Would you like to learn about a type of commodity trading chart that is more effective than the charts you are probably using now? If so, keep reading. If you are brand new to the art/science of chart reading, don’t worry, we are going to discuss candlestick charting. This stuff is powerful, but it is really quite simple to learn and the results can be impressive!

Technical Analysis: a Brief Explanation

Stock technical analysis is simply the study of companies and their stock prices as reflected on price charts. Whether these charts employ candlestick charting or are simple bar charts, technical analysis assumes that current prices should represent all known information about the markets. Prices not only reflect facts, they also represent human emotion and the psychology and mood of the moment. Prices are, in the end, a function of supply and demand. However, on a moment to moment basis, human emotions…greed and fear, panic, hysteria, elation, etc. also dramatically affect prices. Markets may move based upon people’s expectations, not necessarily facts. A market “technician” attempts to disregard the emotional component of trading by making his decisions based upon chart formations, assuming that prices reflect both facts and emotion.  Charts, even those using only the basics of Japanese Candlestick charting, help the successful investor to compile data into a useful format.

Bar Chart Basics

Both standard bar charting and basic candlestick charting are commonly used to convey price activity into an easily readable chart. Usually four elements make up a bar chart, the Open, High, Low, and Close for the trading session/time period. A price bar can represent any time frame, as shown with the horizontal element of the bar. The total vertical length/height of the bar represents the entire trading range for the desired period. The top of the bar represents the highest price of the period, and the bottom of the bar represents the lowest price of the period. The Open is represented by a small dash to the left of the bar, and the Close for the session is a small dash to the right of the bar. At this point, you might be asking yourself why you need to know candlestick chart analysis if you understand a bar chart. Having said that, let’s look at the stock investing basics of Japanese Candlesticks now.

Candlestick Charting Explained

The answer to the question above may not yet seem obvious, but the results are. Basically, candlestick charts are much more visually appealing and informative than a standard two-dimensional bar chart. As with a standard bar chart, candlestick chart patterns have the basics as well; OPEN, HIGH, LOW and CLOSING price for a given time period are included. The body of the candlestick is called the “Real Body” and it represents the range between the open and closing prices. A black, or filled-in, body represents that the commodity or stock closed lower than its open, or in a bearish condition. When the body is open or white, the commodity or stock closed higher than its open, indicating a typically bullish condition. A thin, vertical line that may be found above and/or below the real body is known as the Upper or Lower Shadow, and its presence represents the high or low price extremes for the trading period. Now that you have the basics of the candlestick charting, let’s compare them to bar charts.

Comparing Candlestick Charting and Bar Charts

Lacking the Shadows of a basic candlestick chart, a bar chart cannot reflect the difference between a price extreme and a high or low. For example, a stock that opened high, but traded low for the day would not be accurately depicted in a bar chart. In a basic Candlestick chart, however, the Upper Shadow would show the extreme of the opening price as well as the trading range for the day.  In this example, the basic candlestick chart formation more accurately represents the trading of the day. In addition, since the stock closed lower than the open, the Real Body would be black; indicating that the day’s trading was bearish. A typical bar chart is simply unable to provide this level of information. And remember, these are just the basics of a candlestick chart!

In conclusion, even the most basic of candlestick charting methods provides its user with a valuable technical analysis tool. When used with a productive stock investing system, you can successfully analyze stocks and their trends before you invest. Why use a limited bar chart when you can have the power of candlestick charting? Your bottom line will know the difference!

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In the USA European style options are seen on the over the counter market while American style options are typically seen in standard options trading exchanges. Because of the increased flexibility that an American style option offers this style will often trade at a premium when compared to the less flexible European style option. Nevertheless, unless an investor is looking to pick up a stock for long term investment at a low price there is little difference between the two types as both types of contracts can be exited when the trader simply wants to take his profit and not buy or sell the underlying stock, commodity, or future in question. In trading options of either style the trader will be wise to investigate the basics of the equity in question. This is fundamental analysis and it will give the trader a broad view of the potential of the underlying equity in question. To guide the daily buying and selling of options the trader will use technical analysis with Candlestick chart formations. Thereby he will better understand market sentiment and be able to anticipate market trends and market reversal in so far as these market factors will affect the equity underlying the option in question.

Trading a European style option versus and American style option does little to change the leverage and investment risk aspects of options trading. Because in each case the trader can invest only the price of the options premium his capital outlay is the same. Because in each case the trader can exit the position with a profit and not buy the equity his degree of leverage is the same. Because in each case the trader is never obligated to buy the underlying equity unless the price performs as expected investment risk is minimal. In the end the most important aspect of trading a European style option is the typically the same as for an American style option. It is to follow the price of the underlying equity with technical analysis tools such as Candlestick patterns in order to accurately anticipate price changes and to trade accordingly.

