Futures contracts are contracts on currencies, stock market indexes, or commodities. These contracts attempt to predict the value of these securities at some date in the future. When dealing with commodities, trading futures contracts is a commitment to deliver or to receive a specific amount of a commodity during a specified month at a price that is determined by the futures market. When you sell a futures contract, it means that you have an obligation to deliver the commodity by a certain date and conversely when buying a commodity you have agreed to buy the commodity at a specific price at a specified date. When trading futures contracts, most of the time, the trade never ends in an actual delivery of the asset, but instead these contracts are closed out before the delivery date. The purpose of futures markets in general is to provide a useful and competent means to manage price risks and the purchasing of futures is done through discount brokers and full-services brokers. Futures trading requires that the investors accept price risks from producers with the goal of making a profit.

There are advantages and disadvantages to trading futures contracts, both of which will be discussed in this article. The risks apply more to the speculators and this is due to the fact that futures orders are typically bought on margin. In fact, futures traders only have to deposit five to ten percent, and the rest of the contract can be bought on margin. Additionally, it is very easy to lose your original investment in a volatile market and is therefore suggested that only professionals trade in the future markets. Investors also must be aware of the tax consequences due to the high amount of leverage that can create huge capital gains and losses.

The advantages to trading futures contracts deals with the concept of hedging. The goal is to obtain a perfect hedge when you trade futures. Basically, you can opt to sell your commodity at the current market price or you can “lock in” a price for your commodity to be sold at a specific price at specific time in the future. This comes in handy for farmers who must speculate what their commodity will cost at a specific date in the future. (Many farmers must wait until harvest so they don’t know that the current market price will hold). If the farmer is content with the price of the commodity today, then they will sell the futures contract to guarantee that they will get today’s price at a future date. Additional advantages to online futures trading include the fact that futures markets are very active so you can liquidate contracts quite easily. Basically, trading futures is very useful to reducing any unwanted risk.

Trading futures contracts is a great way to invest money however it is not easy. Many people suggests that only professionals do it, but if you study, understand what you are doing and approach it as a professional would, then there is no reason that it can’t be a great way to invest for you.

Market Direction

Candlestick analysis creates a number of parameters that becomes a built in discipline. The reason most investors do not make money is because of their own emotions. When we make the decision to put our funds at risk, we have also inherently put a piece of our ego to the test. It is our mental capacities that will be judged based upon whether a trade makes money or loses money. When we make money with a trade, our self worth expands greatly. When we lose money on a trade, mentally we judge ourselves as losers, stupid, and many other derogatory feelings that we feel about ourselves. We hate to lose. That is what causes most people to let losses keep growing. Once we decide to close that trade as a loss, we have now solidified the fact that our mental processes were flawed. If we keep the position open, maybe it will come back to positive. Then we would be validated as a winner, not a loser.

Unfortunately, the markets did not care what you do or what you think. The markets are going to do what they are going to do. How you perceive what those movements may be has nothing to do with the market movements. Candlestick analysis provides a visual format that greatly reduces the emotions of investment decisions. The markets move in patterns. Candlestick signals help illustrate what is occurring and has occurred many times in the past. The caveat to that statement is adding “with a high degree of probability”. Candlestick analysis is merely the evaluation of investor sentiment. Investor sentiment works in a specific manner most of the time. Utilizing the information that is built into candlestick patterns and signals provides a visual format for recognizing the next reoccurring price movement.

This is powerful information. This makes evaluating what is occurring in market/price trends at critical levels. This is clearly evident in the Dow. The recent congestion of the past two weeks is providing analyzable forecasts for what the market might do from this area. The trend analysis becomes much easier knowing what occurs after the completion of specific patterns. As described in earlier newsletters, the dumpling top forecasts the potential of an extremely strong downtrend. Once that downtrend has completed, a new set of pattern potentials present themselves. The J-hook pattern, for example, is usually a result after an extremely strong price move. The recent strong downtrend could be the precursor to a bearish J-hook pattern. That possibility still exists if the Bears can push prices to new lows over the next few days. The failure of the Bulls to be able to close trading above the T-line provides more credence to the bearish J-hook set up.

DOW

Today’s bullish trading provided more evidence of a possible pennant formation. Positive trading from this level would make that prognosis more viable. In either case, an investor can make a reasonably intelligent assessment of what to do based upon what patterns may be setting up. Continued weakness from this level would warrant shorting positions or buying the short funds. Witnessing more bullish trading would make the pennant analysis more feasible. This would lead to looking for long positions. However, any long positions established would be done so with taking quick profits if the top of the pennant formation showed resistance.

