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

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

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

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

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

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There will not be a Market Direction today.

Good investing,

The Candlestick Forum Team

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

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

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

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Market Direction

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

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

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

DOW

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

NASDAQ

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

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

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

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

Chat session tonight for members at 8 p.m. ET. Check the Member Area for instructions.

Good investing,

The Candlestick Forum Team

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

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

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

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

Trades have five possible outcomes:

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

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

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

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

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

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

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

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

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

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

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

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Market Direction

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

DOW

NASDAQ

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

S&P 500

EVENING STAR

Recognition

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

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

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

CRUS

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

Chat session tonight at 8 PM ET

The Candlestick Forum Team

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Profitable Candlstick Trading

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

Put Your Money Where Your Mouth Is

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

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

The Truth About Stock Market Average Returns

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

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

How To Quantify Your Stock Market Average Returns

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

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

Conclusion

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

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

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

Futures Contracts

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

Currency Forward

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

Currency Pair

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

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

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Market Direction

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

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

DOW

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

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

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

VCI

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

MICC

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

Good investing,

The Candlestick Forum Team

Live cattle commodity trading has been lucrative this last year in a bull market. Fundamental analysis of factors that influence the price of live cattle including the cost of feed, herd sizes, and weather is useful in live cattle commodity trading. So is technical analysis of the live cattle commodity market. Commodity and futures training will help you understand commodity prices and commodity futures in trading live cattle. Live cattle are cows from calf stage up to 600 to 800 pounds when they go to a feed lot to put on another 500 pounds or so and are called feeder cattle. Successful commodity investing in live cattle starts with a few basics.

Live cattle trade on the Chicago Mercantile Exchange as LC. Live cattle commodity trading is in lots of 40,000 pounds which translates to about 80 cattle. Prices are quoted per pound in increments (ticks) of $0.00025. Thus one tick comes to $10 (40,000 X $0.00025). As of this writing live cattle futures are trading at $95.075 for April settlement and as low as $90.425 for August settlement. These figures translate to around $3.8 million for a lot with movement of a dollar in price coming to $40,000 in profit or loss in trading commodities in live cattle. Technical analysis charts used in commodity trading are just as useful for live cattle futures as they are for stock trading, options trading or Forex trading. As in using Candlestick charting the use of technical indicators to evaluate market history tells traders what the market will do next.

The commodity market in live cattle derives information from a number of sources. Feed prices are critical to success in livestock management and to making a profit raising beef. When the price of grain/feed goes up ranchers often will cull their herds. This reduces their costs and reduces the supply of beef in the year to come for live cattle and in the months to come in case of feeder cattle. However, culling herds means slaughtering many animals and this brings a lot of beef to market all at once. This makes steak cheaper in the market and reduces the commodity price for feeder cattle and live cattle in the short term. When the winter weather on the Great Plains and Corn Belt is severe livestock numbers may not drop but the cold stress will slow weigh gain of animals, reduce profits for ranchers, and delay the amount of beef that will come to market. Successful commodity trading requires that you understand how ranchers operate and how herd size and temporary swings in beef supply will affect live cattle commodity trading.

Commodity trading software will help the beginning commodity trader. To get the most out of online trading software it is best to take Commodity and Futures Training. To keep current on herd sizes visit the Department of Agriculture’s Cattle on Feed Report. This routinely published document will tell you how many cattle there are in feedlots and how many “live cattle” there are, namely how many have been weaned and are up to 800 pounds and still feeding on grass. Live cattle commodity trading is dealing in a complicated commodity market that, in the end, feeds the nation. Commodities trading in cattle will always be there with profits to be made by those who assess the fundamental and technical analysis correctly.

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Market Direction

The effectiveness of the T-line in candlestick analysis can clearly be demonstrated watching the trend of the markets. Note how the Dow has used the T-line as support. Every time it moved away from the T-line, sideways trading brought the Dow back to the T-line. These past few days of trading saw the formation of an Evening Star signal. This could have been the beginning of a possible downtrend. However, one important factor was not fulfilled. As seen in Thursday’s trading, the Dow could not be pushed down through the T-line. This makes for one simple observation, the uptrend remains in progress. This may seem like a very simplistic method for analyzing a trend, but fortunately candlestick analysis is the process for making trend analysis easy. There is a  simple rule. An uptrend will continue until there is a candlestick sell signal AND a close below the T-line. Without both of those parameters, the uptrend will usually remain in progress.

