Are you a clean freak? Does it drive you crazy when things are out of place or when a picture isn’t quite level? If you are at your friend’s house, do you wipe dust from a shelf or line up the towels when no one is looking? If so, you will like today’s topic; but don’t worry, we won’t lecture you on your obsessive compulsive side! The topic is market sectors and understanding and using them will not only tidy up your stock portfolio but will also help you to strengthen your trading plan as well.

A Definition of Market Sectors

They say a problem well defined is nearly solved; this can be applied to stocks as well. An investor needs a way to sort stocks; the basis of stock technical analysis relies on this comparison. If you can find common ground between two stocks, you can find a measurement of comparison. The best form of association is market sectors. “Market sectors” is a qualification method which looks at the type of business and groups them based on generally accepted names. One of the most common classifications breaks the market down into 11 different market sectors. Two are generally regarded as “defensive” and the other nine are referred to as “cyclical”. These market sectors are:

Cyclical Stocks Transportation Technology Health Care Financial Energy Consumer Cyclical Communication Capital Goods Basic Materials

Defensive Stocks Utilities Consumer Staples

 

Defensive Stocks

Defensive investing with defensive stocks are beneficial to a portfolio because companies in these market sectors typically don’t experience as much stock volatility when the market has problems because people still use energy and eat. These are good stabilizers to use for portfolio diversification and offer protection in a falling market.
The downside of defensive stocks is that they don’t climb with a rising market. Although the market is doing well people necessarily use more energy or eat more food. Defensive market sectors follow the image that their name implies; they can be used quite well as hedge funds, stable stocks that prevent too much volatility in a portfolio.

Cyclical Stocks

Cyclical stocks cover the remaining market sectors and they typically react to a variety of market conditions. They do move independently, however, as one may be going up while another is going down. Because of this, purchasing from the cyclical market sectors requires good stock market strategies.

Why do we care about market sectors?

There are two important concepts with market sectors. First, by understanding the different market sectors, it is possible to find relationships between different companies. If you don’t know that one company is in the health care sector and another is in the energy sector, you might compare their earnings per share and draw conclusions that don’t apply. Second, understanding market sectors allows you to add valuable protection to your stock portfolio. By investing in a number of different market sectors, you can build a higher level of security for your investment. For example, if you invested $11,000 only in the communications sector and it dropped by 50% you will have lost $5,500 or 50% of your investment. If you invested equally in all eleven market sectors and the communications sector dropped by 50%, you will have only lost $500 or 4.5% of your investment. While the example is simplistic, the meaning is very clear; by spreading your investments over a number of market sectors you minimize your risks of a tumble by an entire sector.

Conclusion

Feel like doing a little “spring cleaning” on your portfolio now? By putting the stock market in the right baskets, you can know how to both evaluate a stock and insulate your portfolio from extreme risk. Most analysis matrixes start by comparing businesses from the same sector; as you use your stock trading plan to evaluate companies in similar market sectors, you will improve your decision making process. Then you can start trying to understand other important things like why those uneven towels bother you so much!

Learn Candlestick analysis in order to enhance trading profits, buy stock and sell stock at optimal stock prices, and trade commodities, futures, and options more profitably. Traders learn Candlestick analysis in order to reliably predict stock price movement when trading stocks or commodity price movement when trading oil futures, gold futures, or corn futures. Options traders learn Candlestick analysis in order to predict price movement of the underlying equity when trading options as well. Candlestick analysis is derived from the insights of rice traders in Japan three centuries ago. Traders realized that there were repeating patterns in the price of that commodity. The patterns predicted whether the price of rice would go up, down, or stay the same. Because Candlestick patterns are displayed as a visual symbol they can be easier to follow compared to follow and understand than many technical analysis charts. Training in classes such as Candlestick Forum Boot Camp is a good way to start with Candlesticks and a good way to begin making profits from trading stock.

Traders learn Candlestick analysis in order to profit from trading stocks. Learning such patterns as the Doji or Bullish engulfing pattern will help the trader to profitably anticipate price variations. The old saying is that Candlesticks let the market tell the trader what the market will do. This is technical analysis in which the trader knows that all of the important fundamental analysis of the market is already known and that what makes a profit is successfully anticipating the sum of the actions of other traders. Traders can learn Candlestick trading tactics in online training webinars in order to enhance their basic stock market training. To learn Candlestick analysis is to learn a time honored system that has helped traders for centuries. Learning the signals in Candlestick trading requires a degree of study and a degree of practice. Taking an online class is an excellent idea because of the opportunity for the kind of give and take that speeds up the learning process.

