A commodity trading system can be constructed in an afternoon or it can take months. Depending upon how complex a commodity trading system is commodities traders will be able to keep track of the necessary figures on a notepad or may need to feed data in a computer program. The basis of a system for trading commodities is using available data from commodities markets to predict the markets’ next moves. Although you can buy a prepackaged trading system, the exercise of constructing a basic commodity trading system is a useful exercise for beginner or pro. A system based upon Candlestick charting will help beginning traders and experienced traders see the market more clearly. This sort of exercise coupled with a Commodity and Futures training course will get you off to a good start trading commodities.

The exercise of setting up a basic commodity trading system forces a number of basic and important decisions. How much will you invest in a commodity market? How long will your trades last from buy to sell or sell to buy? How much will you invest per trade? What will your stop loss be? Just which commodities will you trade? Commodity trading charts such as used to view Candlestick chart formations are basic to understanding the trends and reversals of the commodities market. Support and resistance zones become clear with Candlestick charting. As a new trader engages in Commodity and Futures training the simple exercise of setting up a basic commodity trading system will help you convert training principles to good trading habits.

Deciding how much you will trade will determine the size of your margin account which will be your minimal trading capital. Likewise deciding upon which market to trade will determine minimum lot sizes and necessary trading capital. Aluminum and copper both trade in 25 metric ton lots and soybeans trade in 5,000 bushel lots. As an example, daily trading limits on soybean trading on COMEX are $0.70 per bushel expandable to $1.05 and then $1.60 at market close with limit bids and offers. A daily limit of $1.05 on 5,000 bushels comes to $5,250. This gives an idea of the kind of calculations that need to go into a commodity trading system just for trading futures in soybeans. Whatever commodity you are trading you will need to consult the commodities exchange trading rules when setting up your trading system.

A commonly used charting tool to incorporate in a commodity trading system is a twenty day moving average. In moving average trading the trader can use market highs, lows, openings, or closings for the last twenty days. At the end of the trading day the appropriate number is added to the twenty day list and the oldest day is removed. The trader takes the sum of the twenty numbers and divides by twenty. This is the average of the last twenty days. This is noted on a chart along with the high, low, open and close for the day. This average over time is the twenty day moving average. The moving average presents a smoother curve of market prices. This helps in trend trading to see where the market is really heading.

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Market Direction

Let the market tell you what the market is doing! That is the mantra of candlestick analysis. The Japanese Rice traders professed this philosophy and made fortunes in the rice market. What is the stock market telling us today? It is still in a slow steady uptrend. How does this information help the candlestick investor? Most investors have a portfolio that would be coming up modestly during a slow uptrending market. The candlestick investor has a completely different perspective. A slow uptrending market reveals one important aspect. Investor sentiment is not changing. This is very informational for a candlestick investor. Having the scanning capabilities and the visual analysis capabilities to identify signals and patterns that produce inordinately strong profits, creates the opportunity to take advantage of those signals and patterns. As long as the market is not experiencing a dramatic change of investor sentiment, price patterns have a greater potential of fulfilling strong price moves.

The profit results from a Fry pan bottom breakout or a confirming J-hook pattern is many times greater than the normal uptrending stock price. Candlestick patterns are created by the accumulative knowledge of everybody buying and selling during a particular time frame. Reoccurring thought processes can be visually witnessed as a price pattern develops. The creation of that pattern is usually based upon elements other than the general market movement. That is why patterns usually produce good profits in spite of the general direction of the market. The operative word is ‘usually’! The probabilities improve dramatically for the profitable results of a pattern if the general market has not had a severe change of investor sentiment. A bullish pattern obviously is going to work much better in a bullish environment. Although a pattern still has a good chance of working well even when the market may change direction severely, the overall probabilities start to diminish. A severe selloff in the market will be part of that accumulative knowledge of the buyers and sellers. This is why a very slow uptrending market can still be extremely profitable for a candlestick investor. The general market conditions do not become a factor for a pattern price move.

DOW

F

BeBe

Commodity trades have an advantage over stocks. They do not have as many outside influences dictating the direction of their price move. The price of soybeans or copper are more oriented towards supply and demand factors than all the other elements that are affecting stock prices. This makes the price trend  of a commodity price  much easier to analyze. A commodity stock chart can be analyzed much more on a pure technical basis. A price pattern is much more effective when analyzing the potential pattern it may be forming. Our recent recommendation, shorting lean hogs, was reversed once the signals indicated a potential of a J-hook pattern.

