom Line?

When it comes to investing in the stock market, one measurement stands out above the rest; how much did the investor earn at the bottom line and in turn, how does that earning compare to the price. Traders use many tools to help determine their stock trading plan, but the most common tool for assisting an investor is price to earnings ratio, or P/E ratio. Price to earnings ratio is an example of stock fundamental analysis; this is the method of examining businesses at the most essential levels. This process of review evaluates many key ratios of a business to attempt to determine the stability and financial health of a company and to determine the value of its stock.

It is safe to say that the number one ratio investors cite when discussing fundamental analysis is price to earnings ratio. This number is raised aloft like it possesses an authority above all others. It is, in fact, only one of many examples of fundamental analysis that successful traders should use before implementing trades. The price to earnings ratio evaluates the relationship between the price of a stock and the company’s earnings; it is the most widely used metric in fundamental analysis but far from being the only one that a trader should use. When reviewing the price to earnings ratio, it is wise for the investor to consider other ratios as well as using a stock trading system to search for the most complete information on a stock and its trends.

Simply put, to calculate price to earnings ratio, divide the share price by the company’s earnings per share (EPS). For example, if a company has a share price of $50 and an EPS of 10, the price to earnings ratio is 5. While a higher P/E ratio is generally considered a good thing, to some investors it signals an overpriced stock. It is very important that the trader views the P/E ratio only as a stock market trading tool to help draw an overall conclusion. Using a method such as candlestick analysis, an investor is better able to understand the dynamics of a stock before deciding to purchase or not.

So what does the price to earnings ratio tell the investor? It gives an idea of what the stock market is willing to pay for a company’s earnings. While it is generally accepted that a high P/E ratio is favorable and a low P/E ratio isn’t, even that conclusion isn’t accepted by all investors; therefore, it is wise to view the price to earnings ratio as a tool for helping to identify a potential stock purchase. When used with a stock investing system and other analysis ratios, it can help the investor to determine the best stock market investing strategy possible.

Stock Prices – How Do You React To Fluctuations?

Movers and Shakers – Influencing Stock Prices

Anyone knows who has invested in, or even watched, the stock market knows that there are a number of factors that cause stock prices to change; performance of a company, publicity for a company, news that affects the industry and numerous other factors can change stock prices either up or down. While there are a number of different factors that change stock prices, they are in one of three categories: fundamentals, sector changes or market swings. Successful traders will work to understand these influences and this understanding will help decide whether the movement says buy, sell or wait.


Economic fundamentals clearly have the most direct influence on changes in stock prices. While stock chart patterns indicate that profits and revenues are on a steady upward climb and have no indication of peaking, investors will bid up a company, causing the stock prices to change as they rise to reflect the activity. In contrast, if the trends of struggling stocks show the stock as being flat or declining, it is logical to look for stock prices to change in a negative direction.

Both concepts are examples of fundamental analysis and how fundamentals can change stock prices. Other changes can occur that, subtly and in more complex manners, will affect the stock prices as well, though maybe not in such an immediately detectable way. Such factors can be increased debt, poor acquisitions, and so on that can create a long-term change in stock prices. The conclusion is that changes in the underlying business can directly change stock prices.

Sector Changes

When there are changes in a particular industry or business sector, stock prices will change to positively or negatively reflect the changes. For long term investing, it is wise to remember that some sectors are cyclical in nature and that there will be changes in stock prices that tend to be repetitive. Such a pattern can actually help investors to initiate successful trades if they are able to chart this cycle and respond appropriately.

Another factor that can change stock prices for an entire sector is when a particular industry becomes extremely popular or extremely negative. An example of both situations is the phenomenon of the Internet. Just as quickly as the sector took its companies and their stock prices soaring upward with stock price breakouts, most of them came crashing back to reality when the sector fell.

