Successful technical stock traders commonly use stock trading signals to profitably buy stock and sell stock. This is the practice of technical analysis which seeks to predict stock price direction based upon past stock prices and stock trading volume. Stock trading signals are effective because stock market history repeats itself, the market effectively discounts stock fundamentals, and the psychology of investing is a major price mover. Using the stock trading signals in Candlestick analysis helps traders to profitably anticipate a market rally, market reversal, and tell if market trends will continue.

The investor may claim that stock fundamentals alone drive stock prices. Certainly, long term investing relies heavily on fundamental analysis of stocks. However, obtaining the best price in selling stock or buying stock is best accomplished with stock trading signals such as Candlestick patterns. Although the price of a stock is driven long term by its fundamentals it is the psychology of trading, as well as investing, that moves prices minute by minute. Combining fundamental and technical analysis as seen in stock trading signals are both necessary ingredients to success in buying and selling stocks.

Traders use stock trading signals to find recognizable, and repeating, price patterns. These patterns happen because of changes in stock fundamentals, the economy, and market psychology. However, the trader commonly does not need to be a market psychologist, an economist, or expert on stock fundamentals in order to see a pattern in Candlestick charting. Because patterns are repetitive the trader knows that the first part of a pattern predicts the last part. Part of the skill set of an accomplished technical trader is to know when to interpret and act upon an evolving pattern. Wait too long and the anticipated price movement has already happened before you can profitably trade. Jump too soon before the pattern is clear and you might just have executed a losing trade. Take online classes, trading in simulation, and studying Candlestick basics will help the trader hone his skills in the effective use of stock trading signals.

Besides following price patterns, stock traders use information on trading volume as well as information on options trading as stock trading signals. Trading volume often precedes stock price movement. When a trader sees that options investors are buying calls much more than buying puts they can safely assume a positive investor sentiment regarding a given stock. The trader will then follow the stock price pattern to determine if a substantial price change is likely and it what direction it is likely to happen. A trader using trading signals will also look at investor sentiment. When everyone believes a stock will keep going up in price it often means that most have already purchased the stock. That leaves few new buyers on the sidelines ready to buy and drive the price up. When a trader sees this signal he may watch price patterns looking for hints of price volatility and of a price decline. The ability to profitably read and execute trades based on stock trading signals increases with time, study, and practice.

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Market Direction

What sectors are going to be the strongest next year? That is the question every investor is trying to analyze during the holidays. Obviously the trading slows down starting a few days before Christmas and the week before New Year’s. This is a time when most investors can assess what they did wrong or what they did right during the past year. This self-evaluation is usually directed more toward the individual investor. We want to learn what we did wrong so we can correct it going into the next year. This is a great advantage when using candlestick signals. We can graphically review what occurred in prices and evaluate what we should have done to make the returns better. Most trading methods do not allow for the self review.

The visual aspects of candlestick analysis also demonstrates what the big money managers are anticipating. Do you know which sectors of the market are going to be the strongest right after the first of the year? Probably not! Unless you have the mental capability of analyzing the dynamics of all aspects of the economic arena, you will probably have no idea which sector or sectors are going to have the best potential. However, candlestick analysis allows the individual investor to see what the investment decisions are of the big money managers. It is safe to assume that a large money manager is going to have numerous analysts and staff members analyzing world market conditions and what those conditions will do to individual sectors. Unless you have a huge research fund for acquiring that information yourself, more than likely investment firms will already be doing that type of research. As a candlestick investor, it becomes much easier to identify what the cumulative knowledge of all the money managers is doing. This makes the investment strategy very simple.

The sentiment of the big money managers can be evaluated as to their bullish or bearish outlook going into the new year. Candlestick signals will indicate which direction the initial investor sentiment will take the market. Next, candlestick signals an individual stock sectors will demonstrate where the big money anticipates the best returns for the year. Why will this become so evident on the first day of trading? Just like ourselves, the holiday weeks provide ample time to evaluate for the big money manager to fully assess what is going to produce the best profits for their fund in the coming year. When their livelihood depends greatly upon their analytical capabilities, it can be assumed they have fully researched what particular what particular conditions will do to particular markets.

Not only will the direction of the market be easily evaluated but the identification of individual sectors will stand out immediately. This will be the result of a couple of weeks of assessment and reassessment of money managers portfolios. They will want to get into the sectors they deem as the best potential for the coming year. These will be easily seen based upon the candlesticks.

The current market trend continues to show a slow uptrend without evidence of any major selling pressure. There are particular sectors that have been producing good steady profits during this uptrend. Maintaining those positions have been dramatically profitable due to some very simple trend analysis. For most profitable positions, as long as a candlestick sell signal was not confirmed with a close below the tee line, the uptrend was considered to be still in progress.

The investment strategy at this point should be the liquidation of positions that are showing some weakness. Adding to the cash position will allow investors to participate in the high profit/high-powered moves that should occur right after the first of the year.

Chat session tonight at 8 PM ET.