May Lean Hogs

What does this knowledge to for a commodity trader? Because of the speed and leverage involved in commodity prices, a trader needs to be knowledgeable in anticipating what a price might do. As can be seen in the Lean Hog May contract, it became apparent the Bulls were continuing to participate after a short pullback. The potential of a strong downward move could be seen to be diminishing. This makes for a prepared decision-making process. Once it became apparent the Bulls were still participating, the quick execution for closing the short positions and establishing new long positions could be done on a mechanical basis. Emotions would not have anything to do with reversing the trade.

The Candlestick Forum has just made the Candlestick Forum Commodity Trading videos available. If you would like to sharpen your analytical skills, take advantage of the knowledge that has been incorporated into these training videos. Commodity trading requires much faster trade analysis and execution. The insights conveyed in these training CDs not only will greatly improve your commodity trading talents, but they will also hone your abilities to trade stocks much better. The information built into the analysis of commodity and currency price movements allows an investor’s mind to  anticipate the next move. This produces decision-making thought processes that result in faster and more confident trade positioning.

Chat session tonight at 8 PM ET – Everybody is welcome. Learn how to identify commodity and stock pattern breakout setups.

Good Investing,

The Candlestick Forum Team

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This Week’s Special–

Commodity & Futures Trading

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Over the counter stocks are contracts that are bilateral and consist of contracts in which two parties agree on how a particular trade or agreement is to be settled in the future. These types of stocks, also known as “unlisted” stocks are traded over the counter typically because the company is small and unable to meet the listing requirements of the other major stock exchanges. Over the counter stocks are very risky stocks as well because there is no controlling body or organization such as the SEC to oversee the securities industry.  Over the counter stocks also refer to stocks that trade through a dealer network instead of a centralized exchange and are traded by broker-dealers who negotiate directly win one another over computer networks and via the phone. Very few of these types of stocks are successful in moving from trading over the counter (OTC) or from the “pink sheets” to the NASDAQ or other major exchanges such as the American Stock Exchange or the New York Stock Exchange. It absolutely imperative to understand and be very cautious when trading over the counter stocks because the OTC Bulletin Board stocks are either penny stocks or they are stocks that hold bad credit records.

In the United States over the counter stocks are traded on the OTC Bulletin Board (OTCBB).  The OTCBB was founded in 1990 and it is a regulated quotation services that exhibits real-time quotes, last-sale prices, and volume information for various types of equity securities.  Bonds are also considered OTC securities because they don’t trade on a formal exchange.  Most of these financial instruments are traded by investment banks that make markets for specific issues. Investors who would like to practice bond investing must call that bank that makes the market in that bond and must ask for a quote.

When discussing over the counter stocks, the concept of penny stock investing must be discussed as well. Many investors like to buy penny stocks because they require a pretty low investment and have the potential to more than double your investment in one to two days.  Again, the only problem with investing in penny stocks is that these over the counter stocks are very risky because their price can drop drastically due to the potential low value of the companies that are listed on the OTCBB, otherwise known as the “pink sheets.”  It is tricky because many of the companies traded over the counter have limited financial history making it difficult to determine their actual value.  Also, many of the companies are very new or they are extremely close to going bankrupt. If you are interested in trading over the counters stocks, you want to look for those companies that are possibly just starting out but that are making an honest effort to move from the OTCBB to a major stock exchange such as the NYSE. There is room for making a good return on investment when trading this type of stock, but you must be aware of the high risk factor when doing so.

Investing in over the counters stocks can be a great way to make money. Just remember that even though you are trading pennies, there is still potential to lose big when trading over the counter stocks. 

Trading Fibonacci is used when trading stocks, commodities and other financial instruments. Fibonacci numbers are a sequence of numbers where each successive number is the sum of the two previous numbers. These numbers were discovered by an Italian mathematician and the numbers anticipate changes in trends as stock prices tend to be near lines that were created by technical analysis Fibonacci studies.

Retracement is a popular tool used when trading Fibonacci. Retracement is used to identify strategic places for transactions to be placed, or they are used for stop loss orders as well as target prices. Retracement is not only used in this theory but is also used in the Elliott Wave Theory as well. Basically, retracement refers to the likelihood that a stockfs price will retrace a major portion of an original move while finding support or resistance at the key levels before it continues in its original direction.

Fibonacci indicators are used when trading Fibonacci and they are used as reference points in order to predict a retracement versus a reversal. These indicators are also used by technical analysts in order to predict support and resistance levels as well as price targets. For instance, another tool is the Fibonacci arc. This arc is used in order to determine where to anticipate key support and resistance levels. A curved line is drawn and it is created by an invisible trend line between two points, as well as by three curves that intersect this trend line at key levels. The first two points are usually the high and the low in a specific time frame. This is a popular Fibonacci stock charting technique. Just like moving averages, the Fibonacci indicators work like price magnets to old highs or lows. For an even greater degree of accuracy they should be combined with the major Japanese candlestick patterns.