Candlestick signals forming at support and resistance levels gain that much more credibility when analyzing what new price pattern could be developing. The T. line has become a very valuable technical level to watch. Buying a position after a candlestick buy signal can be maintained as long as it does not close back below the T. line. The research that has been performed involving the T. line produces a simple format for when to stay in and when to get out of a position. The Japanese rice traders did not have this technical indicator to help confirm candlestick signals. The benefit we have today is adding computer-aided technical indicators to help improve the probabilities of candlestick signals.

CNB

Because we are constantly trying to find trading techniques that dramatically improve our probabilities of making money, to disregard what has already been proven now becomes a detriment to your account balance as well as your mental perspectives. As often stated, this is not rocket science. This is merely combining information continually improves your trading abilities. Learn how to use candlestick signals correctly. Once you do, you’ll have a completely different perspective on how to invest successfully. Your emotions would not continue to be a flaw.
Chat session tonight at 8 PM ET – open to everybody, bring the kids, teach them how to invest correctly at an early age. You do not want them to go through investment hard knocks like most of us had to do most of our lives. Click here for instructions.

If you already have HotComm installed, click here to connect.

Good investing,

The Candlestick Forum Team

2-Day Training Seminar Package – 40% OFF!

In trading commodities traders follow trends, anticipate market reversal, and use technical analysis tools such as Candlestick chart patterns to trade successfully when a commodity establishes itself in trend or a trading range. Commodity trends vary with the type of commodity. Trends differ over short or long term. However, technical analysis with Candlestick charting will predict future market moves as successfully with corn futures or gold futures as it did in the rice market in Japan during the reign of the Samurai. Trading of commodity trends can be very successful so long as the trader uses both fundamental commodity analysis and technical analysis indicators to verify the probability of the trend lasting or reversing. Learning how to trade commodity trends and market reversal is part of commodity and futures training.

Commodity prices and commodity trends are based on the laws of supply and demand. However, when the exact supply and the exact demand are unknown the market will speculate. Knowing the fundamentals of how a commodity is produced and the depth and breadth of its market is essential to successful commodity trading. Knowing the fundamentals always helps the trader reduce and manage investment risk. However, to profit from trading futures in commodities the trader will need to be able to read the market. Trends tend to establish themselves when the market is in consensus about the prospects of a commodity price. When a recession hits traders in oil futures will want to sell short on the way down and will continue to do so as long as they believe that the price has not reached a fundamental support level. Understanding support and resistance zones is essential in successful trading of commodity trends. With knowledgeable use of Candlestick trading tactics a trader can do well trading commodity trends or predicting and profiting from breakouts.

Long term trends are essentially an organic part of a market. For example, the development of a new seed variety may substantially increase corn production and cause a long term decrease in the price of corn futures. On the other hand a drought in a major crop growing area will probably only raise prices for a year or until the next rains. Knowing and understanding the nature of trends will help the trader profit by them. The longer term trends are typically due to fundamentals. Short term trends in commodities or other trading are typically due to market sentiment. In reading market sentiment the trader will rely on Candlestick analysis to let the market tell him when the market will do. Everyone has the same fundamental information but everyone buys or sells a little differently. The psychology of the market is such that commodity trends feed upon themselves, almost to excess. Knowing when to stay with the trend when to go against it comes with experience and the use of tried and true trading tools such as Candlestick basics. What worked for Japanese rice traders centuries ago can work for traders today.

Market Direction

The major benefit of candlestick analysis is that it can accurately evaluate all markets and all time frames . For the active trader, this is very important information. If you love trading stocks, you have a relatively large market to deal with. However, most of the active trading occurs in the first hour and a half in the final hour. The market trades relatively blasé during the middle part of the day. For an active trader, this can be a problem. Wanting to trade actively during the middle part of the day may lead to pushing trades that should not be executed just for the sake of staying active. There are better solutions.

Commodity markets usually open up 30 minutes to an hour after the stock market opens. They usually close prior to the close of the stock market. This allows a trader to trade actively during the first and last hours of the stock market trading, then participate in some commodity trading during the middle part of the day. This allows the active trading to be spread over the full length of the day. Fortunately, successful commodity trading utilizes the same confirming indicators as stock trading. The charts work equally well on bond charts, currency charts, or any other trading entity that involves human participation.

Investing successfully in commodity charts is very simple. It takes the same logic and visual analysis found in stock charts. For example, July Wheat was shorted today based upon a few simple chart analysis techniques. A failure of the 50 day moving average yesterday was an indication to watch for further weakness today. If that happened, the trend channel would be breached. This would set up the possibility of a strong leg to the downside.