Good Investing,

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Stock market traders and investors use a firm knowledge of stock fundamentals as their basic tool in stock market investing, day trading, and trading stock options. The review and study of stock fundamentals is referred to as fundamental analysis and differs from technical analysis as an approach to trading or investing in the stock market. Stock fundamentals focus on the financial health and growth prospects of a company that issues stock. Investors will want to be assured of the competence and vision of the company’s management as well as the company’s competition in the market sectors in which it operates. Stock fundamentals include the company’s financial statements, especially its cash reserves and other assets which will provide the company with a margin of safety in the event of an economic downturn. The primary concern in long term investing is intrinsic stock value. This is the discounted forward looking income stream of the company. Although fundamental analysis focuses these issues the investor is wise to use technical analysis tools such as Candlestick pattern formations when buying stock and selling stock in order to optimize purchase and sale prices.

An investor studies stock fundamentals in order to add high value stocks to his stock portfolio. Part of the value of the stock to the investor is its current price. A well run and growing company with excellent products and profits will often sell at what seems to be a premium to other stocks in its market sector. It will commonly have a high price to earnings ratio. In other words investors buy the stock, at a high price, because the rest of the market is doing so. This psychology of investing often leads investors into paying too much for a stock and, thus, diluting their long term profits. By using both fundamental and technical analysis the savvy investor will study stock fundamentals to discover long term value. Then he will follow the market price of the stock with Candlestick analysis and profit from buying at the bottom of a stock price correction or market reversal due to a hiccup in the business cycle.

When an investor buys a promising stock based upon strong stock fundamentals his analysis of that stock should not stop. A smart investor will routinely reassess the fundamentals of stocks in his portfolio and will sell those that be come “under performers.” Additionally in investor will remain aware of technical market factors with the use of Candlestick charting. When an investor has made really good stock picks the stock prices on his stocks may rise rapidly, too rapidly. Such hot stocks often experience a “correction” on their way up. When the investors knows that the stock fundamentals on these stocks are still strong he will not want to sell these stocks for a profit but he will also not want to see part of his investment lost when the stock price corrects. By skillful reading of Candlestick patterns an investor can often anticipate the point at which the stock price will correct. By buying puts on the stock he will be able to insure that he gets the current stock price on a sale even if the market corrects. In fact, he will sell at the current price and then buy again after the stock price as dropped in the correction.

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Market Direction

Being able to accurately analyze the market conditions provides a huge advantage. After a bullish start just over a week ago, the Dow has gone flat the past five trading days. This became relatively evident after the second flat day. It produced a chart that could predict sideways movement in the markets until the T-line caught up. Is a flat trading market detrimental? Definitely not, there will continue to be prices moving relatively strong one way or the other in a flat market. The advantage we have with candlestick analysis is having the visual ability to see which charts are still showing strong price patterns. A breakout from a price pattern is still going to produce significant profits in spite of the fact the market in general is trading sideways.

DOW

When the T-line is trying to catch up with a sideways moving trend, there are expectations when they do come together. Many investors will witness the support at a specific moving average and start buying.

Being able to take advantage of what the charts are revealing allows investors to continue to make good profits when many other investors are waiting for the market to break out of the sideways mode. A sideways moving market as one obvious feature. It demonstrates there has not been a change of investor sentiment. That knowledge allows an investor to continue to participate in patterns that will perform well provided there is not a severe change of investor sentiment. This ability puts the candlestick investor at a great advantage. Positive returns are not dictated by the direction of the market. Positive returns can continue to be made during all conditions of a market trend. Candlestick price patterns have inherent strengths that have created the pattern in the first place. These reoccurring price movements occur because of reoccurring investor sentiment.

For example, the trend of KOG is a direct result of what should occur after a frypan bottom pattern breakout. In this case, the frypan bottom pattern acted as wave two in a three wave trend. The past week has shown flat trading in the Dow as well as the other indexes. However, the result of a frypan bottom breakout is a strong uptrend. When the market in general was trading flat for the past five trading days, this stock price has built up the enthusiasm that is usually associated with the end of wave three. Recognizing candlestick signals and patterns puts investors in situations where the probabilities are greatly in their favor.

KOG

The price trend seen in KOG had a high probability of occurring based upon the frypan bottom pattern. To disregard the basic results of candlestick signals is to put one’s self against the probabilities. Very simple scanning techniques allows an investor to identify which stocks have the best potential. The application of candlestick formations makes it much more clear to identify where a bullish or bearish breakout should occur. This capability reduces the risk and dramatically improves the probabilities of being in the right position at the right time. The CandlestickForum is providing a training program on December 14, Tuesday night, to demonstrate simple scanning techniques that exposes the best trading potentials. Please review this mini-training session information on the home page, or click here for more info.

Chat session tonight at 8 PM ET . Learn some of the basics on how to identify where the next big trade is going to occur.

