Stock Charting The Common Thread of Great Businesses

All great businesses have it, that special feature that sets them apart from the competition. Whether it is the ability to introduce new products fastest, that name or slogan that people can’t forget, or that company that grabs the market share by the throat and won’t let go, stock charting successful businesses will show successful traders that most excellent businesses have specific traits in common. Or to phrase it a different way, there are important stock charting factors that separate a good stock from an ordinary stock. Among these factors, several of the non-financial characteristics that you can consider when stock charting successful businesses are product lines, competitive advantages and market leadership. Without these traits, it is highly unlikely that a company will be able to sustain any kind of leadership position.

Product Lines

When stock charting successful businesses, it is important to look at their picture from a long term investing perspective. Will anyone want, or even remember, the company’s product tomorrow? If a company’s source of identity is based on something that is a fad or quickly passing technology, the company’s success will fade as fast as its product. 8-track tape players were top-of-the-line technology at one time, but you will probably only find a player in a museum these days. Great companies with success you can track using candlestick charting have products and services that people desire year after year because of their universal appeal or because the company keeps the products fresh by responding to changing consumer demands.

Competitive Advantage

Competitive advantages, often called the “deep moat”, protect great companies from their competitors and allow them to chart a successful business course that translates to the stock market. Such advantages can be high costs of entry, such as in heavy manufacturing or brand recognition like McDonald’s, Coca Cola or Wal-Mart. These types of advantages make it difficult for competitors to grab market share, and at the same time easy to conduct stock charting on the success of these businesses. Dell Computer’s well-organized operations let it build personal computers cheaper than its competitors. Dell was able to grab and hold on to positive stock market results and significant market share. Southwest Airlines is another company that did the same things as its competitors, but did it cheaper and better, carving out a solid piece of the highly competitive airline business with a work ethic that successful businesses love to chart.

Market Leadership

Market leadership is undoubtedly a stock charting characteristic of a successful company. Stock market movers are in the position to largely dictate the agenda and direction for their entire industry. General Motors dictated the direction of the automotive industry for fifty years on the strength of their position as the number one car maker in the world. Unfortunately, the downside of this position is that everyone is trying to knock off number one and with one mistake or sluggish response; others can begin to chip away at this position and create struggling stocks. GM is the perfect example of this situation as well with Toyota poised to move into the number one position.


Stock charting of highly successful businesses is easy due to their common characteristics. Chartable success will usually follow any successful business because the factors appear in the stock market. A successful trader can use these signals of successful businesses in combination with his or her stock trading plan and stock trading system to identify potential purchases. Japanese Candlesticks is a powerful stock investing system that will help any investor conduct stock charting of successful businesses. With a centuries-old record of accomplishment, a trader can truly identify successful companies and include them in a profitable portfolio.

Stock Charts: Why Use Them?

Stock charts provide the investor a visual representation of a stock over a period of time. This allows you to assess stock market trends (uptrend or downtrend), to determine which levels are providing support and resistance, and many other aspects.

Technical analysts and chartists use stock charts to analyze an extensive display of securities and forecast future price movements. The word “securities” refers to any tradable financial tool or quantifiable index such as stocks, commodities, bonds, market indices, or futures. Any security with price data over a period of time can be used to form a stock chart for analysis.

Stock charts are helpful for use in stock market technical analysis and can also be useful in fundamental analysis. A graphical historical record makes it easy to see the effect of significant key events on a security’s price, its performance over a period of time and whether it’s trading near its highs, its lows, or in between.

Bar charts, line charts, point & figure charts and candlestick charts are four of the most popular methods for exhibiting price data using stock charting. A brief description of each is provided below.

Bar Stock Charts

The high, low and close are required to form the price plot for each period of a bar stock chart. The high and low are represented by the top and bottom of the vertical bar. The close is the short horizontal line crossing the vertical bar. On a daily stock chart, each bar represents the high, low and close for a particular day when trading in the stock market.

Line Stock Charts

Some successful traders consider the closing level to be more important than the open, high or low. Line stock charts are also used when open; high and low data points are not available. At times only closing data are available for certain indices, thinly traded stocks and intraday prices.

Point & Figure Stock Charts

Point & Figure stock charts are based only on stock price movement, and do not take time into consideration. Little or no price movement is considered irrelevant and therefore only price movements that surpass specifically indicated levels on stock charts are recorded. The focus on price movement makes it easier to identify support and resistance levels, bearish breakdowns, and bullish stock price breakouts.

Candlestick Stock Charts

For candlestick charts, a daily candlestick is based on the open price, the intraday high and low, and the close. The open, high, low and close are all required. A weekly candlestick analysis is based on Monday’s open, the weekly high-low range and Friday’s close. Black candlesticks form on stock charts when the close is lower than the open and white candlesticks form when the close is higher than the open. This is also known as the black body or white body. The lines above and below on stock charts are called shadows and represent the high and low. Candlestick stock charts have become very popular in recent years since their origination in Japan 300 plus years ago. Many traders and investors believe that candlestick chart patterns are simple to read.