Wheat

Having the ability to recognize when a high probability trade is going to occur creates the opportunity to make much bigger profits trading commodities than trading stocks. The leverage in commodities make say price move extremely worthwhile.

The Dow held up  well today after a few days of strong buying for the most part of the day. The immediate consolidation took the Dow back down to the tee line first thing in the morning. It acted as support. The rest of the day traded relatively strong, considering there was a good amount of profit taking occurring today. The selling strength returned going into the close. This makes the prospects of a strong recovery in the markets more dismal. However, the strong charts still revealed continued strength. Because of the severity of the last downtrend, when buyers came back into the markets, they did so with an extensive amount of enthusiasm. This can be seen in the number of candlestick reversal signals and gap ups in price.

DOW

RHT

Utilizing these simple rules helps an investor trade much more calmly. Many investors get scared out of a trade that is not producing a true reversal signal. They will not attempt to get back in because it would make them look foolish to sell out and then buy it right back. Using the simple rules applied to candlestick signals in the confirming indicators keeps an investor from entering a trade they should not get in and keeping them in trades they should not get out. This benefit allows an investor to concentrate their efforts on analyzing for new trades. Mental time and effort will not be wasted on price trends that are just zigging when the uptrend is still in progress. The benefits of these techniques are more apparent when trading commodities. Small price moves in a commodity trade equats to great differences in profits or losses. Learn how to apply simple trading rules to your investing and you will gain a much better comprehension for when trending prices are merely having small pullbacks.

Commodity traders — Do you know how to evaluate which trade or trades have the highest probabilities of producing profits? Have you ever analyzed two trades that look good. You decide upon placing a trade in one. It doesn’t move, but the other one takes off like a rocket. What could you have done to decipher which one was going to have the greater probability of moving. Not only moving, but moving with a much greater strength. The Candlestick Forum will be providing a two-day commodity trading training session. Candlestick signals makes the opportunity for improving your returns for stock trading dramatically better. Using candlestick signals in commodity trading greatly improves the potential of making huge profits. Join us on May 22 and 23rd for a concentrated two day training session for successfully trading commodities. The analytical techniques found in his training will improve all aspects of your candlestick investing. 

Chat session tonight at 8 PM ET

The Candlestick Forum Team

This Week’s Special

Projecting Price Targets – Quickly learn to spot the most profitable price targets! – BONUS EBOOK with purchase!!!

2-Day-Commodity Training Webinar

Click here for details

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

The concept of children and the stock market seems as logical as mixing nitrogen and glycerin in a blender in your kitchen. Children joining the stock market community? Shouldn’t they be playing PlayStation 2 or 3 now? In reality, the combination of children and the stock market and the world’s future is a natural fit. Remember, most of today’s baby boomer investors didn’t have a home computer or video game when they were kids; this generation can save the universe courtesy of Sony and other program creators. There are some keys to introducing your children to the stock market, so let’s get started.

First, it is imperative to start this adventure with a good understanding of stock market basics. You can start by teaching those youngsters that investing is totally different from saving. You might “save” to buy a new bike, but “invest” to have the money for college. Next in the process of combining your children and the stock market would be to cover topics such as portfolio diversification, liquidity, and risk reward ratios.

Ready to give your kids the family fortune yet? Let’s hope not! Before the kids actually start picking stocks and investing with real money, it’s best to start with a mock portfolio. There are a variety of ways for kids or anyone else to practice online stock market trading. There are a number of online games for stock and option investing simulation games. Prefer FOREX currency trading for beginners?  It’s there too. Or if you enjoy the more traditional method, you can do this all on your own by helping your child construct and track his/her own portfolio of stocks. It’s also wise to encourage your children to “invest” in companies that they know, such as Disney, Coca Cola, Nike, or Microsoft.

While in the stock market, you can teach your children to track their investments, practice money management techniques, monitor company performance, research each investment, and track trends in the market. Junior probably has a good idea if Sony will impact Microsoft’s profit when the PlayStation 3 is launched. This is also a great opportunity to begin teaching the concepts of Japanese Candlesticks stock trading to your children in the stock market. Chances are, they will pick up the principles much quicker than poor old dad!

Once you, and your kids, are ready for the stock market, there are a several investment options you can choose from. The safest course is probably finding a mutual fund. Although this is not the most exciting option, there are “kid friendly” mutual funds available, and actually some that provide stock market investing education materials as well. All of the principles your kids have learned apply and the bottom line results are real.

Trading commodities online has gained popularity for many investors in recent years. Not only are trades executed quicker than when using a real live broker, but commissions are lower as well. While there are many benefits to trading commodities online, investors must also be aware of the hidden dangers with using this method. Both the advantages and disadvantages of trading commodities without the use of a full-service broker will be discussed in today’s article.