The Candlestick Forum Team

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HOLIDAY SPECIALS FOR THE INVESTOR WHO HAS EVERYTHING

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Today the markets traded positive after trading lower early in the day. The Dow traded up 200 points after closing at the 200 day moving average yesterday. Does today’s positive trading mean there is a reversal in the market? Using candlestick analysis today’s trading may be more inclined to be a bounce versus a full-scale reversal. Although the indexes traded up strong, they did not produce candlestick reversal signals. Why is this relevant? Simple logic! If trading formations such as today’s trading was signifying a relevant change of investor sentiment, it has to be assumed that the Japanese Rice traders, with 400 years of observations, would have provided a name for these type of reversal days.

The fact that they didn’t makes for the assumption that these are merely up days in a downtrend. The other high probability factor is that the indexes closed below the T line. Because candlestick analysis is based upon the graphic depiction of human nature, the signals working in conjunction with some high probability confirming indicators provides an extremely strong trading format for investors. A format that is based upon high probability human nature reactions that have work extremely well for centuries.

Candlestick patterns provide expected results. The advantages of working with candlestick patterns is twofold. One, it illustrates when there is a high probability of an expected price move and secondly, that price move usually has much more strength than mere uptrending stock prices. Today, HCLP was recommended based upon the cradle pattern, a high profit candlestick pattern. The utilization of candlestick signals and patterns puts an investor in situations where the probabilities are greatly in their favor.

Chat session tonight at 8 PM ET with Guest Speaker Steven Brooks. Click here to register.

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Before the take off of trading online stock in the 1990’s, big-time investors were able to double their incomes by investing thousands of dollars in the stock market. Most of America’s wealthiest Americans made a lot of their money by investing in stocks. With the advent of the internet however, the smaller investor can now get in on the fun. The stock market is even more open now and millions of Americans can now make money investing in stock. Those with limited funds can now invest in their company’s 401k accounts and can become shareholders in the company.  The great thing about it also is that now people can do this from the comfort of their own home.

Getting Started Trading Online Stock

First you must have the minimum dollar amount necessary to open a trading account with the brokerage firm of your choice. The minimum dollar amount is usually about $500 but it can vary from firm to firm. Additionally, you will have to pay a membership fee with the firm which can range from about five dollars to twenty dollars. You will also need to become familiar with the trading system that the firm provides as well as the investment software you plan to use. Then you can begin to trade and manage your funds. You should be able to access the market in real time, examine trends quickly and efficiently, and you must be able to trade instantaneously. Lastly you must be sure that you make full use of your online brokerage firm’s research facilities in order to grow and maintain your investments.

Portfolio management is the key to successful investing. When trading online stock it is also wise to study the history and performance of all of the stocks in your portfolio. Whether you are investing in stocks using fundamental analysis or technical analysis, you must ensure that you have portfolio diversification. This will ensure that you don’t have all of your eggs in one basket.

If you want to practice short term stock trading and use the concepts associated with technical analysis you should research Japanese Candlesticks. Candlestick trading analysis does not require knowing intricate formulas or ratios for trading online stock. The stock investing basics of Japanese Candlesticks result in clear and easy to identify patterns that demonstrate highly accurate turns in investor sentiment. There are really only 12 major Candlestick patterns that need to be committed to memory. The Japanese Candlestick trading signals consist of approximately 40 reversal and continuation patterns. All have credible probabilities of indicating correct future direction of a price move. Continue to learn about other technical indicators and find out if Japanese Candlesticks are for you.

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Market Direction

Why was there expected profit-taking today? Both the Dow and the NASDAQ had reached their prospective resistance levels. The Dow closed at the recent top  on Tuesday. The NASDAQ closed at the 50 day moving average on Tuesday. Yesterday the markets demonstrated indecisive trading at those levels. That may seem like a fairly simple observation, but it becomes simple when using candlestick signals for your analysis. Trend analysis becomes much more accurate when knowing what each of the 12 major signals represent.

DOW

Indecisive trading is represented by Doji’s, Spinning Tops, Harami’s, Shooting Stars or Hanging Man signals. When an indecisive trading signal is occurring at a  potential resistance level, trend evaluation becomes much easier. Was it time to take profits today? Knowing that  investor sentiment was getting indecisive once the prices hit resistance levels, that should have made the anticipation of taking profits better clarified. The past few weeks have produced an extremely good profits from our recommendations. The shipping stocks and the mining stocks created some very good profits. DRYS was recommended in the $8.00 area on December 9, 2008. It gapped open today at $13.52, above the 50 day moving average. The gap up in the overbought area was an indication that some profit should be taken in the very near future. It closed back below the 50 day moving average. It is in the range of a 52% to 60% profit. The dark candle formation today becomes an indication that bearish sentiment may be starting.