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Market Direction: The visual capabilities of candlestick signals allows an investor to better analyze what price movements should do at specific levels. The Dow has just now pushed through the resistance level of the recent downtrend. This was fairly well expected based upon the candle formations that came up to that resistance level. Whereas other technical methods may have been tentative in their portfolio positioning prior to the breakout, the candlestick formations were illustrating strong price movements. This observation is much more important than what the actual formations are showing. Having a more clear understanding of what a price trend has a high probability of doing permits an investor to be positioning a portfolio with much more confidence.

DOW

Understanding the results of candlestick patterns also reinforces the magnitude an investor is establishing long or short positions. As can be seen in the RES chart, establishing a long position over the past few days was done so based upon the identified patterns. On a short-term basis, a J-hook pattern indicated a price movement that would be equal to wave one, prior to the profit-taking wave two. Additionally, the longer term chart revealed a Fry pan bottom pattern that was right at the breakout area. Adding the results of a J-hook pattern to the results of the longer term Fry pan bottom breakout, this created an extremely high probability trade result. The price should continue higher. Furthermore, the price should not only move higher, but based upon the results incurred after a Fry pan bottom breakout, the price should move to the upside with excessive force.

RES

All boats will rise in a rising tide. Many stocks will move higher in a rising market. Candlestick analysis allows an investor to take advantage of price movements that are going to produce excessively high rates of return under normal market conditions. To not take advantage of the information built into candlestick signals is doing a disservice to one’s own investment capabilities. The Japanese Rice traders accumulated   hundreds of years identifying where price trends are reversing and which price trends have the greater profit potential. The successful investor is going to try to find the best trading programs. A trading program does not remain in existence if it doesn’t perform successfully. Japanese candlesticks have been around for hundreds of years. That should eliminate one vital fear most investors have when learning a new trading technique. “Am I learning something that does not necessarily perform well?” If candlestick signals did not work successfully, we would not be looking at them today. Please take the time to learn how to use candlestick analysis correctly and you will have constant control of your investment future for the rest of your life.

What is an effective tool for learning how to use candlestick signals successfully? Although the Candlestick Forum has very easy to understand training CDs on all aspects of candlestick analysis, most investors do not become proficient from just reading about how to use a trading technique. New members to the Candlestick Forum website should be aware of the daily chat room. This is where an investor can reinforce and expedite the learning process. There are many good stock trade ideas being passed back and forth each day. Please take advantage of this valuable tool. It will definitely speed up the comprehension of correct analysis using candlestick signals.

Chat session tonight at 8 PM ET . Learn how to cultivate the trading portfolio to the best possible trade positioning.

Good Investing,

The Candlestick Forum Team

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In today’s world, you buy insurance for everything. You have a policy that insures your next cruise in case of hurricanes, you spend a small fortune for health insurance, and you even have a policy that protects your coffee maker! Well, if that $40 coffee maker needs a little protection, what about your stock portfolio? In this article we’re going to talk about something that will not only save you money in the stock market, it can even help you make more money. We’re going to discuss Trailing Stop Orders.

First, the definition; a Trailing Stop Order is a percentage-based stop loss strategy. Stop Loss Orders are defensive strategies that protect a stock if the price drops below a certain point. A Trailing Stop Order is different from a typical Stop Loss Order in that it does not rely on a target price, but rather a target percentage to implement a sell. A Stop Loss only prevents you from dropping below a target stock price that you determine; a Trailing Stop follows a stock as its price rises. By doing this, a Trailing Stop Order not only protects against a fall, but it also allows for additional profits. Here’s how it works:

Many stop loss strategies & techniques offer you this protection. You identify a bottom for your stock and say, “If my stock drops to X, I want to sell immediately.” In the case of a Trailing Stop, you don’t identify an exact dollar amount, but a percentage instead. This is the insurance for your original investment. Assuming your stock has risen while you have owned it, you can set your Trailing Stop percentage such that it doesn’t fall below your original price.

Remember that if you’re protecting your original return on investment, it now includes the cost of both buying and selling your shares. If you’re happy with simply not losing, place a Stop Loss Order and relax at this point; if you want more, let’s do something else.