DOW

The same analysis can be applied to commodity trading. As illustrated in the May Feeder Cattle chart, the T-line provided a very compelling indicator. Note how the trading below the T-line revealed indecisiveness. Also note, the only solid close below the T-line during the uptrend was on March 28. This close did not follow a candlestick sell signal. Had the position been closed out, as it closed below the T-line, there would have been a much more compelling reason to buy back immediately as it gapped up and traded positive the next day. This would have been based upon some very simple trading rules. One, the longer an uptrend persists, the more compelling the candlestick reversal signal needs to be. Two, the lack of a candlestick sell signal followed by a close below the T-line should be considered more as a profit-taking stage versus a reversal. Three, the gap up the next day formed a mild kicker signal.

GFK0

The moving averages are very good support and resistance indicators. Commodity trading sees more activity around the T-line, the 20 day simple moving average and the 34 day exponential moving average, whereas stock trading sees much more activity around the 50 day moving average. Once you have learned which confirming indicators work well with stock trading, commodity trading, currency trading, or any other trading entity that involves fear and greed, you can utilize candlestick signals and patterns in all trading markets.

The combination of candlestick signals and the T-line helps an investor to decide when to get into and out of a position. It helps when holding a position. One of the greatest fears most investors have is giving back profits. Using the simple rules applied to candlestick trends keeps the emotions out of a trade.

May Soybeans

As illustrated in the May Soybean chart, the sell signal was quite evident: A Doji, followed by a bearish confirmation and a close below the T-line. The downtrend did not show any dramatic change of investor sentiment until buy signals occurred in the oversold condition, followed by a close above the T-line. As can be seen in this chart, there would have been many days where positive trading would have made somebody holding short positions very nervous. However, the candlestick investor would have had peace of mind, knowing the effects of the T-line.
Denver – Steve Bigalow will be providing a free presentation to the Denver trading club on Saturday, April 3. It starts at 9 AM and goes until 1 PM. There is a small room fee. It will be located at the Summit Event Center.

Join us if you can. Steve will also be arriving on Friday evening and meeting people for dinner at the Homewood suites hotel. Everybody will meet in the lobby at 6:30 PM if you would like to join Steve for dinner.

Chat session tonight at 8 PM ET.

Learn which sectors are performing well in the sideways market.

Good Investing,

The Candlestick Forum Team

Stock market cycles are the inherent results of investor sentiment. Stock market cycles occur due to investor confidence building up and investor confidence waning. Prices do not change because of the fundamentals. Prices change based on investor perception of fundamentals. Candlestick signals are excellent analytical tools for projecting the tops and bottoms of stock market cycles.

The signals produce an immense advantage in trend analysis. Stock market cycles, when evaluated properly, produce the opportunity to make extraordinary profits from the markets. Utilizing Candlestick signals at major support and resistance levels increases the probabilities of identifying the tops and bottoms of stock market cycles.

Candlestick signals immediately identify the results of investor sentiment at important technical levels. Some of the strongest support and resistance indicators are major moving averages. Learning to use the 50 day moving average and the 200 day moving average dramatically enhances trend analysis results. These moving averages are important because they are utilized by the major money managers.

Market Direction

The Dow and the S&P 500 have pulled back to the 50 day moving average and the 200 day moving average. What does this indicate as far as trend analysis? A common rule of technical analysis is that once an important technical level is breached, prices will come back and test that level. Applying this knowledge simplifies the analysis of what the next trend move might be.

The S&P 500 indicated a Doji forming right on the 50 day moving average. Although the Dow did not show a major reversal signal, it also showed strength right on the 50 day moving average. This analysis, with the analysis of the signal formation in the NASDAQ, provides more evidence of what investors are doing. The NASDAQ formed a Bullish Harami. This, occurring when seeing support at the moving averages in the other indexes, can now be assessed as buying starting to come back into the markets.