Many traders will use Fibonacci numbers in conjunction with Candlestick Patterns and other technical indicators. Candlestick signals are also great technical analysis tools that is used by many traders in order to find the optimum entry and exit points while trading. There are also many charts that provide confirmation when all of your technical indicator are in agreement. You can learn about this in our 30 minute training tutorial Fibonacci Trading Techniques.

Continue to learn about Fibonacci numbers and determine if it is a technical analysis tool that you would like to use in conjunction with candlesticks analysis, moving averages, or other tools.

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Market Direction

The advantages built into candlestick analysis allows an investor to place trades when the probabilities are in their favor. The primary purpose of technical analysis is to take advantage of price movements that have been identified to have specific results. Candlestick signals and patterns are the optimal technical analysis indicators. They show exactly what is occurring in investor sentiment. This becomes a powerful format for ‘when’ to enter and exit trades. However, it also provides information that informs an investor when ‘not’ to be trading.

A Doji represents indecision between bulls and bears. At the extreme of a trend, either in the oversold or overbought conditions, a Doji illustrates when there might be a change of trend direction. The same indecision can be demonstrated by wild oscillations in the markets. As we have seen over the past few trading days, the market has demonstrated a lack of control by either of the Bulls or the Bears. Although the formations are much different, the prognosis is the same. Dramatic indecision usually represents a change of investor sentiment.

DOW

Will there always be reversals when indecision starts appearing in the markets? Not always, but the probabilities become dramatically favorable when adding confirming indicators. The Dow is currently showing support at the 50 day moving average, the stochastics are in the oversold condition, there appears to be a trend line through the lows since August. The advantage of using candlestick signals is that each formation represents the conditions of investor sentiment. This allows for valuable information to be immediately assessed. If that information coincides with technical levels, such as moving averages, trend lines, Fibonacci retracements, or any other technical indicator that is known to be watched by many investors, the candlestick investor can see immediately what investor attitudes are once those levels are hit.

Common sense stop loss placement, implemented by candlestick analysis, keeps an investors trading funds in tact. The past few days would have executed logical stop loss trading. This would have created every cash positions in a portfolio. When the market is not showing a directional bias, not producing an advantage for the candlestick investor, then what should they be doing? Sitting in cash! Candlestick analysis provides an effective visual analysis of what prices should be doing. That should be the primary factor for any investment program. When those advantages cannot be utilized, trading at that point becomes speculation. When there is no advantage being created by the tools provided in accurate chart analysis, the prudent strategy is to sit out of the market for a few days until the trend information can be identified.

If you can analyze and utilize trading techniques that provide a high probability results, profitable investing should be easy. However, there remains an element that has to be addressed. Your own mental psyche! This past Thursday, Adrian Toghraie gave an excellent presentation on how her training can focus on an individual’s investment flaws. Having a good trading program is the first step. Knowing how to implement with the correct frame of mind is the next step. If you missed her presentation, it can still be viewed in the archives. Also, her website provides excellent explanations on how investing hurdles can be overcome. Please check her website at
www.tradingontarget.com. Mention the Candlestick Forum presentation for her special prices.

embers Chat Session tonight at 8PM ET.

Good investing,

The Candlestick Forum Team

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This Week’s Special

Candlestick Trading Boot Camp on Quick Download

Plus Bonus 30-Day Membership

Quick Start Trading Package

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Trading Stock for Beginners – Quick Introduction to Stock Trading

In today’s article we will discuss information that each and every investor should learn before investing in stocks. This article, Trading Stocks for Beginners, will take a look at how stock is valued, how to create a trading plan, and the types of trading methods that each investor should learn about before deciding how to invest their money.

Trading Stock for Beginners: How are stocks valued?

To make money investing in stock you need to buy stock at one price, and sell it at a higher price. The price of stock is determined by the perceived value of the stock based on two criteria. First, the value can be determined by the supply and demand of the stock. The supply and demand of stock is dependent upon the amount that investors are willing to pay for a share of stock and in return the amount that investors are willing to sell a share of stock. Second, a stock’s value is also determined by the price to earnings ratio.

Trading Stocks for Beginners: How do I create a trading plan?

When creating a stock trading plan, there are many components that should be included. In today’s article we will discuss three points that should be addressed in each plan, however a true trading plan will require a lot more information. The first part of developing a trading plan is determining your needs and your goals. Are you investing for the short-term of are you looking to practice long term investing? After reading today’s article “Trading Stocks for Beginners,” you will most likely come to realize that you need to set-up a brokerage account. What stock trading methods will you utilize to invest you money? Lastly, what is your budget? Many investors find themselves in a tough position because they don’t take the time to determine a budget based on money that they have. These investors will often find themselves investing with borrowed money.