Earnings Per Share – Where The Rubber Meets The Road

It’s a classic saying. Simply put, it says that the proof is the result. It’s the same with investing in the stock market. It is possible to have the best stock trading plan, but the measurement of all your wisdom is found in one place; it all comes down to the bottom line, which is to say earnings per share.

Obviously that statement has a couple of different interpretations. One is the measurement of an investor’s performance; the other is a method of stock technical analysis which can help you to determine if a company’s stock price accurately reflects its worth. Once you are able to determine a stock’s value, you have a better understanding of whether the stock price is high, low or just right. There are a number of sources and techniques for evaluating stocks but it is generally agreed that the best method is earnings per share.

For the typical investor, stock evaluation is based on the company’s earnings. This becomes the central source of information and everything else adds to, or takes away from, the earnings report. Earnings are nothing more than a company’s profit and a reflection of how much money a company made during a certain period. And while it is normal to look for a positive earnings statement, it is not necessarily true that a small or rapidly growing company with negative earnings should be ignored. All technical analysis tools should be kept in their proper context and earnings per share can help to do that.

As can be seen in any given day on the stock market, established companies are expected to have positive earnings. If a giant like General Motors has a low quarter, the stock will likely fall as well unless there is a reason that explains the problem as a one-time event. A new company might go for years with negative earnings and still have favor with the market if investors believe in the future of the company. As a result, actual earnings are linked to expected earnings. Even if a company has actual earnings in a quarter but they fall short of expectations, it is common to see their stocks drop. Earnings, or a steady movement towards earnings, indicates the health of a company and if the stock will pay dividends or realize higher stock prices.

The most common metric of earnings is earnings per share. This calculation simply divides the earnings by the number of outstanding shares. For example, a company that realizes $10 million in earnings and has 5 million shares of stock has an earnings per share of $2.00. Earnings per share is important because it is difficult to compare companies of vastly sizes. Two companies that both earn $10 million dollars look the same, but when one company has 10 million shares and the other has 2 million, it is easy to see the difference. Looking at earnings per share can make the difference between successful trading and investing mistakes.

Earnings per share can be performed in one of three time frames: against the past, in the present or against future earnings. Each measurement has a different emphasis and the results imply different conclusions. It is important for a successful investor to review a number of different variables when selecting stocks and earnings per share can be valuable stock market trading tools in this analysis.

When analyzing a company for a potential stock purchase, earnings per share are always ?where the rubber meets the road?. The earnings per share ratio is one of the best technical analysis tools for identifying a company’s success at the bottom line.

Market Direction

How do you analyze what a trend should be doing? Easy! What are the candlestick signals revealing? That is the first analysis. If the candlestick signals are not showing anything definite, what are the next most revealing indicators? As can be seen in this current uptrend, the 20 day moving average has acted as a definite support level. When that can be ascertained, what candlestick formations occur at that level become more informational.
The weakness in the Dow at the end of last week demonstrated that the 20 day moving average was an important factor. When trying to figure out the direction of the market, being able to analyze what the investor sentiment is doing at technical levels that have previously shown some influence becomes important. Witnessing indecisive signals at a major moving average reveals the lack of selling conviction. This can be seen in the Dow chart.

Earnings Per Share, Dow


The NASDAQ has demonstrated that it does not want to close below the 20 day moving average. The sideways action of the NASDAQ while the Dow was showing some weakness produces a simple analysis. Selling sentiment has not taken control of the markets. What becomes the obvious predominant factor? The trend in general!

Earnings Per Share, NASDAQ


“The market will tell you what the market is doing.” That is what the Japanese Rice traders profess. The candlestick signals are the ‘pieces’ that fine tune the understanding of what the markets are telling you. Learn the candlestick signals. Not learning proper interpretation being conveyed in candlestick signals dramatically reduces an investors potential of being in the right trends at the right times.

The simplicity of what occurs in investor sentiment can produce high probability profits. Investor sentiment produces reoccurring patterns that have occurred since the beginning of investing. The candlestick signals encapsulate simple rules. Candlestick analysis is a very easy and simple investment method for identifying when to be in a trade and when to be out.

BRLC is a recent recommendation on the Candlestick Forum. Stochastics in the oversold condition with a Doji being confirmed right at the 50 day moving average makes for a high probability trade. The stock has been in a long uptrend. It has reasonably pulled back to the 50 day moving average. This is an excellent set up for another ‘buy’ situation. The stop loss procedures are simple when using candlestick analysis. The potential target/targets are simple when using candlestick analysis. Establishing the proper exit points is very simple when using candlestick analysis.