Market Swings

The old saying is, ?What goes up must come down.? As pleasant or painful as it can be, this tends to also be true of changes in the stock market. When the market is trending upward, most stock prices will change to adjust to this movement. Unfortunately, the same is also true when the market is moving downward. This becomes an opportunity for a savvy investor to use his or her stock trading system. With a system like Japanese Candlesticks, a trader can best anticipate the trends and identify times to make purchases and sales based on a stock investing system that has proven successful for more than 300 years.


A change in fundamentals may be an opportunity to buy more shares of a growing company or it may signal the time to sell if the changes are for the worse. A change in the sector is usually temporary so most long-term investors will ride out dips due to these factors. Assuming that there are no detectable changes in the company?s fundamental and technical analysis, a trader might be more inclined to follow his regular stock trading plan and stock charting techniques to capitalize on the highs and lows of the stock market.

Market Direction

The sideways trading of the past few days is not unusual during the holiday vacation period. The Nasdaq has been moving sideways for the past 3 to 4 weeks. The 50 day moving average is coming up to meet the trading area. With the stochastics in the Nasdaq getting towards the oversold area, the probability of the 50 moving average acting as support looks good. After the steady uptrend in the markets for the past four months, the flat trading appears to be a resting stage.

The advantage of the slow steady uptrend is that the profit taking has been occurring along the way. This should modify any massive tax shifting of portfolios at the end of the year. The major advantage of a sideways general market condition is what the candlestick signals are revealing. There will be positive stock/sector moves during a sideways market. There will be other stocks/sectors showing strong short signals. The effects of the signals will not be influenced by the general market when there is not a definite trend influence. The signals pinpoint where the buying and selling is occurring. This allows the candlestick investor to exploit the price moves at the right times in specific stocks.

Knowing what the signals represent, as far as investor sentiment, puts the candlestick investor in a strong position. What is the high probability expectation after a major signal? As illustrated in the ESCL chart, the candlestick signal provides very valuable information that most investors will not interrupt. The Kicker signal, forming off a major moving average, has very powerful implications. Strong dynamics are created from the Kicker signal. ESCL, after a Kicker signal, shows that there is a new perception about the stock price. This is more evident after a long period of flat, indecisive trading.

Stock Prices, ESCL

The breakout from a flat trading area is usually produced by an announcement that completely alters the future of that company. A break out, in the form of a Kicker signal, is that much more compelling. Would you buy a stock after it has had an 80% move in one day? Most investors won’t. But if you know what to expect after a candlestick breakout move, an 80% price move does not act as a mental deterrent, it becomes a stimulant/signal. The ability to analyze the information conveyed in candlestick signals then allows an investor to exploit profits from a strong price move that most investors would shy away from.

Stock Prices, IPO


If the eyes become acclimated to recognizing high profit trades, the candlestick investor to participate in big price moves from the initial move. RBAK was brought to everybody’s attention in the Candlestick Forum chat room. The chat room produces a double advantage. Investors learned how to use candlestick signals correctly having a constant flow of knowledge when analyzing live trades. Additionally, many eyes watching for high profit candlestick signal trade potentials produces a source of good trades that most investors might have missed. Do all trades move from $16.50 to $26 in two weeks? Not always, but having the ability to recognize a high potential trade puts the probabilities in the investors favor that they are in a situation that could create big returns.

Stock Prices, RBAK

The point of investing is placing funds in investment situations that have good investment probabilities. The graphic formations of candlestick signals are the result of hundreds of years of ‘actual’ statistical analysis.

Breakouts are created like any other candlestick formation. It is the accumulation of investor sentiment during a specific time frame. That time frame may be condensed to a one day or two day time period. Who are the investors that are buying a stock at five dollars and selling 30 days later at $21? The investors that understand what the breakout signals illustrate. This is not difficult to understand. The information compiled into candlestick signals is knowledge that has been analyzed for the past few centuries. Utilize that information for your own portfolio success. Click here for the Candlestick Forum Break-Out training CD.