Trading Stocks for Beginners: Which trading method should I utilize?

One of the most important parts of developing your trading plan is to determine how you will turn a profit when investing in the stock market. You will need to determine if you would like to practice fundamental or technical analysis. Through fundamental analysis the investors will assess the value of the company to determine if they would like to become a shareholder. They evaluate the company’s financial health, past stock prices, the economy and other factors. When researching other articles in addition to this article, Trading Stocks for Beginners, you will come to understand that fundamental analysts look to invest in the long-term as opposed to most technical analysts. Investors who utilize technical analysis typically look to practice short-term trading. They analyze trends and patterns in stock prices and use the volatility of the stock market to their advantage. Technical analysts are typically comprised of day traders and swing traders who will only own stock for hours to days as opposed to fundamentalists who own stock for a period of months to years.

Trading Stocks for Beginners: Conclusion

There is a lot of knowledge and training required to successfully trade stocks. Like with any new venture, “the more you give, the more you get.” This does not mean the more money you give, the more money you get back, but rather the more practice, training, and education that you receive, the more likely you are to succeed. There is a lot of information in addition to this article titled “Trading Stock for beginners” that you will need to research, but hopefully this article gets you pointed in the right direction.

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Market Direction

Seasonality has many different definitions when it comes to investing. There are times of the year that will show a higher probability of the markets moving up or down. There are specific times of the year when certain sectors will act better than other sectors. For example, buying many of the toy manufacturers during the summer is a viable seasonality trade. The prices of stocks in that sector are usually much higher in January.

Seasonality is the result of reoccurring investment thought processes. Just as there are times that markets move well, there are other times when markets don’t move very well. The middle of the summer is one of those times. This is the result of many investors/traders taking time away from the computer screens. Volume diminishes dramatically. Trend direction tends to become more lethargic. This does not necessarily mean volatility diminishes. As we have seen in the Dow over the past two weeks, there has been good volatility on a daily basis while the overall trend has remained flat.

DOW

Having the knowledge of when it is most beneficial to be participating in the markets allows an investor to better allocate assets. Assets, in this case, do not necessarily mean investment funds. It can be applied to mental time and energy. Doing the same thing day in and day out requires energy. The continued draining of mental energy can create burnout. Everybody needs to take a vacation to rejuvenate. There are investors that become so involved with investing; they have to be participating in market trades all the time. But that continued involvement can diminish one’s mental clarity. When is the best time to rest and rejuvenate? When everybody else is resting and rejuvenating! It has been demonstrated that the summer months do not have the same investment profit potential as the other parts of the year, utilize that time for better pursuits. Can money be made during the summer months? Of course! But the opportunities may be fewer and far between.

The benefit of candlestick analysis is that it can pinpoint those few opportunities during the summertime. Even for the diehard investor, using candlestick signals during the summer months allows them to be participating in the sectors that ‘are’ getting attention. As demonstrated over the past month, the obvious sectors continue to act well. Oil stocks continue to maintain a bullish trend. Mining stocks are also performing well. This allows for simple trading strategies during the summer months. That strategy may be as simple as selling stocks in the oil sectors when they move away from moving averages and buying them back when they show buy signals during the uptrend.

HK

Applying candlestick signals to sectors that perform in specific times of the year allows the candlestick investor to put the probabilities of being in the right sector at the right time that much greater to their advantage. Do all sectors move the same way year after year? Obviously not, but they probably move in a certain manner a high percentage of the time to create their observance by the seasonality watchers. Candlestick analysis becomes an excellent confirmation of whether a stock/sector is going to perform in the manner that it is expected to. This again produces a high probability situation that can be expected, then observed using candlestick signals.

There are many investment strategies for making profits with candlestick signals. Use the simple and most effective ones for specific market conditions. Investing should be as simple as possible. Why make it complicated? Learn how to use the candlestick signals effectively. You then become the master of your own investment program. You also do not become a slave to your research program. Investing should be a process for making money in a timely manner, not spending hours and hours each day to produce profitable results.

Chat session tonight at 8 p.m. ET — open to everybody. Click here to Connect.

Good investing,

The Candlestick Forum Team

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Because of the progress that we have achieved on the internet, in addition to banking, dating, shopping and bill-paying, we can even participate in online stock market trading. Whenever they want to, traders now have the ability to look at their accounts online, and brokers have the ability to process orders with internet stock trading, instead of the telephone.

Before online stock market trading was an option, whenever we wanted to sell or buy stocks we would have to call up our broker to make a trade. Now we are able to log into our stock market online investing accounts and trade stocks, bonds, currencies, and options at will.