Most investors learn how to invest backwards. They are advised to find companies that have good balance sheets and earnings growth. Through the years, they discover that criteria doesn’t work well. The best performing companies may not move for a long time until somebody else discovers the reasons for being in that position. Candlestick signals circumvent that process. Candlestick signals are formed by the cumulative knowledge everybody buying or selling during a specific time period. Understanding what the candlestick signals reveal incorporates the knowledge that other investors have done the research required for making an investment buy or sell decision. Utilizing that information produces a huge advantage for the candlestick investor. It not only indicates what the buyers and sellers are doing, it shows when they are doing it. Click here for more information on how to learn about candlesticks signals.

Chat session tonight for members 8 p.m. ET
January 11 2007- Houston, TX 6:30PM – 9:00PM

Steve will speaking to the Houston TC Users Group, meeting at HAL-PC located at 4543 Post Oak Place Dr.

New Year Specials – 20% off all Quick-Download Videos and E-Books – Buy Now before Offer Ends!

Plus – Discount Package Specials on “Profitable Candlestick Trading” and “High Profit Candlestick Patterns”

Order Now! – Discount Pricing will end on January 9, 2007!!!

Seminar at Sea – scheduled for late April – details will be on the site this coming week

Good Investing
The Candlestick Forum staff

Beginning Investing in the Stock Market Made Easy with Candlestick Signals

Beginning investing in the stock market is usually an overwhelming process. Investors try to research a multitude of investment methods. Trying to single out an effective investing program can be very difficult. But, there is one  investment method that makes beginning investing in the stock market very easy to understand. Candlestick signals! Candlestick signals incorporate one very simple element. They are formed by the cumulative knowledge of everybody that was buying or selling that trading entity during a specific time period. This makes beginning investing in the stock market much easier to comprehend.

The candlestick signals have been a time-tested investment method, the results of centuries of observations. Japanese Rice traders became legendarily wealthy utilizing the information provided by candlestick reversal signals. Not only did the visual recognition of the signals become important, understanding why those signals were formed became invaluable information. Having the knowledge of why a reversal signal is forming provides the insights for understanding market trends. It allows an investor to eliminate the biggest hurdle for somebody beginning investing in the stock market. Emotions!

Investment patterns in the market are easily recognized. Investors throughout the centuries and throughout the future centuries will have the same emotional based thought processes when it comes to investing. The fear and greed factor. Candlestick signals are clear visual graphic depictions of those emotions. Learning what the signals represent produces a huge advantage for the candlestick investor. Learning the 12 major signals and the secondary signals produces a tremendous benefit for anyone just beginning investing in the stock market. It greatly reduces  learning  the wrong investment techniques to which most new investors are exposed . Learn how to use the candlestick signals effectively and you’ll have control of your investment future for the rest of your life.

Start your education beginning investing in the stock market with candlestick signals and their proper usage by reviewing the 12 Major Candlestick Patterns, all Secondary reversal signals, and the Continuation Patterns. Check back each week as we add new signals and patterns to continue your candlestick education.

Deliberation Candlestick Pattern



Another pattern close to the Three White  Soldiers pattern is the Deliberation pattern. It is formed by two long white bodies. These are followed by a small white candle. This last candle may have opened at or near the previous day’s close or it may have gapped up. The Japanese say that this is the time for deliberation. The slow down in the advance is time for the bulls to get out.


  1. The first two white candles are relatively equal long candles.
  2. The third day is a small body.
  3. The small body opened at or very near the previous day’s close. Or it may have gapped up slightly.

Pattern Psychology

After an up trend or a bounce up during a long downtrend, the deliberation signal can occur. Like the Advance Block signal, this pattern also represents buyer weakness. In this case, it shows the weakness in one day. This pattern is slightly more difficult to recognize than the Advance Block Pattern.

Investing Mistakes and How to Minimize Them

Ah, those investing mistakes that everyone wishes hadn’t happened to them. Not all losing ventures in the stock market are due to foolishness. For a plethora of reasons, including reckless advice from the “experts”, emotional trading, misapplication of the basic stock investing concepts, and failure to follow a proven stock trading system all can lead to the same end.  Here is a list of common errors to avoid, improving your results and limiting those investing mistakes:

1. Never invest without a clearly defined stock trading plan. A well-conceived plan will include considerations of time, risk-tolerance, and future income….and a proven system for success (such as the Japanese Candlestick stock trading method). A plan that follows these guides will steer clear of most investing mistakes.

2. Investors don’t stick to their best investment plan. All too often, investors will feel changes in the market and not have faith in their plan. Although investing is always referred to as “long term”, it is rarely dealt with as such by investors who would be hard pressed to explain simple stock market basics. Again, a good investment plan including a strong system can help to evade most investing mistakes.

3. Investors fall prey to the “one-trick pony” method of investing. To think that a rising stock will continue to rise indefinitely, especially if it is a company to which the investor has ties, is fool’s gold. Remember, portfolio diversification is a hedge against investing mistake. Follow your system and take your profits according to your plan.

4. Too often, investors are stricken with “analysis paralysis”, overdosing on stock market information. Such an approach is confusing, frustrating, and leads to more investing mistakes. Something else is good to remember; sales pitches do not constitute research! Technical analysis can be dirty work, but the end result is usually worth the effort.