Investment cruise

This coming April 2007, Mr. Bigalow will be one of three or four speakers on an investment cruise. These cruises are extremely beneficial to investors that would like to learn a number of investment techniques. Being exposed to a number of investment techniques all at one time creates huge advantages. It allows investors to combine investment techniques into the mode of investing that is most comfortable for them. Watch for of the dates and details of this cruise. They are not only educational but extremely fun. This is an opportunity to gain a concentrated education on investment techniques that are working successfully.

Chat session

The chat session tonight will be at 8 p.m. ET. Everybody is welcome. This will be the last chat session until after the first of the year. Click here for instructions on how to join the stock chat.

Good investing

The Candlestick Forum Staff

New Year Specials – 20% Off all Quick-Download Videos and E-Books – Buy Now before Offer Ends!

Profitable Candlestick Trading” and “High Profit Candlestick Patterns

Options Trading

Options trading provides a unique investment vehicle to even the beginner investing in the stock market and provides many advantages including leverage, limited risk, insurance and profits in bear markets.


Leverage is the ability to “buy in bulk”. First, remember that in options trading you are not actually buying or selling anything. This is an agreement between two investors if a transfer of assets actually takes place. Also take note that when someone buys an option they pay an amount known as a “premium” to the seller; this premium is the cost of the option.

That being said, leverage in options trading occurs when purchasing options. In the US , options are traded with a contract multiplier of 100; this is the number of shares per option traded. With this contract multiplier, even small investors are able to trade a large exposure, or leverage, on a small amount of capital. Successful trading in this manner can be quite profitable.

Limited Risk

This is another tremendous asset of options trading. Whether you are learning how to invest in the stock market or you currently have limited funds to invest, options trading offers a perfect vehicle for your trading. When you are trading options, you have a great advantage over traditional stock trading because you can take a view on the market direction with limited risk while at the same time having unlimited profit potential. This is because option buyers have the right, not the obligation, to exercise the contract for the underlying at the exercise price. If the price is not right at the time of expiration, the buyer will forfeit his/her right and simply let the contract expire worthless.
Let’s have a little option trading education. We have decided to buy an option on MEW Industries with the following information:

  • Company: MEW Industries
  • Option Type: Call Option
  • Position: Long
  • Strike Price: $20
  • September 8th

At the time of the trade, MEW Industries was trading at $25; the Call Option was trading at $6.50. This is known as the premium and it is the amount we paid for the right to possess this option. Therefore if we take into account the premium and the strike price, we will break even at $26.50; anything less would be a loss and anything more would be a profit. The beauty of options trading in the stock market is that if the stock price falls, we can simply allow the option to expire and lose only the premium. While this can be expensive, it is far better than being forced to buy one hundred shares $15 stock for $26.50 each!

Unlimited Profit Potential

Now you should be able to see how this type of options trading strategy gives you the best of both worlds; both limiting your risk and at the same time leaving you open to make unlimited profit if the market rallies.
Not all option strategies have this payoff benefit. Only if you are buying options can you limit your risk. For option sellers, this is the reverse – they have unlimited risk with limited profit potential. While this sounds very bad, once you understand the options available to you and how to use them, you can limit even the unlimited risk of selling strangle! (if you don’t know this options trading strategy, click the link)


There is another way in options trading to protect yourself and your stock portfolio; this technique can give the investor who is uncomfortable with exposing himself or herself to risk some insurance. Options such as a Put Hedge can insulate an investment even during bearish periods.

A put hedge is the stock option trading strategy 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 a put hedge 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.


Options trading is a valuable and unique way of learning to trade in the stock market as well as making consistent profits without tremendous outlays of capital. While there is risk with options trading, it is usually limited and it has the ability to make you quite the successful trader.

Equity Market

Equity market is another name for a stock market. The term equity also refers to the value of someone’s ownership of a business, property, or a shareholder’s partial ownership in a business. An equity is a stock or stock share not bearing fixed interest. In other words an equity’s value rises and falls with that of a company and its shares. It does not pay guaranteed interest as with a bond.