Many brokerage houses and brokers now offer online stock market trading as an option to the stock market community. Another advantage is that the commissions and fees are often a lot lower. While online stock market trading has it’s pros, as usual there are cons as well.

If you are a beginner investing in the stock market, the ability to speak to your broker can be very beneficial. Or if you haven’t developed a profitable stock trading strategy yet, online trading may be dangerous. If this is the case, make sure that you educate yourself as much as you can about whichever investment options you’re interested in before you begin online stock market trading.

It is important to consider that if you don’t have easy access to a computer with an internet connection, you won’t always have the ability to make a trade online. A back up stock trading plan should be in place to be able to call and speak to broker if this ever happens. This should be the case whether you are an advanced trader or a beginner investing online.

Successful traders consider it a good idea to choose an online brokerage house that has been in business for a while. Since the ability to trade online is somewhat new, you won’t be able to find a online brokerage house that has been in business for fifty years to help with investing. The next best thing is to find a company that has been in business that long and now offers online stock market trading as an option.

Online stock market trading is a wonderful thing, but it isn’t for everyone. Assess your habits carefully before you choose to do your trading online, and always make sure that you learn how to invest in your chosen investment field before diving in.

Remember that freshman Human Anatomy class you had to take in college? The professor pulled out “Mr. Bones” or whatever name the class skeleton had and the following drill was the same. The professor would proceed to quiz the class while teaching the underlying structure of the human body. The same exercise is valuable in commodities trading as well; looking at the “skeleton” of a commodities options contract is helpful for understanding its body.

Dissecting the Body of an Options Trading Contract

While these features do not represent all of the aspects of an options trading contract, they do create its structure:

• Underlying Asset – In order to write an options trading contract, you certainly have to include the commodities that contract is buying. Corn futures, gold and silver are all examples of commodities that can be underlying assets.
• Strike Price – The strike price, which is also known as the exercise price, is amount for which the commodities will be sold or bought if the commodity trading occurs as detailed in the contract. It is the difference between the current price and the strike price that gives either the buyer or seller their profit.
• Exercise Style – The exercise style is important to the successful trader because of the impact it has on investment strategy. An American style contract means that the contract can be exercised at any time up to the expiration date. European style contracts can only be exercised on the expiration date. This information is included in the contract.
• Expiration Date – For European contracts, this date is when the contract will be executed. For American contracts, this is the last day for futures trading on this contract.

Factors Affecting Commodities Contracts

There are a number of factors that can have an effect on commodities contracts. These factors can determine when a contract is implemented, when it is exercised and how much it costs. Futures contracts have variables such as:

1. 1. In The Money – If a commodities contract is already profitable when it is purchased, it is referred to as in the money. Sellers will sometimes use this investment strategy when they believe that a commodity price will fall, taking it out of the money.
      
   2. Out Of The Money – If a commodities contract is purchased while it is still losing money; it is referred to as out of the money. If a call option is purchased when the current price is below the strike price, it would fall into this category.
      
   3. At The Money – If the current price and the strike price are the same, the contract is at the money.Current Price Relative to the Strike Price. Depending on the investment philosophy involved, a trader might buy commodities that are “in the money”, “out of the money’, or “at the money.” These terms are comparative between the strike price and the current price.
2. Premium Price. The premium is the amount that the investor will pay to purchase a particular futures commodity. This amount is affected by several factors but it is basically the cost of a commodities contract.
   
3. Length of a Contract. The time from the purchase date of a contract until its expiration date can affect the cost of the premium. The longer the contract, the more likely that the terms of the contract will be met; this means that the premium would go up to reflect that probability.
   
4. Complexity of the Contract. The type of contract written on futures options can affect the premium price. A simple market order that is out of the money will cost less than selling covered calls.

Conclusion

Commodities can be complex and their contracts can contain many things. Looking closely and examining the skeleton? of a commodities contract and understanding its investment basics can help pass the test of being a successful investor. And you don’t have to worry because we won’t even need Mr. Bones!

With the growing popularity of futures trading, more and more people are jumping into this interesting form of investing. People quickly find out that futures contracts are vastly different than agreements to purchase common stocks; with futures contracts, you are not actually buying a particular commodity, you are obtaining the right to purchase the underlying asset during a particular time period.

Pork Bellies?