SPUS

The NASDAQ has been showing buy signals as it has declined toward the 50 day moving average. There have been two Bullish Harami’s and a Hammer signal followed by a Bullish Engulfing signal, in the past few days. Wednesday revealed another bullish Harami as the trend has pulled back very close to the 50 day moving average. These are all indications that the downtrend has been slow and controlled.

Sector Play

One of the strongest signals in Candlestick analysis is the Kicker signal. The appearance of a Kicker signal occurring right at a major moving average is an extremely strong reversal indicator.

The Semiconductor Equipment and Materials sector formed a Kicker signal on Wednesday right at the 50 day moving average. What does this indicate?

To the Candlestick investor, this should indicate that the best stock trades should be showing up in a sector that has indicated an extremely strong reversal. If the sector index reveals a strong reversal, individual stocks in that sector should be producing some very strong signals. Finding strong Candlestick signals from a sector indicator can be applied to the strong stocks in the sector.

Notice in the Applied Materials Inc. chart that it also produced a Kicker signal at the 50 day moving average. This becomes strong criteria for entering a trade.

AMAT

Any signal moving off of a moving average, when stochastics are in an oversold condition, becomes an extremely high probability trade opportunity. The moving average, that is acting as a support level

As a stock price moves up and down over time it will tend to stay within a range. As the stock price moves up traders will sell and take a profit. When the price of a stock moves down traders will buy stock again. The apparent barriers to up and down movement of the stock price are called support and resistance zones. The ability to understand current support and resistance zones and to predict when they will change is integral to successful day trading. Understanding and using Candlestick patterns helps the trader make profits by predicting support and resistance zones successfully.

Over time stock prices move higher and lower so the support and resistance zones of a given stock will move up and down. The line running through a series of support prices on a stock chart and one running through resistance prices are called trend lines. Trend analysis is basic to predicting the future of a stock’s resistance and support zones. Trend stock trading has to do with continuing stock analysis, closely following stock price history, and accurately predicting future support and resistance levels. A company making good profits may see its stock trend lines gradually go up over time. A company that has a sudden increase in sales may find that its stock breaks out of its resistance zone only to establish new support and resistance zones as trading progresses. Candlestick pattern formations will let the market tell the trader what the market is about to do.

Trading support and resistance zones works because traders will sell stock at or before the resistance zone of a stock in order to insure a profit and day traders will buy stock at or before the support zone in order to insure a stock purchase before the stock price goes up again. There are two factors at work here. One is that support and resistance levels stay put so long as there is no breaking news about the stock, the market sectors in which it operates, or the economy. When there is no new information the stock market, market sectors, and stocks fall into a trading range. Stocks break out of their trading range, their support and resistance zones, when new stock market information is available.

Sometimes new stock information is not immediately available to every investor and day trader. This is part of where technical analysis tools such as Candlestick chart analysis are particularly valuable. When a few investors or traders have information or insight that others lack they will start buying or selling stock. The market reacts and technical analysis will pick up on the new “investor sentiment.” It doesn’t matter in technical analysis what reason others have for buying or selling. It just matters that they are. The old Candlestick adage is to let the market tell you what the market will do. Candlestick analysis picks up on what the market is doing and predicts what it will do next based on similar scenarios from the past. Using Candlestick basics will allow the trader to pick up on a change in support and resistance before the rest of the crowd.

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Market Direction

When is it time to buy after a hard hold back in the markets. The Japanese race traders say the weight of the market will continue to push the market down. This is why a ‘severe’ buy signal is required after a sharp pullback. Keep in mind, trends move based upon investor sentiment. What occurs after a severe pullback? Investor sentiment takes some convincing to get back into a bullish mode. Most investors do not take advantage of the beginning of an uptrend because of their emotions. They are still affected by recent losses created by a hard selloff.

Obviously, the candlestick investor has a great advantage. The graphic depiction produced by signals and patterns immediately illustrate what is occurring in investor sentiment. This allows an investor to interpret what is occurring in market price trends on a rational basis versus an emotional basis. The visual aspects of candlestick analysis provide a trading format that can completely eliminate investors emotional reactions. In talking with the most experienced traders, one basic learning technique is addressed. Profitable trading did not occur in their accounts until they were able to control their emotions. The visual characteristics found in candlestick signals creates a completely dynamic mental attitude for an investor. They are now concentrating on what the market is telling them is occurring versus what their emotions are hoping will occur.