5. Investors frequently are looking for the “home run”, that shortcut to a huge profit which usually only leads to more investing mistakes. A beginner investing in the stock market will abandon a profitable investment plan to take a chance on securities that cause nothing but trouble. The fact is, a solid plan will likely improve risk reward ratios faster, and more securely, than that swing for the fence.

6. Many investors fail to respect the cyclical nature of the markets and buy the latest fad in securities at its highest price. They will abandon the plan and system that was improving their stock market results and in turn, create a “buy high, sell low” trend in their investing. 

Diversifying a Stock Portfolio

What is meant by diversifying a stock portfolio? Why do it? How does an investor diversify? Diversifying a stock portfolio is an investment strategy where the investor chooses investments that react differently to varying conditions in the stock market and market sectors. Investors diversify their investments to reduce investment risk. A basic method of diversifying a stock portfolio is to choose five stocks in five different market sectors. Ideally the various market sectors and the stocks react differently at the various points in the business cycle.

By choosing stocks with different characteristics, diversifying a stock portfolio spreads out the risk of investing. Ideally the investor chooses stocks in such a way that when one stock, such as a manufacturing company is hurt by higher interest rates, and drops in stock price, another, a bank charging higher interest rates, will see the price of its stock shares go up. In diversifying a stock portfolio the point is not just to pick stocks that will balance each other but picking stocks in more than one potential area of growth and profit. Buying stocks in computer technology, biotech, big oil, consumer goods, and financials not only reduces the investor’s risk of a huge loss if one company has problems but it offers opportunity for growth in a wider arena.

Diversifying a stock portfolio can be fairly simple and it can be immensely complicated with lots of charts, formulas, and the like. A good rule of thumb for beginning investing in the stock market is to keep it simple. A good practice is to buy stock in no more than one company to start with. In fact, smart stock market investing for a beginner would be to pick one stock at a time and stop at five. Diversifying is to reduce risk but fundamental analysis, value investing, and using tools such as Candlestick basics to find currently low prices in good stocks are necessary to find the best individual stocks.

Unless the investor is a professional who devotes all of his or her day to investing and stock trading there is only so much time to devote to following stocks in a portfolio. Five stocks is typically a sufficient number for diversifying a stock portfolio and not too many to keep track of with tools such as Candlestick analysis at least once a week. Five stocks are usually not too many for keeping up with the stock market news as it applies to each stock and its sector of the stock market. More complicated stock portfolio diversification has its place with institutional investors managing huge portfolios. For the beginner, keeping it simple is the best choice.

Diversifying a stock portfolio need not be limited to picking five different stocks. The investor can also choose to invest in the futures market, the commodity market, and foreign currency trading as well as basic stocks and bonds. As with all investing and trading, success has to do with an adequate knowledge base, well practiced, attention to detail, and sufficient time in the work day to accomplish what needs to be done. Although there is potentially no limit to how much an investor can manage portfolio diversification (and life) there always comes a point where keeping it basic and simple works as well or better than excessive variety and detail.

Market Direction

When the markets start moving in a whipsaw motion, where is the best place to have your funds? In cash! The purpose for using any analytical tool is to gain an advantage. The advantage of candlestick analysis is being able to assess what is occurring in investor sentiment. The utilization of that information is what puts the probabilities greatly in the candlestick investor’s favor. However, in market conditions, as we have seen over the past three days, has made it very difficult to analyze what is occurring in investor sentiment. When that is the case, there is no investment advantage. Put the money in cash for a few days until the market trends can be better analyzed.

Currently the Dow is still trading below the 50 day moving average but it closed just above the T-line. This produced a strong hammer type signal today. The NASDAQ formed a belt hold type signal today. Although both indexes are trading below the 50 day moving average, the volatile buying and selling of the past few days still provides indications of a J-hook pattern setting up.

Diversifying a Stock Portfolio, Dow


Diversifying a Stock Portfolio, NASDAQ


What   does the whipsaw action do to the portfolio? Using the Japanese Rice traders philosophy that you do what the market is telling you to do, it can create small losses by being in and out of the market based upon getting stopped out. However, this is exactly the function of using candlestick signals and logical stop loss placement. There will be times when the market moves erratically. There is no way to analyze ahead of time for that type of market action. It has to be anticipated there will be times when positions will get whipsawed. Fortunately, the whipsaw action of the market can be a set up for another strong price move. The small losses produced during the whipsaw actions will be well made up for by being prepared for the next market move.

As is illustrated in both the Dow and the NASDAQ charts, the ‘open’ of tomorrow’s trading will be very important for the analysis of the market trends. Lower opens will still indicate resistance at the 50 day moving average. A strong open would indicate a J-hook pattern is in progress. Whichever way the market opens, it  will be a very clear signal for which direction to be investing. This analysis is made easy utilizing the if/then aspects of candlestick signals.
Chat session tonight at 8 PM ETTina Logan will be the guest speaker. Her emphasis tonight will be on utilizing the information built into double bottoms.