Another difference between investing in the stock market and investing in futures contracts is the asset itself. Of course stocks are the assets involved in the stock market, while the commodity assets in futures contracts include:

• Currencies – The currency market is one of the best known commodities, trading the likes of the British pound and the American dollar.
• Interest Rate Futures – T-Bonds represent long-term interest rates and Eurodollars are for short-term interest rates.
• Energy Futures – Natural gas, heating oil and crude oil futures are the most widely known in this sector.
• Food Sector – Coffee, orange juice and sugar are well known commodities in this sector.
• Metals – Gold, silver and copper are traditionally strong commodities.
• Agricultural – Wheat, coffee, cotton, soybeans, pork bellies and corn futures are among those that are best known.

With so many futures contracts available, it can be difficult to decide which commodities interest you, especially if you are new to commodities trading. Sometimes it can be helpful when you start trading to begin with more popular commodities.

Below are five of the most popularly traded futures contracts:

1. S&P 500 E-mini – This is extremely popular for those investing in the futures markets. The E-mini can be traded electronically 24 hours a day, five days a week. In addition, the E-mini has most of the same advantages of the regular S&P 500 commodity but the cost of investment is much less.
2. E-mini NASDAQ 100 – The E-mini NASDAQ 100 follows the movement of the NASDAQ 100. Like the S&P 500 E-mini, this futures contract can be electronically traded and the contract and the amount of margin you have to set aside to trade the contract are smaller than a standard contract. Since most individuals don’t have large enough accounts to trade regular contracts for the NASDAQ 100, the E-mini works out great.
3. Light Sweet Crude Oil – Probably the most famous commodity traded is oil futures. When you see the price of oil discussed on the evening news or in an investment newsletter, this is exactly what they are discussing.
4. Gold – If oil isn’t the most famous futures contract, then gold surely is. A gold contract tracks the price variations of one ounce of gold. Gold became an important part of the US economy when the United States went to the Gold Standard in the 1970’s. Since then, the price of gold changes dramatically, almost always in the opposite direction of the US dollar. Gold investments are frequently used as hedge funds because of the relationship with the US dollar.
5. E-mini Euro FX – The E-mini Euro FX contract tracks the movement of the exchange rate between the U.S. dollar and the Euro. The “E-mini” means that the contract and the amount of margin you have to set aside to trade these futures contracts are smaller than regular contracts. Most individuals don’t have large enough accounts to trade a regular contract for the Euro, so E-minis are excellent investment strategies.

Conclusion

Futures contracts provide interesting and potentially profitable investment alternatives to many investors. Understanding the investment basics of futures contracts and commodities such as these will help you to be a more successful trader when it comes to futures contracts.

To successfully trade commodities, traders learn the basics of commodity trading with classes like Commodity and Futures Training. As part of a successful trading strategy for commodities, traders follow commodity news reports. There are many places to find commodity news reports. These include print media such as the Wall Street Journal, the online business news media such as Bloomberg, Yahoo Finance, Google News, and the like, and propriety news media affiliated with commodity dealers and commodity brokers. Much of what comprises news about commodities comes from following trading on the NYMEX or official reports such as the US Department of Agriculture Daily National Grain Market Summary. Commodity news reports ideally contain hard data first of all and reasoned analysis second. The hard data of commodity news reports can be used for fundamental analysis of the commodity in question. Opinions of commodities analysts may be useful in directing the trader where to focus his or her technical analysis of commodities markets.

The type of information in commodity news reports typically has to do with issues of commodity supply and demand. Useful analysis will be that which gives insight into supply and demand issues. For example, a drought in Europe and Asia is drastically reducing wheat production and driving up prices worldwide. The fact that the drought is continuing towards the fall tells us that the winter wheat crop to be planted this fall will also be affected. Thus, even if there is snow this winter in the Russian Steppes and good spring rains the wheat crop will still be poor next year. The next set of facts a trader will want to see is reports of how much wheat is planted in the Dakotas, Nebraska, Kansas, Manitoba, and so forth, this coming fall. Fundamental commodity analysis starts with commodity news reports.

The timing of fundamental information about commodities from commodity news reports is important. To the extent that a trader gets the news first he can trade the news. For example, news of strikes in gold mines in South Africa will affect gold futures. Those who catch the news first will typically be able to successfully trade a jump in the price of gold futures. Even those who don’t get in on the news early and can’t trade the initial price jump will need to know what made the market change in order to successfully read subsequent gold commodity price movement and commodity price reversals. Even though successful technical traders know that eventually all fundamental information is factored into commodity prices the more they understand what is driving the market the more successfully they can trade. Rice traders in ancient Japan knew about the factors that influenced the price of rice. It was the addition of Candlestick analysis and Candlestick trading tactics on top of a fundamental understanding of the market that led to profits.

