Commodity futures trading reacts to a broad range of factors. For example, crude oil has just fallen to a three week low. Today commodities traders are concerned that other nations will follow India’s example and raise interest rates. Higher interest rates tend to slow economic growth and the use of oil. Commodity futures trading in oil has dropped just over fifty cents for April delivery of benchmark light sweet crude whereas February 2012 delivery has dropped a dollar. Oil futures trading as far out as June 2016 is unchanged as traders still view the commodity as an inflation hedge.

Unlike oil, orange juice futures have gone up because of the frost in the worldfs second largest producing area, Florida. Now there has been a slight downward correction as the Department of Agriculture reports that the frost was not as bad as previously believed. In the case of oil the commodity market sees less use and is dropping the commodity price now and in future months. In the case of orange juice commodity futures are up because of decreased supply. To fully understand how commodity futures trading is affected by many divergent factors sign up for Commodity and Futures Training. Training will help you use both fundamental analysis and technical analysis with tools such as Candlestick charting to understand and predict the market in commodity futures trading.

Commodity futures trading in an organized fashion dates back at least 300 years to trading Tulip bulbs in Holland and rice trading in Japan. Candlestick basics, the basis of today’s Candlestick analysis, came into being in early commodity trading as rice traders recognized recurring trading patterns. Traders said that they learned to let the market tell them what the market was going to do. Today’s technical analysis with Candlesticks as well as other technical analysis tools in use today evolved from early, formal commodity futures trading. Today’s ability of the commodity trader to foresee commodity prices in oil futures or orange juice dates back to the actions of very thoughtful traders in the distant past.

Today analysts are saying that the fundamentals of the oil market do not justify prices above $80. The market already knows that! Many smart traders buy when they believe the price of a commodity future is cheap and sell when they think it is overpriced. The sum of these trades creates a market consensus smarter than any one individualfs market analysis. The extent to which commodity trading software is successful is the extent to which it follows tools such as Candlestick charting techniques which date back hundreds of years. A computer may be able to do the calculations faster but the computer did not have the wisdom to develop a system that can so accurately predict the future in commodity futures trading. So, as you are drinking your watered down orange juice (Tropicana is planning on putting only 59 ounces of juice in its 64 ounce containers.) and practicing the use of Candlestick chart analysis donft forget to thank those early rice traders for envisioning a system that so accurately predicts where commodity investing is going next.

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Market Direction

The markets continue to provide a consistent message. The Bulls continue to control the market!  Wednesday was the first day in over six weeks that indicated the Bears might be stepping in. The Dow closed right on the tee line while the S&P 500 and the NASDAQ formed Doji’s. The weaker open today provided strong evidence the sellers were continuing to take over. However, by the end of the day, it was evident the Bulls were stepping back in. This may seem like an elementary observation after the fact but there was more important implied information. Every time the markets have tested the tee line, there is no confirmation that continues to push the market down through that level.

DOW

The continuation of the uptrend has strong ramifications for the candlestick investor. Many chart patterns are now breaking out to the upside due to the lack of negative sentiment. This information is especially important for the candlestick investor. It allows for the continued participation in pattern breakouts that are going to produce much stronger returns than the normal uptrending stock.

RT was recommended today due to the flattened scoop pattern. The price move above the $11 range gave the impression that another wave was about to start. Knowing what the results should be from a pattern makes the decision to enter or exit a trade much easier. Simple candlestick signal entry strategies provide a trading format that allows an investor to dramatically improve the probabilities of being in the right trade at the right time.

RT

Today’s entry into RT was relatively simple. The recommendation to get into this position was based upon the potential of another wave beginning. It opened lower . There is a very simple strategy for improving the probabilities of entering a trade at the appropriate time. When the price opens lower in a potential uptrend, set your buy stopped at the previous day’s close. The Japanese rice traders rationalize that the early profit-taking, causing the lower open, would be over if the Bulls could bring it back up through the previous day’s close. Obviously a lower open that did not have enough strength to come back up through the close of the previous day would not be a position that would convey strength.
 
The same simple logic can be used for taking profits. Knowing the simple rules of candlestick analysis allows an investor to maximize potential returns. As seen in the ZUMZ chart, a recommendation to buy from a few weeks ago, did not exhibit the appropriate direction that would indicate Bulls were in control. A gap down below the previous day’s open, especially in an overbought condition, would immediately indicate the Bears have taken control.

ZUMZ

An open, below the previous day’s open, has the potential of creating a very strong sell signal, the kicker signal. With that knowledge, upon seeing a position gap open should instigate an immediate action, sell as fast as possible! Candlestick analysis is nothing more than common sense observations. The Japanese rice traders discovered centuries ago how investors think. When that is put into a graphic depiction, an investor gains immense control of their emotions and their profitability.