DRYS

Many investors have a hard time taking profits. Emotions start stepping into the decision-making process. “What if we take profits at this level and the price continues for another 10 points higher?” This is the biggest fear most investors have to overcome. The strength in the price confirms to our own ego how smart we really must be. Not only did we invest in a stock position that was moving in the right direction, but our analysis put us into a position that has made big profits. Boy, we must be smart. So smart, the price trend might even move past our conservative expectations. When the mind gets into this euphoric state, rational analysis starts slipping away. There is a tendency to ignore what the signals are representing. This becomes a battle between rational analysis and the emotional expectations of what a price could do.

SSRI

Quite often, the fear of taking profits, because prices might go even higher, dramatically reduces profits. Most investors have the tendency to hold onto a positive price move way too long. Many of us have probably held a profitable trade all the way back down to where we bought it or below. Applying the proper technical analysis is as important as controlling for the correct decision making process. Candlestick signals allow for much better control of one’s emotions.

 
Private training session

Mr. Bigalow also will be committing time to a private training session during the January and February time frame.

These training sessions are limited to a very small number of people. This provides individual attention for eliminating the past bad trading habits and applying the high probability candlestick analysis trading philosophy. If you are interested in attending one of these sessions, e-mail Steve at steve@candlestickforum.com to discuss more details.

Chat session tonight at 8 p.m. ET – everybody welcome. Click here for instructions; if you already have HotComm installed, click here to connect.

Good investing.

The Candlestick Forum Team

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This Week’s Specials

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*Free shipping offered only for domestic orders; same shipping rate will apply for international orders.

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Semi-Private Training Sessions 
Live and in person with Stephen Bigalow

Now Scheduling for

January 3rd & 4th, 2009
Contact us ASAP to register via email  or call 1-866-251-4015.

Group size is  limited to FIVE participants
Sessions fill quickly – Pre-register early

Short term trading requires that investors understand important concepts. This style of trading attempts to capture gains in a stock within one to four days and moves very fast, so understanding these concepts and the ins and outs of short term stock trading is crucial to your success as a stock trader.

Short term stock traders must have a sense of the overall market trends in order to successfully trade stocks. You don’t want to take the chance of having the market trend go against you so if the trend is negative, then you should consider shorting and buy very little. Conversely, if the trend is positive, then you may want to consider buying stock and doing very little shorting when short term trading.

Short term trading also requires that traders understand the overall patterns that take place in the stock market. The market tends to trade in cycles and these cycles are used by traders to determine when they should enter the market, exit the market, and whether or not they should go long or short when they enter the market.

Moving averages are also important to understand for short term traders. The moving average tells us the average price of a stock over a specific amount of time. The purpose of using moving averages is to indicate to the trader whether or not a stock is trending upward or downward. There are different types of moving averages including the simple moving average (SMA), the exponential moving average (EMA), and the weighted moving average WMA). Understand how to read moving averages and you are one step closer to successful stock trading.

Swing trading is a type of short term trading where technical analysis is used to look for those stocks that have short term price momentum. Swing traders will hold onto a stock for typically a few days or for two to three weeks. They trade stock based on its intra-week or intra-month oscillations. Candlestick analysis is helpful tool for swing traders. The characteristics of candlestick signals create the parameters that make swing trading successful. Pattern recognition is necessary when trading stocks using candlestick analysis. The trader must learn to identify signals indicated in various Japanese candlesticks patterns that tell a trader when it is time to enter and or exit a trade.
There is a lot more to learn about short term trading in addition to what was briefly addressed in today’s article. Continue to learn about the different technical analysis tools available to investors and find those tools that work for you. Just be careful that you keep it relatively simple by using only a few different technical indicators. Trying to incorporate too many can actually go against you. Master a few and you should start to see results.

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Market Direction

Observe the obvious! A major advantage provided by candlestick signals is the clear visual information that is conveyed. It makes the obvious technical analysis indicators more obvious. As can be observed in the Dow chart, the trend channel was acting as support. When a trend channel, trend line, moving average, or any other indicator that can be obviously observed as having an effect on a trend, the utilization of candlestick signals allows an investor to make strong and appropriate decisions immediately.

DOW

Even with the weakness in Friday’s trading, the Dow still closed in the trend channel range. The NASDAQ formed a Doji right on the 50 day moving average and the T. line. This made for a very simple analysis. There is an expectation in price movement after a Doji. A trend will usually move in the direction of how it opens after a Doji.

NASDAQ

Having that knowledge made for a very easy strategy decision for this morning’s trading. The Dow and the NASDAQ pre-market futures showed a significant downside. A bearish indication in the NASDAQ futures illustrated that it would open below the uptrending channel. This presented the opportunity for a very simple game plan. Closeout long positions that were not demonstrating excessive strength. Add short funds to the portfolio. Why could this be done with great confidence? Simply because of the results that should be occurring based upon candlestick signals and support levels.

FAZ Short Fund

Many investors have a hard time making decisions when closing out existing positions and adding new positions. Too often hesitancy is created because of the lack of a defined trading strategy. Candlestick signals, in conjunction with other technical indicators, allow for rapid and decisive position changing. Todays gap down in the NASDAQ, after a Doji and below the lower trend channel required immediate action. The candlestick investor has the benefit of simple trading rules that create high probability results. Once an investor learns a few easy-to-identify price patterns and signal actions, the fear of moving funds into and out of  positions becomes dramatically reduced.