Use of the term equity market reminds us that a stock market investment is owning shares of a company’s assets. An equity market is a public market where stocks are listed, bought, and sold. An equity market, or stock market, has members who do the buying and selling. Everyone else pays a commission for this service in order to buy stock or sell stock. Now, in the computer age, exchanges such as the NASDAQ are virtual and all activity is in a computer system. This contrasts with the traditional “outcry” system of the New York Stock Exchange (NYSE) where orders flow through a real person, a floor broker.

Equity markets allow companies to raise money without borrowing. Rather than incurring debt the company sells ownership shares, giving away future profits and giving a vote in the affairs of the company for each share. Although a public stock company may not incur debt by issuing stock, it always runs the risk of a takeover. An outside party can purchase a sufficient number of stock shares to control the company’s board of directors, name its own management and take over the company.

Besides allowing a company to raise money, equity exchanges offer very liquid investments. Stocks are almost always easier to buy and sell and a clear market value than real estate, for example. There are equity exchanges throughout the world. The New York Stock Exchange and NASDAQ are the two large American exchanges. Canada has the Toronto Stock Exchange. European exchanges include the London Stock Exchange, the Paris Bourse, and the Deutsche Börse. Asia has the Hong Kong Stock Exchange, the Tokyo Stock Exchange, the Bombay Stock Exchange, and the Shanghai Stock Exchange. In Latin America there are the BM&FBovespa in Sao Paolo, Brazil and BMV, the Bolsa Mexicana de Valores. In the United States market indexes such as the S&P 500 help traders and investors follow the market sectors.

A problem with dealing in many equity markets outside of the United States is the lack of transparency. The United States Securities and Exchange Commission (SEC) oversees American stock markets, helping to insure that illegal insider trading, for example, does not enrich some at the expense of others. Although the SEC does not do a perfect job it provides an oversight that is sadly missing in many markets outside of the United States. Even basic stock information may be lacking on some foreign exchanges. Unless the investor has excellent inside information in some foreign exchanges, the best stock market investing strategy may well be to trade and invest at home.

Trading in the equity market requires learning the basics of stock market investing. As stock prices move up and down traders and investors buy stock and sell stock in search of a profit. A day trader will buy and sell within a day, typically holding no stock positions overnight. Long term investing engages in techniques like value stock investing in order to capture a stock at a low price and allow it to appreciate in value over many years.

Market Direction

Did you know what the market needed to do this morning? Without candlestick signals, many people cannot answer that question. With candlestick signals, an investor can easily evaluate what is required to reverse or continue a trend. Yesterday’s trading produced a Doji in both the Dow and the NASDAQ. It was showing strength due to the fact that the previous day had been a very strong day. The early-morning selloff yesterday was the expected profit-taking. The Bulls needed to see a trading close near the top end of the trading range to indicate the uptrend was still in potentially progress. The other remaining factor was that neither the Dow nor the NASDAQ was able to close above the T. line. This created a potential warning.

Equity Market, Dow

Equity Market, Dow 5 minute chart
Dow 5 Minute Chart.

A candlestick signal, the Doji, allowed for a very easy assessment of what was required in today’s trading. If the Bulls were in control, the markets needed to open positive and trade positive. When that did not happen this morning, the next evaluation was to see whether the Bears were in control or whether this was another early-morning pullback. That becomes better evaluated by watching a five-minute and a 10 minute chart. After the initial 30 minutes of trading, it can usually be seen that the downside has found a churning area, a flat trading area where the Bulls and the Bears are in conflict. The analysis of a 10 minute chart visually fine-tunes an investors entry strategy. Once it could be seen the Bulls were coming back into the market, individual stock positions could be evaluated again to see if they were confirming their bullish signals.

This is not a difficult analytical process. The chart patterns will be just the same on the daily chart as they will be for analyzing a five-minute chart. Having the ability to understand which signals and patterns work effectively at specific support and resistance levels allows for excellent stoploss procedures and excellent entry procedures. As illustrated in our recommendation today of TSTC, being able to assess that the Bulls were in control of this price even during the general market pull back, made for a very low risk trade execution.