Chat session tonight at 8 PM ET. Learn how to identify breakout moves for big profits or daytrading scalping.

Good Investing,

The Candlestick Forum Team

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This Week’s Special

Scanning Techniques to Higher Profits

Click here for details

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

Useful stock investment information comes in several sizes and shapes. Not all investment advice and counsel is useful, so those interested in long term investing, options trading, day trading of stocks, or commodities trading should remember the old Roman saying about the buyer needing to beware. To find useful stock information in a stock advice column the investor should beware of the fact that oftentimes the writer’s sole purpose in writing the article may be to promote a stock. A hard fact is typically useful stock investment information, providing that it is up to the minute. Old information is commonly inaccurate to the degree as to be misleading. The stock market and stock prices change by the minute.

In a fast moving market technical analysis supersedes fundamental analysis as a source of useful stock investment information. Everyone knows the same fundamentals and is buying stock or selling stock based upon their own interpretation of the fundamentals. The most useful stock investment information for many can be found in Candlestick pattern formations as Candlestick patterns can tell investors or traders where a stock price is likely to go next. Spotting a market reversal or predicting the continuation of market trends with Candlestick analysis can be the most profitable way to interpret and take advantage of useful stock investment information.

Good sources of useful stock investment information include business news sources such as Bloomberg, the Financial Times, CNN, Reuters, the New York Time, the Wall Street Journal, and Forbes. To the extent that the investor can harvest absolutely fresh news from one of these sites or print media he may be able to sell stock at the top of an earnings cycle before the rest of the market responds. However, doing so typically requires that the investor has done a considerable amount of fundamental analysis first. Stock investment information is only useful stock investment information when the investor is able to accurately and promptly interpret it in order to buy stock or sell stock in a timely fashion. More commonly the investor will use these sources as background information. This is then the useful stock investment information that he will already have in his head when a piece of news breaks.

A stock’s price to earnings ratio, its price to sales ratio, information as to its margin of safety or its intrinsic stock value are all useful stock investment information. These are, however, fundamentals which everyone knows or can know with a little effort. Once an investor knows how a stock is trading in relation to its intrinsic value, margin of safety and current earnings he will want to look at how it is doing in technical analysis. With Candlestick charting techniques the investor can commonly anticipate market movement. If a stock has already been bid up due to its good fundamentals he will know that perhaps it is not the time to buy. Using the useful stock investment information in annual and quarterly reports, in news releases, or from stock price analysis using Candlestick charts the investor will not always buy or sell stock but when he do he will commonly do so more profitably.

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Market Direction

Big profits are being easily made in these type of market conditions. An added advantage of candlestick analysis is the ability to apply common sense evaluation to what the   graphics are revealing. This makes trend analysis very easy. It allows an investor to maintain positions even though there may be some weakness along the way. The common sense analytical aspects of candlestick signals and patterns makes for relatively easy analysis even for the beginning investor. Unfortunately, profiting from candlestick analysis requires a human characteristic that is not often exerted, effort! This became evident this week when one of the local members of the Candlestick Forum offered to check with investment club leaders to see if they would like a candlestick presentation. Most of them said they would. However, one major club declined. The club leader did not feel that candlestick signals worked.

This was a surprising answer. But it produced an important realization. Most investors are looking for the investment trading method that is the most simple. They are looking for a trading method that does not take a great deal of effort. If you browse through the Internet, you will find numerous trading websites that have discovered the “secret” for successful investing. They promote how easy the trading program operates. It may be as simple as buying when the green arrow points to a buy and selling when the red arrow appears on the screen. Most of the time, these websites do not last very long. Or the investor does not have very much success with the program eventually and move onto something else. There is one adage on Wall Street that is very true. If something does not work, it will disappear quickly. If something does work, everybody would know about it.

One of the biggest risk factors for most investors is spending time and effort on learning a trading method only to find out that it does not work very effectively. Learning candlestick analysis alleviates that problem. Candlestick signals did not work, they would not be around after hundreds of years. The solid aspect of candlestick signals is the common sense elements that are built into the graphics. The graphics are made up from the reaction of investor sentiment. Investor sentiment has produced reoccurring and recognizable signals and patterns throughout history. Investor sentiment does not change from one generation to the next or one century to the next. Candlestick analysis is merely the interpretation of the reoccurring thought processes found in investors during all aspects of market trends. If you seriously want to learn how to invest successfully, utilize the information found in candlestick signals. If you find yourself not making profits, rest assured it is not the candlestick trading method that does not work, it is your interpretation or application of the investment program.