Good Investing,

The Candlestick Forum Team

Agricultural Commodities

Trading agricultural commodities is the province of agricultural producers and the likes of multinational grain companies. It is also the province of traders speculating on movements in the agricultural commodities markets. Both groups trading commodities rely upon fundamental analysis of the commodity in question and engage in technical analysis using technical analysis tools such as Candlestick chart formations in order to judge when to stay with a market trend and when to expect a market reversal. The world needs food but growing conditions, food transport and storage, and diversion of food stuffs into energy all affect availability and, therefore, commodity price. This mixture of facts and conditions drives pricing in the futures markets in agricultural commodities. Whether you are interested in trading corn futures or live cattle Commodities and Futures Training will be a good place to start.

The Traders

When you start commodity trading you will be up against the likes of traders working for companies like Cargill and Archer Daniels Midland. These multinational food companies know the fundamentals of the agricultural commodities markets as it is their business. They will, in fact, know fundamentals before you do. Although their advantage may only be minutes or even seconds they will cause market movement to which you will have to react. They are typically the drivers of the commodities markets in wheat, corn, soybeans and other products. You will be in the pack with other traders doing Candlestick analysis to predict market reaction to the trades made by the big money.

Why They Trade

There are two types of traders in agricultural commodities. There are the producers and the buyers who are hedging commodities and their investment risk. There are traders looking to profit on market movement. Farm cooperatives growing sugar beets and sugar producers who buy sugar beets or cane each buy or sell commodities futures contacts to lock in price at a future date. Because these folks know the market in their commodity they may well also trade for profit but their primary motive is to maintain a stable price for their product. The trader speculates on market movement and market reversal in looking to profit. The producers and buyers want a stable market. The pure trader would like to see lots of market volatility.

Why You Trade and Market Participation

When a farm cooperative has locked in what they consider a fair price for their sugar beets, corn, soy beans, etc. they will probably go back to the work of farming. Thus their strategy will be to make a single or single set of trades. When they are done trading volume in a commodity may go down if the producers and buyers are satisfied. Traders who are not in the business of the commodity may well keep tracking the commodity looking for market movement based upon news about the weather, new buyers, etc.

Deep Pockets, Strategy, and Cows on Your Lawn

Buying calls and buying puts on agricultural commodities is entirely possible. Typically the trader buys and the large company sells. Selling calls and puts is typically more profitable over time but can be costly on a single bad trade. Having deep pockets allows the big guys to do this while you leverage smaller holdings for potential large profit. You really want to get out of your futures position in agricultural commodities if you are not a producer or buyer. They will not come to your house and leave cows on your lawn but they will ask you to produce cows to sell or come and get them unless you exit your contract before expiration.

Market Direction

Utilizing candlestick signals allows an investor to start with a format where the probabilities can constantly be improved. This current uptrend clearly illustrates how  using candlestick signals and other obvious analytical tools keeps an investor from being whipsawed in and out of positions. The basic rule, that a sustained uptrend requires a compelling reversal signal to indicate a trend reversal, has made this uptrend very profitable. Although there have been times that it appeared that investor sentiment may have changed, the simple combination of a candlestick sell signal AND a close below the tee line has not occurred.

Thursday’s trading produced a trading day that might have scared people out of the market, especially with the early trading well below the tee line. The obvious evaluation factor has been the trend moving up, consistently closing above the tee line. Take advantage of the information built into each candlestick daily formation. That information allows for decently accurate trend analysis. As long as the markets do not close below the T-line, the uptrend remains in progress. This may sound very simplistic but that is the result of the common sense aspects of candlestick analysis.


The tee line also becomes an excellent buying factor. There are candlestick patterns that can execute a trade immediately based upon a candlestick signal and a breach above the tee line. Today, May Feeder Cattle was bought based upon an Inverted Hammer signal on Friday. A positive open produced three results. First was the confirmation of the Inverted Hammer signal. Second, the positive open would be confirming trading above the tee line. Third, it would be setting up the possibility of another J. hook pattern.

Agricultural Commodities, May Feeder Cattle

May Feeder Cattle

The more indicators that can be put into alignment, the higher the probability of being in a correct trade at the correct time. Whether you are a beginning investor or a seasoned trader, candlestick signals work extremely well on their own or being applied to existing trading programs.

I mention how candlesticks improve the visual aspect of already successful trading programs because of my experience presenting candlestick analysis this weekend to the annual conference of the AAPTA. This association consists of some of the most high-powered names associated with technical analysis. John Murphy, Greg Morris, Bloomberg associates and many other nationally known technical analysts attended this conference. I felt my presentation on candlesticks was like teaching at a first grade level to college students. However, the feedback revealed that many there had not been exposed to candlestick signals in the manner which I had presented it. They could see how the information built into the signals and patterns could greatly improve what they were doing.
It was also very impressive to be associating with people that were very unselfish with the sharing of their knowledge. On top of that, everybody was very nice and a pleasure/fun to be with. Do not be surprised to see some new elements of technical analysis built into the member recommendations in the near future.