Online commodities trading does provide lower commissions than if going through a live full-service commodities broker making it more cost effective to practice multiple strategies at once. Traders are able to practice more sophisticated trades by potentially cutting the cost by about one hundred dollars per trade! For example, commodity trading can be done for fewer than ten dollars per round-turn with most online brokers.

Trading commodities online also allows instant trading without having to contact a live broker to place your orders. Almost everything you could possibly need to trade commodities is available through an online commodity trading account including commodity trading charts, commodity news, and technical analysis programs.

Commodity investing online also has its disadvantages that investors should be forewarned about. There is the potential to overtrade and this has become an increasing problem with the increased use of online trading. Due to the ease of which one can place trades online, this has led to undisciplined and impulsive trading. Additionally, due to lower commission rates, inexperienced investors will get often place trades that they normally wouldn’t, quickly finding themselves in a financial predicament. For some investors, the ease of trading leads to a false feeling of control and independence.

Trading commodities online is also dangerous for new investors who may need a mentor. Online brokers are often discount brokers that do not provide any advice to the new investor, but merely places the trades requested of them. This is great for investors who know what they are doing, and have achieved success in the commodities markets, but for the new investor, it may not be such a great thing. Many new traders make foolish mistakes that they wouldn’t have otherwise made if they had the assistance of a full-service broker. Many feel that the education received from a live broker is well worth the cost for new investors. Live broker offer more value to newer investors than they do to more experienced investors. Many investors suggest starting off with a full-service broker until you attaint the level of knowledge and discipline required to trade successfully. Regardless of which type of broker you decide to utilize, it is imperative that you at least have a mentor to which you can learn from and go to for help.

Many commodities brokers will give you a free trial period in order to test their services. Choosing your commodity broker is one of the most important decisions that you will make in your trading career, so be sure that you do your research. Finding a reputable broker that not only meets your needs but that compensates for your shortcomings will lead you to successful trading when trading commodities online.

Market Direction

When do people sell? They panic sell at the bottom! The identification of the Dumpling Top pattern allowed for being in the right strategy at the right time. Knowing the results that should occur after a candlestick pattern allows an investor to take advantage of big price moves. That can occur in two different methods. As the market was selling off, having funds in short positions produced significant profits. For those that do not like to go short, sitting in cash was the proper strategy. Sitting in cash has a powerful outcome when used properly. Knowing that the markets are in a severe decline has an obvious ramification. There is panic selling coming into this market. That is probably enhanced with margin calls. The basic premise of candlestick analysis is having a graphic depiction of what is going on in investor sentiment. The charts will show when panic selling is occurring. That has been witnessed for the past three trading days as this downtrend accelerates. There are also some simple signs for when the bottom has finally arrived.

DOW

The futures continued to trade lower after the close today. This was after the Dow was down almost 700 points. The NASDAQ clearly negated the Inverted Hammer signal with a 95 point drop. What would indicate final capitulation? A gap down on the open tomorrow. A simple rule of thumb, when you see a gap down in an oversold condition, start watching for a Candlestick buy signal. Which stocks should be bought when a potential reversal is in the making? There are simple scanning techniques that show which stocks are experiencing bullish participation even with the market plunging. The visual analysis of this relative strength allows investors to be prepared to enter stock positions that have good upside potential when the reversal occurs.

CNH

What type of reversal usually occurs after a severe market plunge? A very strong upsurge! Why? Because when it becomes obvious to the smart money that the markets are severely oversold, the funds that have been accumulated from selling at higher levels are waiting for  the capitulation day.

This is where huge profits can be made. Look for a gap down. If that occurs and the selling continues, go to your one minute and five-minute charts and start watching to see when the ‘churning’ begins. The candlestick signals will appear when the buyers and sellers finally find a level where they have reached equilibrium. Repeat – this is where huge profits can be made. Once the buyers see that a bottom has been made, the panic buying will start. This can produce rates of return of 20%, 40%, 100% in just a very short period of time. Watch for candlestick reversal signals or the preparation of a candlestick signals set up.

Chat room tonight – 8 PM ET- everybody is welcome. Click here for instructions. This is where scanning for the possible high profit trades becomes immensely important. The stocks that are getting obliterated because of margin calls and panic selling will be the ones that drop dramatically fast and come back up dramatically fast.

Good investing,

The Candlestick Forum Team

This Week’s Special

Trend Analysis 25% OFF at Checkout

Subscriber Special – Only 10 sets remaining
Trading with the Confidence of Candlesticks

Click here for details.

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