It is important for a commodity trader to understand commodity news reports, both what is written and what is left out. To the extent that a commodity broker is trying to gain customers there may be a slant to their reports. The ability of a trader to do their own fundamental and technical analysis will be protection against bad trading advice. Traders who follow the news, learn how to recognize a Candlestick pattern and follow Candlestick pattern formations will typically prosper more so than others because of their critical thinking and diligent attention to detail.

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Market Direction

The market is in a downtrend but it opens positive and starts trading positive, what do you do? Without the combination of candlestick signals and confirming indicators, many investors would immediately reversed their positions. They may cover their shorts and buy long positions. As seen in today’s trading, that was not the correct thing to do. As a candlestick investor, the trend analysis becomes much easier to evaluate. The simple confirming indicators applied to candlestick analysis will help investors from being whipsawed.

Both the Dow and the NASDAQ opened positive today and started trading positive. However, some very simple analytical tools would have kept the candlestick investor from moving too rapidly. Although prices were moving up, the overall trend analysis still had some indicators that needed to be breached to indicate a trend reversal had occurred. The Dow chart shows the stochastics had come up out of the oversold condition and were heading back down. The downward trajectory was an indication the downtrend had not completed yet. Also, the most compelling confirming indicators had not been breached. A true reversal of a trend requires a close above the tee line.

DOW 

It is understanding how all the indicators work in conjunction with candlestick signals that keeps an investor from being constantly whipsawed. This is a very important aspect of investing. Having patience and allowing proven indicator confirmation to become established. The lack of confirmation will keep the profitability moving in the right direction.

Should there be any buying in this market? On an overall basis, the answer should be no. However, there are chart patterns that reveal strong bullish price trend potential in spite of what the overall market is doing. Our recommendation of MELA illustrates how to utilize the proper signals and patterns. Note how the Scoop pattern is set up with gap up Doji’s. Also, a double bottom is apparent. The gap up in price over the past two trading days clearly illustrates investors aggressively wanting to get into a stock position.

MELA

These simple visual analytical techniques allows investors to be in the right positions at the correct times. This is not sophisticated analysis. This is merely taking advantage of the information built into candlestick signals. The Japanese Rice traders identified the power moves. Once you have learned how to use this visual analysis to your benefit, you put the probabilities of being in the right positions constantly in your favor.

Chat session tonight at 8 PM — members only

Good Investing,

The Candlestick Forum Team

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A good surfer knows how it works. In order to get the best results, he or she has to know when to enter and exit a wave. Get into a wave too early or too late and you miss the ride. Miss the exit and you could wipe out. This same is true in the stock market where swing trading has the same traits. Considered a cross between day trading and trend following, swing trading suggests that investors hold a stock for a particular period of time, generally between a few days and several weeks, then trade the stock on the basis of its intra-week or intra-month movements.

Not unlike other forms of trading, successful swing trading is dependent on picking the right stocks. The best candidates are usually the large-cap stocks since they are among the most actively traded stocks and their shares will swing between broadly defined high and low extremes. The investor involved in swing trading will ride the wave in one direction for a few days or weeks and then switch to the opposite position when the stock reverses direction.

The Timing Of Swing Trading

Understanding the timing of swing trading requires an understanding of market conditions. Trading during bull or bear markets is different than trading during interim periods. Because of the longer periods of trending in bear and bull markets, the investment strategy of swing trading is different than in times of stock volatility. When the bears or bulls are running, swing trading occurs over weeks and not days since the trends are longer.

What this means is that the best condition for swing trading is when the markets are making very few gains or losses, but they are experiencing a great deal of movement. This allows investors to look at the stock prices and make more trades, since there is a great deal of entry and exit points.

Establishing The Trend

Since the key knowing where to enter or exit a trade depends on understanding the direction of the market, it is important to establish a baseline for your analysis. Most investors use the stock price history that exists in exponential moving averages (EMA). The EMA allows investors who are swing trading to see exactly what a stock is doing over a period that they define. EMA is also used in other investment philosophies such as the Sidus method as investors look for a non-emotional method to evaluate “buying normalcy and selling mania”. This means that for every investor that reacts emotionally to the market, those that are swing trading are looking at the trends and charts and relying in this information to determine the direction that will go. As we have seen all along the way, not reacting emotionally gives investors the freedom to invest wisely.

Investing wisely doesn’t mean that swing trading requires buying at the ultimate low and selling at the ultimate high. While this is the goal of how to invest in stocks, a wise trader with look to be close, but not on the absolute top or bottom of a trend. By not going for the ultimate peaks, swing trading ensures that the investor won’t be damaged by a drastic, unexpected change of direction.

Conclusion

Swing trading is a lot like surfing; catch a wave, ride it until you see it is changing then get out and catch another. The investment timing of swing trading allows investors to do the same thing in the stock market. Using the EMA as a baseline, you can spot directional changes and successfully invest. With swing trading, it’s time to catch a wave!