OK, you could have just insured your stock against a bad loss; it’s good stock market advice, but your stock charting indicates a rising trend on this company. Are you willing to only protect your investment or do you want something more? That’s what I thought, you want more. I have the answer for you. The difference in a Trailing Stop Order is that since it’s a percentage, it moves with your stock price. When your stock was at $25 per share, your 20% Trailing Stop would implement a sell if the price dropped to $20 per share. Well now that your stock has soared to $50 per share, you want to protect your profit, right? That’s why you have a Trailing Stop; a 20% stop order won’t sell your stock unless it drops to $40 per share. Because the Trailing Stop can move as the stock increases, your profit is protected against an unexpected fall. That insurance just allowed you to make and protect an additional $20 per share and that money will look real nice in your pocket and it just made you a successful trader as well!

Trailing Stop Orders are a helpful way to not only protect what you have, but to protect what you might gain as well. When used as part of a stock trading plan, it can be a valuable piece of insurance for your portfolio. You have insurance for everything; it’s time to have it for your portfolio as well!

 

As the days get shorter and the seasons begin to change, another rite of passage occurs. Junior is packing his lunch and books for the trip back to school. While the average adult no longer visits a classroom, the average investor as the days get shorter and the seasons begin to change, another rite of passage occurs. Junior is packing his lunch and books for the trip back to school. While the average adult no longer visits a classroom, the average investor can always use a little help with investing. Revisiting some stock market basics from time to time can be very beneficial.

Stock Market Basic 1: Volatile Markets Make Bad Stocks Look Good

Always remember, if it walks like a duck and quacks like a duck, it’s probably a duck. This stock investing concept is obvious to the seasoned investor; active markets lure the investor with promise of great gains. Just because a company can gain funding doesn’t insure that it has a solid business plan or is a strong investment option. A plan such as the candlestick basics should help even the most experienced investor avoid this pitfall.

Stock Market Basic 2: Investing is a Game of Chance

Gambling (interpreted as day trading, IPO flipping, buying on hot tips, etc.) is best left at the poker table for the average investor. The dynamics of the market may change, but the basics of stock market investing are always the same. Investing requires insight, and not just the hot new buzz of the day. It requires a plan for long term investing.

Stock Market Basic 3: Follow the Beaten Path

The market has been a saga for years. Fortunes made and lost, ups and downs experienced, and in the end, most of the tried and true rules remain for true. This basic stock market principle is not lost on the giants of investment, who consistently find the highs and lows in the market and capitalize on them. Whether investing in currency trading or option trading, the lessons learned by others and passed down are almost always the best.

Stock Market Basic 4: The Job is Always Easier with the Right Tools

This lesson conjures images of being under the hood of that old car, but the stock market principle here is directed to stock market trading tools used in working the market. There are many programs available, all of which offer their theories and charts to add credibility to their claims. Finding a proven system using candlestick trading tactics is exactly the tool needed to make your goals in the market a reality.

Stock Market Basic 5: Why do the Answers Change as Soon as I Figure Out the Questions?

Asking intelligent questions of people who have been in the stock market community for awhile is a great resource and it is the final basic stock market principle revisited. FAQ’s, expert’s columns, stock market newsletters and the like are prime examples and excellent resources for learning what has worked for others.

Or can always use a little help with investing. Revisiting some stock market basics from time to time can be very beneficial.

Stock Market Basic 1: Volatile Markets Make Bad Stocks Look Good

Always remember, if it walks like a duck and quacks like a duck, it’s probably a duck. This stock investing concept is obvious to the seasoned investor; active markets lure the investor with promise of great gains. Just because a company can gain funding doesn’t insure that it has a solid business plan or is a strong investment option. A plan such as the candlestick basics should help even the most experienced investor avoid this pitfall.

Stock Market Basic 2: Investing is a Game of Chance

Gambling (interpreted as day trading, IPO flipping, buying on hot tips, etc.) is best left at the poker table for the average investor. The dynamics of the market may change, but the basics of stock market investing are always the same. Investing requires insight, and not just the hot new buzz of the day. It requires a plan for long term investing.

Stock Market Basic 3: Follow the Beaten Path

The market has been a saga for years. Fortunes made and lost, ups and downs experienced, and in the end, most of the tried and true rules remain for true. This basic stock market principle is not lost on the giants of investment, who consistently find the highs and lows in the market and capitalize on them. Whether investing in currency trading or option trading, the lessons learned by others and passed down are almost always the best.

Stock Market Basic 4: The Job is Always Easier with the Right Tools

This lesson conjures images of being under the hood of that old car, but the stock market principle here is directed to stock market trading tools used in working the market. There are many programs available, all of which offer their theories and charts to add credibility to their claims. Finding a proven system using candlestick trading tactics is exactly the tool needed to make your goals in the market a reality.