Equity Market, TSTC

The simple logic of analyzing a stock price holding its own or trading slightly positive when the rest of the market is being sold off allows for a profitable generalization.. If the Bulls show evidence they are returning in the general market, it can be easily assumed that the initial strength of this stock’s price was going to show more strength in a strong market.

The nice thing about candlestick analysis is that it is the evaluation of something that consistently does the same thing over and over, human emotions. Taking advantage of the reoccurring price movements makes for a simple process for consistently pulling profits out of the markets. Please take time to peruse the benefits found in candlestick signals. The weekend of February 20 and 21st, the Candlestick Forum will be presenting a two-day comprehensive training on candlestick analysis. This is not a training that promotes you will be able to pay for the training with the first trade you enter after the training is over. This is a training that does promote the idea that when you understand the nuances built into candlestick signals and patterns, you control how the trades are performed and you eliminate the emotions out of your trading program. You will discover about correlating the daily chart with a five-minute and 10 minute chart greatly enhance your entry and exit strategies. Click here for more information.

Chat session tonight at 8 PM ET.

Good investing,
The Candlestick Forum Team


This Week’s Special

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Options Markets – Deciding On Your Investment Options

When formulating a trading plan for options, it is important to think about what approach you want to take in the options markets before you trade. It is important to develop an investment philosophy that reflects the strategy you have for your trading.

Understanding Options Markets Trading

Understanding the options markets is a product of understanding options trading. Options are an agreement between two parties where one agrees to sell a stock to the other party within a specific time period and for a specific price. Ownership as commonly defined does not apply since you don’t need to own a stock in order to implement a position.

A 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. The holder is able to simply let the options order expire without investing further or go ahead and purchase the stock as agreed.

Preparing To Enter The Options Market

With an understanding of options the next step before entering the options market is to solidify your trading rules or your trading plan. These rules should include:

    1. Verification – This is a critical part of the process. You wouldn’t want to drive a car that wasn’t inspected prior to you getting behind the wheel; 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 – you can successfully test your trading plan via paper trading on the Internet. Without testing, 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.

Basic Options Market Orders
The final step is to enter the options market and start trading. There are two basic kinds of options market orders, “Calls” and “Puts”. Calls are contracts made by a buyer offering the conditions under which he or she will buy a particular stock. Puts are contracts offered by sellers outlining the conditions under which he or she will sell a particular stock. Each contract consists of the following information:

  • Purchase Item – This is the stock
  • Strike Price – This is the price that is the target for the contract
  • Expiration Date – The day on which the investment timing is no longer binding
  • Quantity – Usually in groups of 100

These items are included whether the options market order is a Call or a Put. When buying a call, if the terms are not met, the contract is not binding. In addition, if the terms are met but the options market conditions have changed to make the deal unfavorable the buyer can simply let the contract expire and if desired, purchase the stock from the open options market.

Improving Your Odds In The Options Market

There is one more thing you can do to increase your odds of success in the options markets. By implementing a trading system like Japanese Candlesticks you will add a powerful charting system for your options markets investing. Candlesticks was invented over 300 years ago as a method for trading in the rice markets of ancient Japan. The system has become an amazing tool for today’s options markets. With the charting abilities you will gain from Japanese Candlesticks you can literally give you a clear view of the directions of options before they even move. Added to your trading plan, Candlesticks can help you to be a successful trader in the options markets.

Commodity Futures

The process of trading commodities is also known as futures trading. Unlike other types of investing such as stocks and bonds, when you trade futures you don’t actually buy anything.  Trading commodity futures includes the speculation of the future direction of the price of the commodity you are trading. To put it another way, you are actually betting that the future price will either go up or down, and how that will effect you depends on if you are the buyer or the seller of the commodity. The large companies that operate in these futures markets use futures contracts to lock in their selling prices for the product in advance of delivery of the product. The company that does this is actually doing what is referred to as “hedging.”  The other side of the transaction, when dealing with commodity futures, is the trader who speculates on whether the commodity price will go up or down before the contract is due for delivery. When trading commodity futures, no one has to take, or make a delivery of the underlying product that the futures contract represents.  Most of the time, the trader merely offsets his or her position at some time before the date that the contract is due.