Chat session tonight at 8 PM ET.

Good Investing,
The Candlestick Forum Team

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Trade Commodities

To learn to effectively trade commodities a trader will typically start with a course such as Commodity and Futures Training. By doing so, traders become grounded in the fundamentals of commodity trading. They also benefit from the insights of experienced commodities traders. Before a trader begins to trade commodity futures live he or she will typically use programs and data included in online trading software to trade in simulation. This sort of practice trading is, obviously, a much less expensive means of learning from mistakes than by trading live from the beginning.

In order to successfully trade commodities the trader will learn to do both technical analysis of commodity prices and fundamental analysis of commodity supply and demand. Learning the fundamentals of a commodity will give the trader a general sense of trading range and general possibilities. Learning and becoming skilled at technical analysis tools such as Candlestick chart analysis will allow the trader to be able to accurately anticipate commodity price movement and trade commodities profitably.

Training to trade commodities is not limited one beginning class. Many traders sign up for an online trading course from time to time in order to maintain a sense of perspective in commodities trading and by networking with other traders.

In successful commodities trading practice never stops. Many experienced traders engage in simulation trading on a recurrent basis. Especially if a trader is interested in trying a new strategy, he or she can use years of price data on the entire range of commodities in trading software to test a theory. To a large degree it is a performance art to trade commodities. The trader may have all of the knowledge and skill needed to trade. However, he or she needs to be able to put that skill to use in a real setting. Practice makes perfect in the old saying. Practice makes profit in the commodities markets.

When one is ready to trade commodities by virtue of having learned what there is to know about fundamental and technical analysisCandlestick trading tactics, and has practiced the art of trading to a fine skill there are a number of practical considerations. The trader must decide which commodity or commodities to trade, how large a margin account to start with, and general limits on how much and it which markets he or she will trade. Trading strategy is not just deciding to buy or sell based upon trading signals. It is deciding how many hours to trade a day and how many to spend doing commodity research. Because one can trade commodity options in commodity futures as well as trade commodity futures the trader will need to decide how much time and effort to devote to options trading as opposed to direct commodities trading.

The last and, perhaps, most important issue if you want to trade commodities successfully is that reviewing results and modifying trading tactics and trading strategy based upon review makes the difference between an average trader and an excellent one. Some traders are better at trading market trends and other do better anticipating the occasional market reversal. Knowing where your strengths are and trading with your strengths is something that comes from an honest review of trading results.

Market Direction

Knowing the candlestick patterns provides a distinct advantage. It allows investors to identify which price moves may occur with much more force in an uptrending market. Obviously most stocks will move up during uptrending markets. The candlestick investor gains an advantage by knowing which stock prices have the opportunity to produce much stronger returns. This is based upon a simple premise. Candlestick patterns produce strong and predictable results. When the indexes develop price patterns, such as a J. hook pattern that has formed in the Dow, the NASDAQ, and the S&P 500, it can be assumed that there will be J hook patterns forming in individual stocks.

This becomes important information. It allows investors to purchase at the appropriate times and has an estimated price move once they have entered the trade. The price move is usually going to be equally strong as the price move prior to the Jay hook set up. The calculated price move is usually going to be a lot stronger than most price moves occurring during the uptrend. Most investors have a difficult time analyzing which direction the market should move. The candlestick investor not only has a fairly accurate analysis of the market direction, they can also utilize their knowledge for identifying which patterns may be producing the bigger price potentials.

Trade Commodities, Dow


Many of our recent recommendations came from potential short situations reversing and  forming up J-hook patterns. The rationale is very simple. Prices that appeared to have moved up very rapidly would be more likely to sell off fairly hard if the market was still heading down. However, having the visual ability to recognize when a J-hook pattern was setting up, reversing the short positions back to long positions made sense. The rapid move to the upside was the precursor to a possible J-hook pattern.

Private training sessions

The August 13 training and the August 28 training are sold out. The private training sessions are excellent formats for getting insights into full-time trading perceptions. Many investors continually learn about candlestick analysis, but they just do not seem to have that final turn of the key that allows them to make profits consistently. The major benefit of these small group private training sessions is for each individual investor has every single questioning aspect answered. this puts them into a position of not having to doubt what they might not know and start using the candlestick information in a productive progressive application.

There are two people scheduled for a third training session to be done in Pittsburgh PA. However, if there are two more people that would like to get the complete knowledge of candlesticks from a private training session, we will schedule another three day training during the first week of September back up on Keuka Lake. It will still be relatively warm and the wine tasting just as enjoyable. If you would like more details on what will be presented in a private training session and where it will be presented, please e-mail

Chat session tonight at 8 PM ET

Good Investing,
The Candlestick Forum Team

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Trading Options – An Introduction

Trading options can represent the best as well as the worst of commodities trading. Trading options can allow the investor to make great profits. It can also lead to disastrous results if he or she doesn’t stay with a proven trading plan. No matter what you know, it is always good to have an introduction to trading options.