Why do professional investors consistently make money? Because they understand price movements are caused by reoccurring forces as a result of investor sentiment. Investors that trade for a living or are dependent upon substantial income from the markets recognize the reoccurring signals and patterns. This is what allows many investors to make a career out of trading/investing in the markets. Knowing and understanding the details involved with successful candlestick analysis allows an investor to move from making good money from the markets to making their career income from the markets

Are you the investor that seems to be able to get into good positions but do not know the correct time to exit a trade? Do you seem to be losing more money on bad trades then you should, offsetting the gains of the good trades? Do you get caught up with nursing a bad trade and letting the rest of the trades flounder around? The Candlestick Forum boot camp allocates extensive time in into to each of the aspects of candlestick analysis that allows an investor to trade successfully. Knowing the correct manner to enter and exit trades, positioning stop losses, and taking profits at the appropriate times, dramatically reduces the emotions that sabotage most investors mental thought processes.

Do not miss this opportunity to gain insights into successful investing techniques that you will utilize for the rest of your investment career. The boot camp provides actual  hands on analysis. Each training is limited to only 15 people. This allows for better interaction with each participant, dissecting and formulating corrections into each persons investment technique. Seating is limited, only a few spaces left.

Chat session tonight 8 PM ET for members.

Good investing,

The Candlestick Forum Team

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This Week’s Special

2-Day Training Seminar on CD

Scanning Techniques

Click here for details.

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Think of Candlestick Forum as Investing in the Stock Market for Dummies. The famous “for dummies” series is a practical guide to all sorts of endeavors. Candlestick Forum is also a practical guide to investing in the stock market. Investing in the stock market for dummies with Candlestick Forum can be a highly instructive venture. Candlestick Forum provides a series of newsletters that cover the basics of investing in the stock market for dummies, which applies to all traders and investors when we start out. In addition, more in depth instruction is available including daily stock picks and commentary on market direction. The core of investing in the stock market for dummies with Candlestick Forum is the use of Candlestick analysis. The analysis of Candlestick patterns allows stock traders to profitably assess market sentiment. By using technical analysis tools like Candlestick chart formations the trader is commonly able to anticipate market trends, market reversal, and successfully trade market volatility.

Investing in the stock market for dummies with the assistance of Candlestick patterns, sound fundamental analysis of stocks, and the practical advice that Candlestick Forum provides is helpful to traders and investors at all levels of knowledge and experience. An especially helpful aspect of investing in the stock market for dummies that comes with a membership in Candlestick Forum is Stephen Bigelow’s daily stock picks. This knowledgeable and experienced trader chooses tradable stocks and discusses his rationale for buying stock, holding stock, and selling stock on all days that are not stock market holidays. By following this ongoing stock trading tutorial one can profit from buying stocks and selling stocks while learning the details of Candlestick trading tactics.

As the reader has already figured out, learning stock market investing for dummies with the assistance of Candlestick forum has nothing to do with dummies. There are any number of proverbs that remind us that those who are open to new learning will prosper and those who think they already know everything tend to fail. By learning the use of Candlestick signals such as the Doji Candlestick, traders will be able to identify changes in market sentiment such as the market indecision that the Doji indicates. Combining Candlestick signals with the fundamentals of stock analysis such as margin of safety, intrinsic stock value, and price to earnings ratio a person beginning investing in the stock market will have the basics. Combine the basics with the instructional stock picks feature of Candlestick Forum and one learns a set of useful tools for day trading stocks and for long term investing. If you are interested in a investing in the stock market for dummies course consider becoming a member of Candlestick Forum where both beginners and pros sharpen their skills.

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Market Direction:

The strength in the dollar is being blamed for the selloff Monday. However the failure at the T-line for the Dow on Friday was a good indication that they would probably be coming back to test the 50 day moving average. But the NASDAQ, after it failed the T-line on Friday following a Doji, has gapped down through the 50 day moving average. That does not bond well for trying to start a bullish trend.

The markets did not demonstrate very much strength after dropping dramatically in the morning. The Dow is sitting right on the 50 day moving average but the NASDAQ is trading well below that level. More importantly, there are no indications of bullish sentiment in this market as far as the candlestick formations as well as stochastics, stochastics are in fact in a downward direction. The dollar continues to add strength, which is one of the excuses for why the market is selling off. June 11 and 12th – Mark your calendars, a full two day training session is where most investors can mentally accumulate the concept of candlestick analysis and have it become much easier to understand when seeing all the pieces put into a chronological order. The training sessions are limited in size, this provides participants with enough time to ask questions and get good clarification on specifics of candlestick analysis.