Candlestick signals reveal when a market trend is starting, when it is continuing, and when it is time to take profits. The days chart analysis is greatly improved due to the indicators that are computer-generated. The Japanese Rice traders were successful in trading rights with the most basic charting techniques. They did not have the capabilities of quickly calculating stochastics, moving averages, positive and negative transaction volume, or a multitude of other indicators that are instantly produced on the computer screen. This year, the candlestick forum is increasing its effort to show investors how to use candlestick analysis successfully. In many cases, this will involve a great deal of redundancy. However, the important factor is to teach people what to look for and how to successfully assess graphic information.

You will find the Candlestick Forum training programs and daily chat rooms will be directed toward teaching investors the full concepts of investment aspects. If you are willing to take the time and effort could completely learn a trading processes required to stay consistently profitable, the candlestick forum will take the time and effort to make sure your candlestick signal education is complete. The light will come on! You will be amazed at the amount of common sense investment perceptions are incorporated into candlestick signals.

Chat session tonight at 8 PM ET. Everybody is welcome.

We will be concentrating on identifying price patterns that produce an immediate profits.

Good Investing,

The Candlestick Forum Team

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Current Website Special

MAJOR SIGNALS EDUCATIONAL PACKAGE

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

The profitable part of picking hot stocks is getting in early and getting out in time. Although fundamental analysis of stocks can alert traders to the fact that stocks are undervalued it does not necessarily tell one when stock prices will start to move. Picking hot stocks is largely the world of technical analysis and Candlestick stock charts. Those who rely solely on stock tips in picking hot stocks commonly buy stocks too late after prices have risen significantly. The same investors and traders who rely too heavily on tips and neglect Candlestick analysis may overstay their welcome, so to speak, and see their gains fall away in unanticipated market reversal. Certainly one needs to know where to find potentially hot stocks because of if a trader is not analyzing a stock he will not be seeing Candlestick patterns that would help him see a pending stock price or market rally. Services that alert traders to market action are useful in this regard. However, it is still the trader who needs to analyze stocks and decide if he is picking hot stocks or stocks that have now cooled off.

Picking hot stocks does not always mean that the trader will buy low and sell high. Virtually every stock rally levels off or reverses. A trader may not always get into a hot stock early enough to make a profit but he may find that with the use of Candlestick pattern formations that he can predict when the stock will reverse course. At that time selling short can be as profitable as buying at the bottom of a price swing. For the attentive Candlestick trader a useful means of finding hot stocks it to let an expert such as Stephen Bigelow do the work of picking hot stocks. If the trader becomes a member of Candlestick Forum he can watch Steve’s daily stock picks and learn from a Candlestick expert how to analyze, buy, hold, and sell stock using Candlestick trading tactics.

A current hot stock is that of the New York Stock Exchange. The NYSE agreed to a buyout by Deutsche Boerse in February. Now NASDAQ and Intercontinental Exchange are offering nearly twenty percent than the German offer at nearly $12 Billion. A bidding war could drive NYSE stock even higher than the $42 level to which it rose from $35 after the new offer. Variables to consider in this mix are whether the German entity will be allowed to own the largest US stock exchange and whether NASDAQ and NYSE having one owner would be an antitrust violation. The Candlestick trader will read the news and ponder what will happen next just like all the rest. The Candlestick trader will also let Candlestick chart patterns be his guide in buying stock in NYSE, selling stock in NYSE, buying options, or trading NASDAQ instead. Knowing that all trading situations result in patterns and that stock price patterns are predictable the Candlestick trader can follow the progress of a hot stock and get out before it cools off.

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Market Direction

Candlestick analysis dramatically improves an investors ability to analyze a trend direction. As illustrated in today’s trading in the Dow, the uptrend remains in progress as long as there was not a candlestick sell signal and a close below the T-line. As can be seen in the Dow chart, there were a number of days that created candlestick sell signal ‘potentials,’ but they were not confirmed the next day with additional selling and the trend showed continued uptrend because of the lack of confirmation of a close below the T-line.

DOW

The NASDAQ and the S&P 500 both form Doji’s today after bouncing back up off the T-line. This makes tomorrow’s trade analysis relatively easy. The markets will move in the direction of how they open after a Doji. The premarket futures should give us an indication whether there has been a change in investor sentiment.

Once you have mastered the easy-to-learn nuances of candlestick signals, you have the capability of finding stock prices that are going to move inordinately strong during market uptrend or downtrends. This information is easily assessed when analyzing candlestick signals at breakout conditions or coming out of candlestick patterns. This is not a difficult process to learn. Human nature reacts the same way time after time with a very high degree of predictability. Candlestick analysis is merely the graphic depiction of what is occurring in investor sentiment. Because investor mentality works the same way time after time, investors can gain huge advantages by graphically witnessing when a price move set up is occurring.