Candlestick pattern analysis does not only work in trading stocks or commodities. It can also be useful in predicting price movement in buying calls and buying puts in options trading. By successfully anticipating a rise or fall in the price of the underlying equity a trader may be able to buy an out of the money option just before it becomes quite profitable due to the price movement of the underlying equity. As with trading stocks using Candlesticks, trading options successfully with Candlesticks relies on the fact that sound technical analysis reads the history of price movements and finds matches in current trading. Wise traders will profit from the difference between the strike price and spot price of a stock by letting Candlestick signals guide their purchase and sale of options contracts. The combination of leverage that options trading offers and the excellent ability of Candlestick signals to predict price movement is a great incentive to learn Candlestick analysis for profits in options trading as well as stock trading.

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Market Direction

What is the most obvious candlestick signal? The Doji! It reveals there is investor indecision. The Japanese Rice traders have illustrated many times a reversal will occur after a day or more of indecision. Indecision was clearly evident in today’s trading. The indexes went positive very quickly during the day. They eventually came back down and tested the T-line. Early afternoon all the trading of both indexes move back into the positive territory. The Dow produced a type Doji. It produced a long legged Doji which illustrates bigger indecision. The fact that this Doji occurred at the end of a flat trading time frame has significance. It reveals the Bulls and Bears not knowing which way to move the trend. This indecisive trading makes tomorrow’s open a very revealing trend indicator.

DOW

The NASDAQ formed a bearish engulfing signal after a small Doji the previous day. This also makes tomorrow’s open extremely important. A lower premarket futures would be an immediate indication to close out positions that should not be opening lower. It becomes a very easy process to analyze which charts are beginning to show weakness. A lower open would confirm the bears were taking control. This is not a difficult analysis. The candle formations clearly reveal whether the bullish force or the bearish force is becoming the stronger element.

NASDAQ

It should be reiterated that candlestick patterns provide a very powerful trading format. The investor sentiment has an expected result when these patterns start to perform. Although the market was relatively soggy after the initial open today, there were numerous Jayhook patterns providing excellent profits. A pattern is more likely to produce good results in spite of the general market direction.

EDMC

OCLR

The inherent forces built into candlestick signals and patterns are the product of investor sentiment working consistently through the decades and centuries. Human nature will always be the same. To not take advantage of the probabilities built into candlestick signals is to put your investing at an immediate disadvantage. Take the time to understand what should occur after each signal or pattern and you’ll be trading in the same manner as very experienced traders.

Chat session tonight at 8 PM ET, everybody is welcome.

Good Investing,

The Candlestick Forum Team

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Fall 2010 E-Learning Online Training Schedule

Options Training Course 
October 16 & 17, 2010
Commodity Training
November 6 & 7, 2010
Boot Camp
November 20 & 21, 2010

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Stock market day trading works just as efficiently with candlesticks signals as they do when trading on a daily/weekly/monthly basis. Investor sentiment is as crucial a factor in stock market day trading has it is for long-term investing. The same information is revealed in a one minute and five minute time frame as the signals reveal in a daily or monthly time frame. Stock market day trading results improve dramatically when the short-term reversals can be clearly identified. The same psychology that is incorporated into investors thinking occurs in any time frame. Stock market day trading returns can be greatly enhanced using the time-tested 12 major candlestick signals. Click here for the 12 major signals special.

The candlestick signals revealed on a one minute chart can be utilized for a number of entry and exit strategies. Trading stocks or indexes using a one minute, five-minute, and 15 minute chart combination is a trading program that works very successfully. These chart combinations can be used for day trading or finding the optimal level for executing a longer term trade. A bullish candlestick signal may be followed the next day with some weakness. Utilizing the candlestick signals on the short term charts reveals when the next day’s initial selling finally ends. In an up trending stock, buying on the pullbacks becomes a very profitable technique.

Stock market day trading programs can greatly improve when applying candlestick signals, a very old and proven trading technique, with new computer generated technical analysis. David Elliott of www.WallStreetteachers.com has produced excellent technical research on finding indicator patterns that work a high percentage of the time. He’s analytical abilities have produced technical indicators that utilize the modification of the existing technical indicators.