2-Day Candlestick Analysis Training – June 11 and 12th – Mark your calendars, a full two day training session is where most investors can mentally accumulate the concept of candlestick analysis and have it become much easier to understand when seeing all the pieces put into a chronological order. The training sessions are limited in size, this provides participants with enough time to ask questions and get good clarification on specifics of candlestick analysis.

Book Error Contest

If you have read “Candlestick Profits – Eliminating Emotions with Candlestick Analysis” and found errors, the person that sends the most errors to steve@candlestickforum.com , will receive  valuable and “interesting prizes. This contest ends on June 7th.

Chat Session tonight for members 8 pm ET.

Good Investing,

The Candlestick Forum Team

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A means of profiting from price changes in commodities and stocks as well as stock indexes is by buying futures contracts. Unlike buying calls or buying puts in options trading, buying futures obligates traders to buy the stock or commodity on the contract settlement date. Unlike options contracts a futures contract is not executed at midpoint in the contract. However, a trader can sell in order to exit contracts on futures exchanges at any time that the futures price is profitable or any time that he wishes to eliminate the risk of holding the contract to settlement. The vast majority of those buying futures contracts will exit the contract by executing the opposite trade.

Those companies dealing in commodities will coming use buying futures and selling futures as a hedging strategy in order to guarantee a future sale or purchase price. In buying futures a trader is buying a derivative contract based upon the equity or commodity that underlies the contract. In buying futures on stocks, stock indexes, and commodities the trader assumes a long position. The price of the futures contract is determined by the market for the underlying. This price will fluctuate with current market price and expectation of the price at a date in the future. The use of technical analysis tools such as Candlestick analysis is important in reading market sentiment and anticipating price movement of both the underlying stock and the stock price as of the settlement date.

Many underlying elements of buying futures are not stocks and not really commodities either. They may be financial instruments, stock indexes, interest rates, and even such esoteric things as cap and trade futures. In each case the futures price will vary based upon underlying conditions and traders who successfully use technical analysis with Candlestick chart analysis can prosper by accurately predicting where the price or value of the underlying element will go in relation to its price when the contract is made. Although the settlement date of a futures contract may be weeks, months, or even years in the future the contract’s value or price can fluctuate by the minute as market conditions dictate. These contracts are traded on formal exchanges in set amounts with set contract settlement dates. As in all stock trading the fundamentals of the market are generally known and it is the stock price configuration that the trader reads with Candlestick chart patterns that gives profitable clues to where the stock price and stock futures price is going next.

Keys to success in buying futures are competent fundamental analysis of the underlying equity or index as well as up to the minute technical analysis with an easy to read tool such as Candlestick analysis. Knowing fundamentals gives the trader or investor a clear view of the potential of the stock market or of a given commodity such as corn futures. Knowing how to use Candlestick chart formations to anticipate future prices lets the trader profitably buy futures and sell futures whether for underlying stocks, commodities, indexes, or other, more esoteric, things such as index futures.

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Market Direction

Candlestick analysis allows an investor to analyze the most basic investment decision-making tool, the market indexes. The premise of candlestick analysis is the evaluation of what investor sentiment is doing. Investor sentiment can be identified in the market in general, all the way down to the 1 min. specifics of an individual stock. Knowing the direction of the market indexes provides an extremely powerful profit force. As witnessed in the Dow during the past two days, there has been a noticeable change of investor sentiment. What had been a whipsaw market, a sideways moving market, had now been exposed as a new trend.

DOW

The significant factor of the bullish candle is  that not only had a huge price move, but it closed above the top of the recent congestion area. This has significance! Everybody could see there was a resistance level and a close above that resistance level now provided new information. The Bulls were not stopping at the resistance level. That may seem very simplistic but candlestick analysis help perform analysis in as simplistic a manner as possible. Trading above a resistance level, and also above the tee line, makes for a very simple trend analysis. The trend is now in an uptrend. With that information, positioning the portfolio in the proper direction allows for the makeup of the small losses that may have occurred when the market was not showing a definite direction.

Many investors have a difficult time comprehending one aspect of investing. There will be times in the market when money will have to be at risk based upon what the candlestick signals are revealing but also will have to be closed out quickly because of a quick change in what the candlestick signals are now revealing. This comes back to the Sage advice, “Cut your losses short, let your profits run.” Using candlestick signals correctly will greatly eliminate the fear factor of looking stupid. Many investors have a difficult time closing out a position because it appears to be the time to close out the position but then witness new evidence that is time to be back in that position. Many investors take this as a personal affront. The stock does not like them! An easy way to eliminate that ill-conceived point of view is to ask one simple question. What is the chart telling me to do!

Note in the TQNT chart and the ATML chart, there was a time to close out the position, but there was also a time to immediately buyback that position. There will be times when one confirming indicator is breached but prices coming back up through the confirming indicator will now reveal other trend analysis factors as be in the predominant information.

TQNT

ATML

Chat session tonight at 8 PM ET

There will be a quick dissertation on how different stop loss procedures should be applied during different market conditions.