The Dow showed when investor indecision was about to demonstrate a strong change in the market trends. The Stick Sandwich pattern two weeks ago indicated a potential change was about to occur. This should have immediately prepared the candlestick investor to ready for a trend change. The past three trading days, when training became very indecisive, with stochastics in the oversold condition, now produces another potential change in investor sentiment. Knowing the characteristics of candlestick reversal patterns creates a forewarning. A flat indecisive trading days of the past few  days produces the probabilities of a cradle pattern. Exiting short position strategies can be established, as well as setting up new long positions. However, action does not need to be implemented until one basic rule is fulfilled. Witnessing a candlestick buy signal followed by a close above the T-line. Until that occurs, it has to be assumed the downtrend is still in progress. That was evident in today’s trading. 

DOW

The inherent benefit of understanding how to correctly use candlestick signals is twofold. First, it allows for the identification of strong price moves. Secondly, due to the statistical characteristics of candlestick signals and patterns, an investor has much better control of their analytical prowess and greatly reduces the emotional aspects of investing. This is not an unimportant point! Many investors learn how to use a trading technique, but they do not learn how to manage their own emotions. When returns do not produce expected results, usually based upon decisions that did not correlate with the trading technique principles, most investors blame the trading technique. The most important element of investing successfully is combining the benefits of a training program and applying the correct mental perspectives. Candlestick analysis creates a natural mental discipline.

Knowing that a price pattern has specific results dramatically reduces the ‘hoping’ concept. You, as an investor, have a trading plan for when to enter and when to exit a trade. This is based upon the probabilities associated with the recognition of the price pattern in the first place. The analysis of PVTB is clear evidence that a pattern can produce expected results based upon the investor sentiment that built the pattern. As can be seen in the PVTB chart, the breakout of a fry pan bottom pattern has produced excellent profits during a time when the market in general has been solidly negative. This chart pattern was pointed out during the day in the Candlestick Forum chat room. It then became a recommendation. Although the markets have been very bearish over the past couple of weeks, the stock price has been more affected by the Fry Pan Bottom result.

PVTB

Whether the market trends is up or down, candlestick analysis allows investors to make a profit. Going along during a downtrend is not necessarily putting the probabilities in your favor. But it does demonstrate the effectiveness of candlestick scanning. There will always be stocks moving up in a down market. The visual aspects of candlestick signals allows investors to pinpoint those stocks. Candlestick signals continually provide the information to make consistent profits in the markets.

Online candlestick training -February 20 and 21st

The Candlestick Forum has been providing a very effective two-day online training program for the past few years. Once you learn how to analyze and utilize candlestick analysis correctly, you gain a very powerful control over the markets. The reason candlestick signals are available today is due to their statistical performance. They work a high percentage of the time. Knowing how to use them correctly makes them a viable trading program on their own. Adding candlestick analysis to your existing trading program greatly enhances the effectiveness of that program. The signals and patterns provide an immense amount of information.

If you are just now becoming familiar with candlestick analysis, there should be one aspect that stands out the most. The concept of candlestick analysis is based upon common sense investment principles. Do not miss the opportunity to gain an extreme amount of knowledge from this training program. This program has been developed in a manner that allows an investor to methodically build and understand the correct methods for trading profitably. You will gain much more knowledge than you anticipate. The information conveyed through the visual training of how to recognize and interpret the signals puts you in control of your investment future forever.

Take advantage of the knowledge built into candlestick signals. Stay in your pajamas, with your cup of coffee or cocoa.

The training sessions are limited in size. This is to allow each participant to actively ask questions. Unlike many other training programs, Mr. Bigalow provides a training format that continually reinforces the profitable aspects of candlestick investing. Do you have trouble entering a trade? Do you have trouble placing a stop loss? Do you have trouble taking profits when you are supposed to? The advantage of candlestick analysis is utilizing the information that has been proven for the past few hundred years. Sign up today! Change your investment perspectives forever. 

Chat session tonight at 8 PM ET. 

Good investing,

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