For example, Bollinger bands do not provide a trading format to produce profitable trades. David Elliott has modified the Bollinger bands into MOBO bands, now making them effective profit making tools. His development of multiple stochastics formations produces highly effective short-term reversal setups. Applying this information with candlestick signals creates an extremely high probability trade. The melding of age old statistically proven candlestick signals with the capabilities of the indicators that are now available through instant computer analysis forms a very strong stock market day trading format.

Market direction

The Dow formed a Doji in Wednesday’s trading. The sellers confirmed the Doji at the top. A dark candle the closes more than halfway down the middle of the previous bullish candle before the Doji sets up a strong reversal signal, the Evening Star signal. The Evening Star signal reveals the expected profit taking that should come into a market after weeks of a sustained uptrend. With the Dow acting weak, revealed in a sell signal, as well as the NASDAQ acting weak, logic dictates that the sellers are starting to take control. It can be assumed that the sellers are starting to take over.

To review the full pattern description for How to Trade the Evening Star Signal – click here.

Investors look for ways to classify stocks. Because so much of stock technical analysis is based on comparison, it is important to find common ground. The best and most widely accepted form of association is stock sectors. “Stock sectors” is a qualification method which looks at the type of business and groups them based on generally accepted names. One of the most common classifications breaks the market down into eleven different stock sectors. Two are generally regarded as “defensive” and the other nine are referred to as “cyclical”. For successful traders, it is important to understand the differences between both these categories and the stock sectors they include.

Defensive Stocks

Utilities and consumer staples are referred to as defensive stocks. Companies in these sectors usually don’t suffer as much when the market experiences problems because people don’t stop using energy or eating. They are frequently used portfolio diversification and offer protection in a falling market.

However, the downside of the dampening effect of defensive stocks is that they usually fail to climb with a rising market. Just because the market is doing well, people don’t necessarily use significantly more energy or eat more food. Defensive stocks sectors do exactly what their name implies, assuming they are well run companies. These two stock sectors can be used as a basis of hedge fund investing – dependable, steadily moving stocks that prevent too much stock volatility in a portfolio.

Cyclical Stocks

Cyclical stocks are the other nine stock sectors. These stocks cover the remaining sectors and they typically move according to a variety of market conditions. They do move independently, however, as one may be going up while another is going down. Because of this, purchasing from the cyclical stock sectors requires your best stock market investing strategy. The nine cyclical stock sectors are:

• Basic Materials
• Capital Goods
• Communication
• Consumer Cyclical
• Energy
• Financial
• Health Care
• Technology
• Transportation

Most of these stock sectors are easily understood. They include companies and products that are readily identifiable. Investors call them cyclical because they tend to move up and down in relation to businesses cycles or other influences.

Basic materials, for example, include those things used to make other goods – lumber, for instance. When the housing market is active, the stock of lumber companies will tend to rise. However, high interest rates might put a damper on home building and reduce the demand for lumber. These items define the stock market; traders look to buy from cyclical stock sectors when prices are low and sell when prices are high. In a nutshell, the cyclical stock sectors are the stock market!

How to Use the Information

Like our title, successful trading requires putting the stock market in the right baskets. Technical analysis actually starts with knowing from what kind of stock sector a business originates. By knowing the origins of a business, an investor can know how to evaluate its stock. Most analysis matrices start by comparing businesses from the same sector. As you use your stock trading plan, you will incorporate more technical analysis tools into your decision making process. Then you’ll be able to see why putting the market in the right baskets is a good thing!

Candlestick charts provide distinct advantages over the conventional bar charts. The Japanese rice traders, boxing in the open and the close, produced enormous improvements for analyzing candlestick charts – information that would not be readily revealed in western technical charts. As illustrated below, a candlestick chart has much more visual clarity as to what is occurring during a trading day. Unlike the bar chart, the candlestick chart illustrates more definitively when buying is occurring during a daily trade session. Even though the price may be down for the day, the buying may have appeared from the time the price opened.

Just the contrast of the bullish candles versus the bearish candles provides a better indication of what the investor sentiment is on the candlestick charts.

Candlestick charts illustrate the investor sentiment during each time segment. This benefit, not found on the bar chart, provides a much clearer depiction of what is actually occurring during each time segment.

The multiple benefits incorporated into candlestick charts are visually obvious, to the point that many millions of investors use candlestick charts as their illustrating charts solely because they are easier to see, even though they do not understand how to use candlestick analysis.