The commodity futures market includes items such as wheat, corn, gold, silver, pork-bellies, heating oil, lumber, and many additional commodities. The main commodity trading groups actually include currencies, interest rates, stock indices, grains, meats, energies, metals, and food and fiber.  Currency trading is a great market for long-term trend followers since they exhibit long-term trends that reflect the health of the economy.  Interest rates also have great long-term trends with the best contracts being the T Bonds and T Notes.  Another category in the commodity futures market includes stock indices. Most commodity and futures traders use the S & P but they may also trade the DAX, the NASDAQ, and the Dow Jones. Energy is another group used when commodity investing, and it is the biggest physical commodity group in the world as it relates to volume. It also exhibits great, long-term trends all of the time. The main focus for speculators trading metals is on Copper, Gold and Silver. Additional metals that have produced great trends in recent years include platinum, and palladium.  Grains and meats have recently lost their luster and now speculators trade more financials, but the popular commodities in the group include pork-bellies, as mentioned above, live hogs, feeder cattle, and live cattle. The last group includes the food and fiber group. These commodity futures markets look at orange juice, cotton, coffee and cocoa, however cotton is probably the best market for long-term trend followers.

If you are interested in trading commodity, it is important to familiarize yourself with the COT report. The COT report stands for Commitments of Traders and the report is drawn by the Commodity Futures Trading Commission.  This report contains detailed information in the futures market on positions and volumes of contracts.  It is not meant for exclusive use of foreign exchange trading, but it instead lists out the conditions in the futures markets about contracts and whether the net contracts were long or short.

Many successful traders have become very rich in the commodity markets. When looking to invest in commodity futures investors know that it is one area where an individual who has limited capital can make great profits in a relatively short period of time. Patience and education is a must if you are interested in the commodity futures market.

Commodity Futures Price

Commodity futures price quotes are available for food and fiber, grain and oil seed, interest rates, cattle and hogs, metals, and oil and energy futures. No matter whether one is trading corn futures, oil futures, copper futures, gold futures, natural gas futures, or silver futures knowing the current commodity futures price is essential for profitable futures trading in commodities. One can find the current price on futures for any given commodity by looking online at the Chicago Mercantile Exchange, (CME), the Chicago Board of Trade (CBOT), the New York Mercantile Exchange (NYMEX), and the commodity exchange, COMEX. An excellent means of learning about commodity futures pricing and commodities markets is commodity and futures training.

Commodity futures contracts are agreements between two parties for the sale of a given quantity of a given commodity on a specified future date. Futures contracts can be for a few months or for years. For example, in May the COMEX trades corn futures contracts for delivery in May, July, September, and December of the same year. It also trades contracts for delivery in March, May, July, September, and December of each of the next two years. Then it trades contracts for July and December three years hence. Depending upon crop conditions, market demand, and factors such as the price of oil and the amount of corn being diverted to ethanol production the commodity futures price of corn will vary above or below the current spot price.

A commodities trading in futures should be distinguished from options trading in commodity futures. A futures contract confers the obligation to buy or sell the commodity in question if the contract is held until expiration. In fact, many traders will exit their position in the days prior to expiration. However, producers and buyers who are hedging commodities will, in fact, deliver or take delivery of the commodity in question. On the other hand buying calls and buying puts in the commodity futures market confers the option to buy or sell but not the obligation. Selling calls and selling puts, of course, confers the obligation if the buyer decides to exercise the option. The advantage of buying calls or puts is that the trader will only lose his premium if the commodity price does not move as expected.
As with all markets price movements can be predicted with technical analysis tools such as Candlestick charting and Candlestick pattern formations. Although fundamental commodity analysis will tell the trader the eventual commodity futures price he or she will need to follow the example of rice traders in ancient Japan in letting market history predict market future. Because history does, in fact, repeat itself in commodity market price patterns it is possible to predict that a market trend will continue or that market reversal will occur. The trader knowledgeable in Candlestick trading tactics will typically be one up on the rest of the market in profiting from commodity futures price movement. Letting the market tell the trader what the market will do is still an adage that works after hundreds of years of commodity trading.