Good Investing,

The Candlestick Forum Team

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Traders will often purchase commodities because of the potential for wide commodity price variation. Especially in agricultural commodities, prices can fluctuate fifty percent or more in a year. Producers and processors of commodities will often engage in hedging commodities in order to guarantee a stable price structure for their business operations. The hedging by producers and processors of commodities provides a base market in which the trader can profit in commodities trading. In order to purchase commodities, traders will post a margin. Margin requirements to purchase commodities include the maintenance margin which is what the trader must maintain in his account in order to trade. A performance bond margin is monies deposited by both buyer and sells of commodity futures contracts to guarantee performance of the contract. This is essentially a security deposit. To purchase commodities the trader will want to track return on investment. Return on margin is typically used as a measure of success for those who purchase commodities. This is the gain or loss in trading compared to money invested. It should be noted that this is not return on money per commodity purchased or sold but return on the amount of money dedicated to the margin account in order to purchase commodity futures and sell commodity futures. To learn to effectively trade commodities a good place to start is Commodity and Futures Training.

Because of the potential for rapid changes in commodity futures price there is the potential for substantial commodity futures profits. When a trader decides to purchase commodities he or she will decide on the commodity and the delivery date. Commodity delivery dates can be next month, next year, or several years hence depending upon the commodity traded. However, the trader need not hold the commodity contract for its duration. He or she can make the opposite trade to exit the contract. That is the trader can sell the same commodity with the same delivery date. If market fundamentals change or technical factors lead to a substantial market change the trader can exit the trade with a profit long before the contract expires. Traders will follow both fundamental and technical analysis in order to profitably anticipate commodity price movement. The use of Candlestick analysis can help the trader see potentially profitable market patterns and market trends allowing them to purchase commodities and sell commodities in a timely and profitable fashion.

Candlestick basics have been around for centuries. They were developed by commodity traders in the rice market in Japan in the days of the Samurai. Just as in days past a trader can spot a Candlestick pattern indicating that the price of the commodity will likely go up or down in the very near future. Candlestick pattern formations let the market tell the trader what it will do. This is because market patterns tend to be repetitive. Reading the first part of the pattern helps predict the second part of the pattern. This can lead to handsome profits for the trader who uses Candlestick patterns to guide in the purchase of commodities.

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Market Direction

What makes candlestick analysis so profitable? The Japanese Rice traders provided a format that allowed investors to anticipate what should happen next. Witnessing buy or sell signals in overbought or oversold conditions produce high probability results. As seen in the Dow chart this past week, it was evident the Bulls were starting to step into the market. The stochastics were in the oversold condition and buy signals started to appear. After Monday’s hard pull back, Tuesday formed a Doji. This made trading on Wednesday very simple. The market was going to move in the direction of how they open that after Tuesday’s Doji. This is not rocket science! This is merely applying the simple rules the Japanese Rice traders identified as high probability situations.

DOW

Upon seeing the premarket futures trading positive on Wednesday morning, after the previous day’s Doji, and with stochastics in the oversold condition, the trading strategy became very simple. Buy immediately! While other investors may have needed further confirmation or they were not prepared to buy immediately on such a strong open, the candlestick investor could utilize the information that is built into candlestick signals. The NASDAQ had a Doji formed on Tuesday. It was gapping higher on Wednesday. This is exactly what the candlestick investor wants to see, especially in an oversold condition. Strong charts were bought immediately.

A major function for profiting from the markets is having a game plan. Candlestick signals allows an investor to be prepared for what price actions might do the next day. Where most investors were crying the blues during the market pullback throughout 2008, most of the candlestick investors on the website did moderately well when establishing positions in the short funds. Whether a fundamental investor or a technical investor, candlestick analysis provides a relatively accurate roadmap for the market direction and individual stock moves.

The same analysis is applied for trading commodities. The benefit of a commodity is that the price does not have multiple outside influences that will change the direction of a trend. Most commodities and currencies trade relatively consistent in a trend due to merely supply and demand. Whereas stocks have outside influences such as the market direction in general, interest rates, political rhetoric, or the shenanigans of company management, commodity and currency prices are usually affected by investor sentiment that is going to remain consistent for relatively long periods of time.

The member chat room is open all day long during market hours. The Monday night training sessions and the Thursday night training sessions are enhancing visual training that allows an investor to clarify in their own minds what a price movement should be doing after specific signals. The daily stock picks should not be used merely as trading vehicles. The daily stock picks and commodity pics should be analyzed to get a better understanding of why those specific recommendations were made. You should have discovered by now that the candlestick charts do not overwhelm you with multitudes of technical indicators. The signals themselves produce an immense amount of information. When you use this information correctly, the confirming indicators allow for an evaluation that will improve the probabilities of a trade.

Chat session tonight at 8 PM ET. Everybody is welcome. Also, consider having your children start learning the concepts of investing during their learning years. That puts them in a much better position when it comes time for them to start managing their own funds.

Click here for Chat Room Instructions.