Stock Market Basic 5: Why do the Answers Change as Soon as I Figure Out the Questions?

Asking intelligent questions of people who have been in the stock market community for awhile is a great resource and it is the final basic stock market principle revisited. FAQ’s, expert’s columns, stock market newsletters and the like are prime examples and excellent resources for learning what has worked for others. 
 

So much of what is written about commodity trading has to do with investment strategy; what you should buy, how much you should pay, or which tropical island you should buy with all of your profits. While the positive side of investing cannot be emphasized enough, an important part of your trading plan is knowing what to do when things don’t go so well. Commodity prices and how they can change require you find ways to protect your investments.
Two of the best ways to protect your investments against commodity price changes are limit orders and stop loss orders. These are both protective orders that help you keep your money, not give it away to changes in commodity prices.

Limit Order

A limit order is a futures trading order that instructs your broker that when an underlying asset reaches a certain price or better, he or she should execute the order and purchase the desired asset at the best commodity price available. If the price of a commodity does not drop to the requested level, your order is not filled.

For example, if the price of corn futures is at $5.00 dollars per bushel and you place a limit order at $4.50, your order will not fill unless the price drops to $4.50. If the commodity price falls from $4.75 to $4.40, your order will be filled at $4.40. Conversely, if the commodity price only falls to $4.55, your broker will not fill the order. This type of market order helps protect your money by getting you the commodity price you want and not filling if your price isn’t reached.

Stop Loss Order

A stop loss order is a commodities trading order that instructs your broker that if an asset you are holding drops to a certain level, he or she should sell it. Once the price has been reached, the commodity broker will implement the trade, regardless of the current commodity price. If the price never falls to the agreed amount, the order will not be executed.

As an example, if you enter a stop loss order to leave a crude oil position you are holding when the price drops to $55 a barrel, your oil futures have these possible scenarios:

• If the price of oil drops to $55, your commodity broker will enter a market order to sell your position, getting the best available price.
• If the price of oil drops to $55 but then quickly drops to $54, that may be the price you get. Remember, once the price touches $55, your broker will place a market order but that space of time can allow the price to temporarily drop more.
• If the price of oil drops to $55 but then quickly rebounds to $56, the trade will be initiated ever though the amount is back above your target for the commodity price. It is likely you will get the $56 but your futures option will still get executed.

How These Orders Help Protect You

Commodity prices in the futures markets have the potential to move quickly. If you are holding a futures contract, it is easy for things to get volatile and your position can become compromised without your even knowing. By using limit orders, you can enter a position at the commodity price you choose, not pay more because you can’t monitor its movement; your broker can do the work of watching the commodity price for you.

Stop loss orders don’t protect you before you make a trade; they protect you AFTER you enter a position. If you are not sitting by the computer watching commodity prices, a negative move could occur before you can move to stop it. By having a stop loss order, you can watch your positions without being in front of your computer.

Conclusion

Stop loss orders and limit orders can help the investor to form part of a strong stop loss strategy. While there is plenty written about profits when commodity prices rise, it’s good to know you have a plan in place in case commodity prices fall.

 

There is constant speculation for the next stock market crash.  A stock market crash is always a worry for a certain percentage of the investment community. However, candlestick signals can greatly alleviate that fear.  A stock market crash does not occur in one day, one week, or one month. Selling will occur prior to a stock market crash.
The great stock market crash of October 1929 had clear evidence of selling in the markets starting in August of that year.  Each stock market crash in the 1980s and 1990s did not occur instantly. Candlestick sell signals made it clear that the directions of the markets were bearish well before the crashes occurred in. The signals will reveal the set up for another crash well before it occurs. Currently,  there are no indications that another stock market crash is in the making.

On the contrary, the Dow has been forming a rounding bottom formation for the past three months. This indicates a slow steady consolidation, a reaffirming that investor sentiment is gaining confidence. The fundamentals of the economy, low interest rates, improving earnings, and consistent consumer spending does not bode for anything but a strong steady economy.

Market Direction

The Dow has recently broken out into new high territory for the past few years.  This occurring after the identification of a spreading pattern that formed in the Dow.  The result of a spreading pattern is a strong trend. In this case, the spreading pattern indicated a strong upward trend.  This could warrant an uptrend that could maintain for the next few weeks. Continue to hold your long positions.
 

 
Dow

The results of these scans in the past couple of trading days reveals strong buying coming back into the oil related stocks.  Although crude oil prices have dropped dramatically over the past month, it appears as if crude oil stock prices have ended their profit taking.  The next move should be a strong move to the upside.  At least one or two positions in the oil related area should be added to the portfolio at this time.