Definition Of Trading Options

Options are legal agreements that give their buyers the right, not the obligation, to purchase the underlying assets at a future date. Whether it is the NASDAQ 100 or corn futures, trading options allows the investor to invest in these assets with a number of different investment strategies.

Hedging and Speculation

While other reasons also exist, the two main reasons for trading options are hedging and speculation. Each has a different investment philosophy as well as techniques for trading it. Before attempting either strategy, it is important to understand the differences between them and incorporate the one that you want to pursue into your trading rules.


When you purchase commodities in an attempt to offset a potential downturn, you are hedge fund investing, or hedging. Hedging in like an insurance policy that protects the investor in the event of a negative price movement for a commodity. By trading options, you are able to reduce the potential downside of your commodity trading while still receiving the full benefits of investing. The beauty of this is that you limited your risk while preserving your profit potential.

Hedging can be done by investing in stable, commodities to offset any potential losses in more speculative endeavors. In addition, it can be done as a separate investment on an existing commodity investment; by having a second, opposing investment, it is possible to minimize any potential losses in the first position.


When trading options, speculation is like the opposite of hedging. While hedging is a defensive investing strategy, speculation is purely an offensive one. Speculation can be looked at as a bet by the investor on the price movement. The interesting part of trading commodities in this manner is that not only can you make money when the market goes up, but you can profit when it goes down or even sideways. To be successful you must correctly analyze the direction of the movement as well as the amount it will move.

Given the fact that speculation can be very risky why would you want to do it? Two reasons come to mind. First, you have at your disposal at great deal of versatility. There are many different investment options for trading options at your disposal to employ. Second is leverage; by being able to control 1,000 barrels in one oil futures contract, you have a tremendous profit potential. These reasons combine to make trading options an excellent investment opportunity.

Help with Your Trading

As with any type of investing, it is important to follow the steps for successful trading, including establishing a trading system and performing technical analysis. While understanding how to trade is critical, putting your plan into action and following it is more important.  With a solid plan and the research to back it up, you substantially improve your odds for success.

Understanding Options

Trading options is an excellent way to accumulate wealth. It is important to understand the approach that you wish to take and follow that method, whether you are hedging or speculating. By understanding about trading options you will be able to implement your plans and confidently follow them, giving you the opportunity to be a successful trader in the futures market.

Hedging Strategy

How to Determine Your Hedging Strategy

To determine your strategy of choice when hedging you must first understand what a hedge fund is. This fund is an unregulated investment pool of capital for wealthy individuals or institutions that employ one of various investment strategies in attempts to gain from market inefficiencies. Fundamental and technical analysis are both used to hedge underlying risks.

When reading about the various strategies below keep in mind that many investors will use a combination of strategies rather than just one strategy. The strategies are very different and they require different levels of borrowed money. That too should assist you when deciding what strategies you would like to utilize. While there are about 14 different hedging strategies available to investors, in today’s article we will discuss handful of them.

Hedging Strategy #1 – Dedicated Short Bias

This strategy happens when the fund continuously shorts stocks it doesn’t own with the expectancy of a decline in value. The fund should perform contrary to the stock market with tremendous results and with funds having high returns when the market goes down and vice versa.

Hedging Strategy #2 – Fixed Income Arbitrage

This strategy uses bonds in a variety of different ways. One example includes the shorting of bonds of higher credit companies. The proceeds are then used to buy bonds of lower credit companies. The idea is that the Bond Confidence Index will move toward 100 and the lower quality bonds will outperform the higher quality bonds.
Hedging Strategy #3 – Market Timing
This strategy is typically based on technical factors (technical analysis) such as price, volume and market sentiment and it is short-term in nature. The goal of this strategy is to buy a financial asset with the expectation that the asset will increase in value.
Hedging Strategy #4 – Aggressive Growth

This strategy deals with investing in stocks that have a high potential for growth due to strong earnings growth or sales. Investors must understand the concept of Standardized Unexpected Earnings (SUE) in order to practice this from of hedge fund investing. This form of investing deals with the buying and selling of stocks in companies that have reported earnings either above or below estimates made by analysts.

Hedging Strategy #5: Opportunistic

This strategy is a tricky one and depends on the judgment of a portfolio manager. Basically, a fund manager rotates among all possible strategies with it depending on the point of view associated with a particular investment strategy at a specific point in time.

There are many additional strategies for hedging that are available to investors. Strategies such as the managed futures strategy, the sector specific strategy, the market neutral strategy, and the emerging markets strategy should all be considered. While this article does not explain these additional strategies this does not take away from their importance. Each investor should continue to study and learn as much about hedging as they possible can and they should also continue to research and find out which investment strategies work for them.

For additional help with investing, please continue to read additional articles located on the Candlestick Trading Forum site. There are many additional resources available to assist you so that you are on your way to successful investing!