The purpose of this site is to educate all those who want to take command of their own investment future. Centuries of candlestick chart analysis has continually produced high-profit trading. The Candlestick Trading Forum has created an easy-to-learn teaching program, for investors to become effective Candlestick Traders in a relatively short period of time.

This is not rocket science, this is the visual depiction of what is occurring in the minds of investors during any time frame. You can change you financial future very easily. Join a community of investors who are seriously trying to extract profits from the market on a consistent basis.

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Additional Articles on Reversal Signals

Candlestick Images and Explanations – Illustrations of Major Candlestick Signals with pattern psychology and recognition

Analyzing Reversal Signals – Analyzing Reversals With Candlestick Signals

Dynamic Doji – The Dynamic Doji – A Clear Trend Reversal Signal

Morning Star Reversal Signal – The Morning Star – A Powerful Candlestick Reversal Signal, Stocks & Com

Investors and traders can profit from picking stocks that are hot. But, how does one go about trading hot stocks? One problem in long term investing is that by the time a stock is hot it has commonly risen to a high price to earnings ratio or price to sales ratio or fallen dramatically. A hot stock rises in price as the stock market discounts its intrinsic stock value or falls on poor earnings reports. Good stock picks in long term investing are overlooked stocks. The smart long term investor or the day trader picks these stocks and sells them when they become hot stocks. Trading hot stocks is a different matter. Trading hot stocks has to do with stocks that are currently popular, falling or rising in stock price, and which often present with high trading volume and stock volatility. Candlestick stock charts are the tool of choice of many who trade hot stocks. Technical analysis of stocks with Candlestick analysis gives traders an objective view of market sentiment and easy to read signals up which to act.

Hot stocks recently include Boeing with increased sales, Amazon with earnings that did not fall as much as anticipated, and Allegheny Technologies whose earnings went up 70% while the stock fell 3% because analysts had expected better. In these types of situations traders buy stock or sell stock based upon their expectations of adjustments in stock prices. There is typically a short period of market inefficiency as traders and investors decide how to price a stock based upon both new information, and more importantly, new expectations. In trading hot stocks with Candlestick patterns a trader reacts to signals that predict the next movements of stock prices. Easy to read Candlestick signals give traders an objective appraisal of what the market as a whole is thinking about an individual stock or stock index. Candlestick signals work for trading hot stocks directly and for options trading and futures trading of hot stocks as well.

Depending upon what made a stock hot, its period of high trading volume, high stock volatility, and stock trading opportunity may by just a few hours or may last for days, weeks, or months. It will depend upon how long it takes for the market to reach a consensus on the value of the stock in question. In all stock trading it is important for the trader to have a clear idea about the fundamentals that drive a stock price. Then the trader knows the general range in which a stock will trade and the general factors that will affect price. However, it is with technical analysis tools such as Candlestick patterns that traders can profit most from trading hot stocks. These stocks can change price rapidly and reverse in price quickly. With the use of Candlestick signals a trader can successfully and profitably anticipate price changes. In the very short term the Candlestick trader is able to objectively read the market and avoid the mistakes of getting carried away with market enthusiasm or disappointment. No matter what the market is doing it has done it before. Price patterns repeat themselves and Candlestick signals allow traders to profit from that fact when trading hot stocks.

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Market Direction

This market would be terrible IF you were not short. However, candlestick analysis is a very effective trading method for making sure your portfolio is in the right direction at the right time. As seen in our pre-market comments, the first suggestions of adding short positions to the portfolio started over two weeks ago, not because there was any great foresight into the coming downtrend, but because there were a candlestick sell signals at obvious resistance levels. Utilizing the simple rules applied to candlestick signals would now have a portfolio positioning predominantly short.

Please join us tonight with our guest speaker been Adrienne Toghraie. Gain some insights and how to overcome some of the emotions of investing. This is an important element in learning how to use a trading method effectively and then how to mentally control your emotions.

Chat session tonight at 8 PM ET, Everyone is welcome!
Make sure you check out the commodity trading special. Knowing how to trade commodities correctly, especially with candlestick analysis, allows an investor to trade markets profitably and be able to analyze the results of one market based upon the price movement of specific commodities. You do not like or know how to short stocks? That is a good reason to understand the commodity and currency markets. The visual graphics of candlestick analysis allow an investor to make profits in spite of what one market might be doing. Today, there were huge profits made by investing in the US dollar. That became evident that as stock investors worldwide were becoming less confident, the US dollar became a haven for the insecurity throughout the investment world. Click here for the commodity trading special.

The Candlestick Forum Team

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