Market Direction

The failure of the trend at the 50 day moving average makes the 200 day moving average the next likely target. Obviously, that should keep the orientation of your portfolio to the short side. After trading much lower during the day, the Dow and the NASDAQ attempted to close near the higher end of the trading range. This gave some possibilities of a small bounce tomorrow. The premarket futures will give a good indication of how this market is going to move tomorrow after today’s Doji’s. Keep in mind, one of the basic price patterns is the appearance of a Doji after a strong move one way or the other. The Doji indicates a day of indecision between the Bulls and the Bears. As seen in the Dow and the NASDAQ today, the Doji becomes a very good indication of whether a bounce could occur back up to the T-line or a lower open would indicate the bears have won, the downtrend will remain in progress.

Commodity Futures Price, DOW


Have you ever read the books that are titled “How I turned $5000 into $250,000 Trading Commodities”? What is the first reaction when looking at that title? Boy, I should be able to do that. I am reasonably intelligent. You take the book home and you read it from cover to cover hoping to learn that secret that made the author big bucks. However, when you have finished the book, you discovered the contents merely told how the author was long or short a commodity that was moving in a trend and they pyramided the position and made huge gains. The rest of the book merely talked about how the commodity market functioned. After reading the book, you sit there and say that was interesting but I did not learn how I was going to utilize my intelligence to make the big dollars like the author did.
Is it possible to make a fortune trading commodities? Yes, but not everybody is going to be lucky enough to be in a position that starts getting huge moves in one direction or the other. But big profits can be made trading commodities. If you are shooting for that big price move that you happen to be in at the right time, you will probably lose big bucks before you ever make big bucks. Fortunately, candlestick analysis allows an investor to make consistent profits while trading commodities. The bonus is that the signals and patterns put an investor’s funds in trade situations that has high probabilities of producing big price moves/big profits.

The biggest deterrent for most investors about trading commodities is they constantly hear about how risky they are. That is a completely true statement, provided you do not know how to trade commodities. Candlestick analysis creates a trading platform that makes trading commodities a non-risky venture. Candlestick signals are the graphic depiction of investor sentiment. That sentiment does not change whether you or trading slow moving bonds, stocks, or highly leveraged trading entities. Making big profits trading commodities is a combination of being able to identify the correct trades, then being able to control the emotional aspects of investing. The Japanese Rice traders made fortunes trading Rice successfully. The poignancy of that statement is that Rice is not a very exciting commodity. It doesn’t have great volatility in price.

How do you hit a lucky trade while trading commodities? As in the famous words of Thomas Edison, “The harder I work, the luckier I get.” Learn how to trade commodities correctly and you can make huge profits. Learn how to trade commodities correctly, and you’ll have a much better grasp on trading stocks profitably. This weekend’s Candlestick Forum Commodity Trading training concentrates on how to identify high profit trades, then how to maintain your mental discipline to maximize the profits of each trade. Can you turn $5000 into $250,000? It is feasible but not likely. Can you turn $5000 into $20,000? That is very reasonable. Can you turn that $20,000 into $50,000? That is very reasonable. Can you turn that $50,000 into $90,000? Once again, utilizing candlestick analysis, the compounding effect of multiple correct trades can produce huge profits with normal market price movements. Take the time to explore a trading market that holds more advantages to the active investor than merely trading stocks. Candlestick analysis, which consistently provides high probability trade situations, becomes very effective when trading fast-moving/highly leveraged commodity trades. Click here for more training information.

Commodity Futures Price, Soybeans

Commodity Futures Price, Lean Hogs
Lean hogs

Chat session tonight at 8 PM ET

Good Investing,
The Candlestick Forum Team

This Week’s Special

2-Day-Commodity Training

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Website special reflects current newsletter. If you are reading an archived newsletter you will be directed to Current Website Special.