Market Direction

Utilizing the premarket futures is a valuable tool when using candlestick signals. It allows for the preparation of establishing positions based upon the confirmation of the expected price trends of the markets. What do we want to see after a Doji in an oversold condition? Bullish confirmation the next day, to indicate a reversal has occurred. Each individual candlestick signal has some simple rules as to what to expect the following day. This makes establishing stock positions relatively easy. If we see a bullish candlestick signal in the oversold conditions, what do we want to see as confirmation the next day? The Bulls are still participating! Each morning the premarket futures can be easily seen on CNBC or Bloomberg. If we are anticipating the market is in an uptrend, and a buy signal potential has been found in a specific stock, the premarket futures will give a good insight into what is occurring in the general market sentiment before the open. If we see the premarket futures for the Dow and NASDAQ are positive, we are better prepared to establish a position in a stock based upon the confirmation of our buy signal.

Yesterday the Dow formed a Doji. Was that indicating the top of the trend channel was going to act as resistance? Because of the simple rules applied to a Doji, trading actions the next day are very simple. A trend is usually going to move in the direction of how the markets open after a Doji. Thursday morning, the premarket futures showed very strong bullish sentiment. Any potential buy signals that were discovered in our scanning techniques the previous night would probably be confirming after the market opened Thursday morning. This would allow investors to immediately start purchasing those positions. This is not sophisticated investment techniques. It is merely participating in the common sense applications of what the candlestick signals are revealing.

Hedging Strategy, DOW


It also allows for non-emotional covering of existing positions. Until the last few days, it has been recommended to carry some short funds in the portfolio. This was acting as a hedge for any severe downdraft in the market. However, upon seeing the premarket futures showing great strength when the indexes were in the oversold condition allowed for immediate decisions on the open. Those positions could be closed as soon as the market opened and the funds could be reallocated to confirming candlestick buy signals. Investment strategies should not be difficult. What becomes difficult for most investors is knowing which direction the market is moving. The use of candlestick signals makes that assessment much easier. Therefore, an investor is much better prepared to take advantage of price moves at their initial reversals.

The development of candlestick signals at specific support and resistance levels provides a much better analytical tool than most technical trading methods. It shows exactly what is going on in investor sentiment when those levels are reached. As illustrated in WBMD, the 200 day moving average was a potential target. Stochastics were moving into the overbought condition. As the price move to the 200 day moving average, we took some profits. Why? Because the price was heading toward the overbought condition. And it reached a potential target, the probabilities of a candlestick sell signal became much greater. With those conditions setting up, the anticipation of a candlestick reversal signal will make an investor much more diligent.

Hedging Strategy, WBMD

Why do most investors not take profits when the probabilities say they should? Because they do not want to look stupid. They do not want to sell a stock at $28.50 and watch the stock continue to $45. Boy, would we look stupid! The benefit of knowing what candlestick signals can occur under specific conditions makes taking profits much easier. For those that are afraid they might look stupid, a very simple selling procedure can be applied. When the price moves to a projected target, that target was anticipated based upon the expectation that when it reached it, it would now be in an overbought condition. That process alone is the result of knowing when to buy based upon candlestick signals. Being in the right direction at the right time is difficult for most investors. Being in the right position and projecting a potential target is more difficult. When it gets there, what happens in most investors thought processes? Boy, if I was smart enough to figure out when to get in and what target it could potentially reach, this pick of mine could even go much further. Egotism starts to overplay rational evaluation.

Unfortunately, the euphoria of making big profits and being correct starts clouding rational thinking. This occurs in most all investors. What is the remedy? If the fear of selling too soon is so great that it paralyzes the rational thought processes, closeout half the position. That makes the next decision process that much easier. Today when WBMD reach the 200 day moving average,  closing out half the position put a good profit back in the account. Now the decision-making process becomes easier to contend with. Had the price continued above the 200 day moving average, our mind would be able to rationalize that we were still holding one half of a position that was continuing to make profits. This was being done in a high risk area, the overbought condition.

On the other hand, the Bearish Harari that formed after the 200 day moving average was touched would have had us closing out the other half of the position. If we had not taken half the position off at the 200 day moving average, we would have chastised ourselves for not taking profits when the target and the stochastics showed a high probability that we had reached the top. How stupid we would have felt knowing we should’ve sold at the $28.50 level when we finally closed out the of the $25 level. But selling half the position at $28.50 and the other half at $25, we now can rationalize to ourselves that we got an average around $27, or most of the profits from this trade.
The best investment trading method in the world will not work properly if it is not applied correctly. Candlestick analysis greatly improves an investors ability to handle their own emotional flaws. These aren’t arm’s-length words of wisdom. This is from the learning process of somebody that has spent 30 years in investing and needed to find ways to overcome the emotional faux pas  of investing.

Chat session tonight 8 PM ET – Click here for instructions, or if you already have HotComm installed, click here to connect.

Good investing,
The Candlestick Forum Team

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