Successful day trading as well as successful long term investing depend upon predicting stock price. If predicting stock price sounds like predicting the future it is. Predicting stock price is also reading history! Rice traders in the Japan of the samurai learned that market prices, or more accurately, market price patterns repeat themselves. Market trends come and go and the patterns they contain can be used to predict stock price. Traders using Candlestick patterns as their guide are letting the market tell them what the market will do next. Predicting stock price through Candlestick analysis requires learning Candlestick charting techniques. Traders profit by executing trades when current stock prices fall into a Candlestick pattern. Whether the Candlestick signal predicts a market trend, a market reversal, or a coming market rally, the use of Candlestick trading tactics can turn predicting stock price into counting stock profits.

We all wish we had a crystal ball to tell us the future. The fact is that the future often repeats the past. In this regard it is wise to remember what the author George Santayana said, Those who cannot remember the past are condemned to repeat it. This is, unfortunately the case for many traders. Trying to predict stock price without the benefit of technical analysis tools like Candlestick pattern formations can be risky business. It amounts to forgetting, or ignoring, what the past has taught us. However, traders who use Candlestick chart analysis are essentially using historic price patterns in predicting stock price. It is because the stock market and other markets repeat themselves in predictable patterns that the trader can read the first part of a stock price pattern in order to anticipate the second. By executing well timed trades it is possible to profit from predicting stock price in this way.

Long term stock price prediction is best done with fundamental analysis. A long term investor will look for intrinsic stock value as manifested by expected forward looking earnings. In addition, a margin of safety such as a low debt to asset ratio can be an incentive to add a stock to an investment portfolio. Nevertheless, in buying stocks or selling stocks the investor will want to obtain the best current stock prices. This is accomplished with the use of both fundamental and technical analysis of stocks. While the fundamentals of a company will give us a view of the longer term future it is the day to day and, sometimes, minute to minute market consensus that sets the exact stock price. Using Candlestick signals the trader can commonly succeed in predicting stock price changes and more profitably buy and sell stock.

For the short term trader or long term investor interested in predicting stock price the use of Candlestick signals can be learned at an online Candlestick Forum Boot Camp. Online training webinars will help the beginning investor and trader learn both the basics and the details of successful buying and selling of stocks using Candlestick basics. Learn about Candlesticks and let the past help you predict the future in the stock market.

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Market Direction

Candlestick analysis provides tools that not only projects price direction with a high degree of accuracy, but it can also predict a target price within a reasonable price range. Why is this an advantage? Obviously, it allows the investors to make a decision of whether that price move is worthwhile. There will be many chart patterns that are excellent, but the price may have very limited movement before running into a projected resistance level. Obviously, it is much better to find a price move that will move up 30% versus 3%.

This slow steady uptrend of the past few months have allowed many candlestick patterns to perform as expected. One of the expected features is a very strong price move. A Jay hook pattern allows for the evaluation of wave three with a high degree of accuracy. Wave three will usually be equivalent to wave one. Why is this important? If wave one was only a 6% move, then wave three will probably be a 6% move. However, if wave one was a 15% move, they can now be projected that investing into wave three has a high probability of producing a 15% return.

Taking that concept one step further, a price move coming out of a Jay hook pattern can be projected to have a specific price area target. This now becomes a perfect set up for placing an options call spread. Most investors, when they see a potential price move, want to buy the calls. This is often not the best strategy. Buying one set of calls and selling a higher set of calls produces a couple large advantages. First, it reduces the amount of money exposed to the call trade. If the market makes a sudden turn to the downside, the losses will be smaller. If the price does move to the expected target, the percent return will be dramatically higher than merely buying calls outright.
There is a disadvantage to buying a spread. If the price, for some reason, moves well beyond the projected target, the potential of making huge profits is eliminated. But the probabilities become dramatically better by setting up an options strategy that would take advantage of the high probability price move versus the unexpected large price move.

Investor sentiment can be analyzed graphically because of the reoccurring nature of the human psyche. Whether training stocks, options, or commodities, candlestick analysis provides a much more clear visual opportunity for making large profits. This is the result of candlestick signals and patterns performing the same way over and over for centuries.

Feeder Cattle March

As illustrated in the March feeder cattle, the downtrending channel has been breached. The bottom of the pullback demonstrated indecisive trading, hammer signals. A breach of the 50 day moving average and the declining trend channel makes the prospect of a wave three pattern extremely high. Once an investor has learned which price patterns work effectively, they can now control their own investment results.

Chat session tonight at 8 PM ET for members.

Good Investing,
The Candlestick Forum Team

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