Good Investing,

The Candlestick Forum Team

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Buying “on” margin

Buying on margin is one way that investors use leverage to increase a possible return on investment. Leverage is a great way for the investor to magnify gains however it comes with great risk. While you can magnify your gains, you can also greatly magnify your losses.

In order to buy on margin, you must first open a margin account with a brokerage firm. The broker lends the investor cash in order to purchase financial securities. This is in the form of a loan and if the value of the security invested in drops then the investor is required to deposit more cash into his or her account, or to sell the stock or a portion of the stock or other financial security. Basically, when buying on margin you are investing with your broker’s money in attempts to gain more of profit than you would have otherwise gained if you used only your own money.

The initial payment made to the broker for the asset being purchased is what buying on margin refers to and this collateral is referred to as the maintenance margin. In other words, the maintenance margin is the minimum amount of equity that must be kept in the margin account to prevent from receiving a margin call. A margin call occurs when the value of the margin account decreases below the maintenance margin determined by the broker. It is the demand by the broker that the investor deposit more equity into the account or to sell off some assets. The minimum level that is required is about 25% of the total market value of the securities in the investor’s margin account. Some brokerage firms will charge percentages closer to 30 and 40 percent.

While margin buying is risky, the advantage is that you can buy up to twice as much stock as you originally could with just the cash in your margin account. This means you can potentially double your profits! The downside is that your broker can sell off your securities if the price declines. If this happens then you are unable to partake in any future rebounds that would occur if you were trading from a purely cash position.

Investors must weight the advantages and disadvantages of buying stocks on margin and decide if this is a strategy that they are comfortable with. For some investors it is too risky, however many investors utilize this leverage strategy and find it very beneficial. 

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Market Direction

Why is it important to have margin capabilities or option leverage when using candlestick analysis? For the simple process of taking advantage of favorable probabilities. If you know the probabilities are in your favor every time you make a trade, you will want to have as much accessibility to purchasing power as possible. The results of candlestick signals have proven to produce a statistical favorable result throughout the centuries. Obviously, if they didn’t, we would not be studying them today.

The expected results of a price pattern or signal confirmation provides a very big advantage to the candlestick investor. It allows for the ultimate high profit/no risk trade. Let us repeat that statement, high profit/NO risk trade.


As always, when somebody tells you there is no risk in an investment transaction, it is time to run like a jack rabbit. However, if you understand how to develop a no risk transaction, you will have discovered a simple trading strategy that put all the investment information found in candlestick signals and patterns to the ultimate profitable use.
This past weekend the Candlestick Forum presented a two-day option trading program utilizing candlestick signals. It stressed the utilization of the correct option strategy to the correct trade patterns. Each trade has risk. What if the risk factor was eliminated before the trade was completed? This is done by utilizing the information conveyed by expected results of a pattern. When analyzing a price pattern and viewing the confirmation of a pattern, what happens to the probabilities? The probabilities are greatly skewed in favor of the expected results. When a trade is executed based upon that information, the risk factor is greatly diminished. The expected results makes the trade a high probability situation.

The Staggered Spread dramatically changes the dynamics of a profitable trade. It has the capabilities of dramatically decreasing and more importantly, completely eliminating risk from a transaction. This can be done by strategically executing a spread option trade. As illustrated in our recommendation today on POT, the chart pattern showed a potential breakout through a resistance level. There are two simple methods for a breakout. One can be the price moving up strong through a potential resistance level. The other is a gap up through that resistance level. A gap up through that level usually creates a strong price day.

POT

With that knowledge, a risk-less transaction can be put in place. This morning, POT gapped up through the resistance level. The first leg of a spread pattern was put in place on the open. Buying the November 105 calls at $2.60. selling the November 110 calls for $1.20 would ‘have made’ the net cost $1.40. $1.40 to end up as five dollars if the price of POT closes above $110 at expiration day fits in to the parameters of making a three to one return on a spread.

But there is a more profitable trade situation! Buying the November 105 calls on the gap up open for $2.60 would have opened the first half of the staggered spread. What were we expecting if the price gapped up through the resistance level? A strong price move. That anticipation would now hold the other half of the spread from being executed until the end of the day. As seen in today’s price movement, what was expected after the gap up through the resistance level did occur, a strong price move. The end of the day would now allow an investor to sell the November 60s at a much higher price. Any price above $2.60 would make this transaction riskless.
Buying the November 105 calls at $2.60 and selling the November 110 calls for $2.60 would mean there was no money exposed to this transaction. If the price closed above $110 on expiration day, the zero money transaction now would release $500 of profits for each contract.

MOS

The longer the markets move in a slow consistent uptrend, the more breakouts will occur. An investor can control a large amount of equity without being exposed to any market risk. Take advantage of the information built into candlestick signals. Learn how to develop option trading strategies that will dramatically increase your equity without exposing your funds to losses.

Member Chat Session tonight at 8 p.m. ET.

Good investing,

The Candlestick Forum Team

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