There are numerous candlestick trades setups that make for very high profit positions. Learning a few of these trades setups can provide a very good living. The reason they work with a high degree of accuracy is because they have worked in the past with a high degree of accuracy. That is the exact reason they have been identified.

HRS

HNR

Tonight’s chat session at 8 PM ET – guest speaker David Elliott of WallStreetTeachers – David Elliott and Steve Bigalow have been working together for over the past eight years. David’s expertise in finding and developing short-term technical trading indicators works very effectively in conjunction with candlestick analysis. Join the chat session tonight and view some of the techniques that when applied to candlestick analysis can greatly improve your correct trade ratio.

Chat session at 8 PM ET, everybody is welcome.

Good Investing,

The Candlestick Forum Team

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

Trading commodities on a commodities exchange is futures trading commodities. Commodities futures were developed by producers and buyers of commodities in order to stabilize commodity prices. Hedging of risk by both producers and buyers involves futures trading commodities by everyone from gold mining companies to cattle producers and silver refiners to companies that sell refined sugar. Futures trading commodities involves entering into a contract to either buy or sell a standardized amount of a commodity on a future date. Futures contracts are commonly made for months and even years in advance. The value of the contract will vary as the projected or anticipated price changes. Traders use technical analysis tools such as Candlestick chart analysis to anticipate price movement in commodities markets. A good place to get started with commodities is with Commodity and Futures Training.

Spot Price and Strike Price

The current price of any equity, including commodities, is the spot price. It is the price at which things are bought and sold, the current market price. The future price of a commodity can be anticipated but not known exactly until the day when it is sold, unless a contractual price is agreed upon. In order to guarantee a price at which a producer can sell his or her product the producer will sell a futures contract. The price stated in this contract is the strike price. It is the agreed upon price at which the producer will sell the commodity, no matter what the spot price may be. A trader speculating in futures trading commodities can make a profit from the difference between the contract or strike price and the spot price. What typically happens is that a trader will buy or sell a commodity futures contract for a given commodity and hold it until the commodity price moves. Then he or she will exit the position, taking his or her profit. A commodity trader virtually never holds his or her position until expiration as they do not really wish to take delivery of a herd of cattle or have to come up with several tons of soybeans to sell.

Anticipating Price Change and Gaining Profits

Anticipating commodity price movement by the use of commodity trading charts allows traders to profit in futures trading commodities. Rice traders in ancient Japan recognized that price patterns of rice repeated themselves. These traders also noticed that different patterns predicted different types of subsequent price movement. Candlestick pattern formations that predicted certain price movement led to Candlestick trading tactics that led to substantial profits. Candlestick analysis is just as valid today in futures trading as it was in Japan in the days of the Samurai. Market history repeats itself and those who pay attention can profit, repeatedly.

Analysis and Profits

Both fundamental and technical analysis are necessary in order to profit trading commodities. Fundamental analysis is essential in order to understand the basis of pricing. Technical analysis is essential to understand the market created by thousands of traders buying and selling both commodity futures and options contracts on commodity futures.

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Market Direction

Why is the halfway point of a candle important to Japanese Rice traders? As illustrated in today’s markets, it reveals when the Bears are back in control. The Japanese Rice traders have a very simplistic and common sense explanation for the candlestick signals. The Dow formed a Bullish Engulfing signal on Thursday after a long legged Hammer signal and an Inverted Hammer signal. Friday saw some profit-taking, as was expected after the strong bullish day of Thursday. Today’s trading closed back down below the halfway point of Thursday’s candle body. What does this mean? The Japanese Rice traders simply explain that if the Bullish Engulfing signal of Thursday was a signal that showed the Bulls were now in control, then when the Bears were able to close more than halfway down that candle, it demonstrated the bears were back in control.

This weakness in today’s trading now illustrates the tee line and the 200 day moving average area are continuing to act as resistance. Any week trading tomorrow would warrant buying the short funds again. If you are not making very much money over the past couple of weeks, do not be discouraged. Today’s close is almost exactly at the same level the Dow closed eight trading days ago. There will be times when the market does not allow investors to make money. This current sideways motion illustrates that point. Do not get discouraged. Recognize what the market is doing. Be prepared to take advantage of the next market move. Weaker trading tomorrow may indicate the downtrend is still in progress. Buying short funds may be the logical strategy.

Stop losses Intraday

The use of stop losses during the day is an important tool for protecting profits as well as maintaining a clear mental outlook. Note the overall trend of wheat. It has been moving down and the tee line has been an effective resistance level. Remaining short has been profitable. The simple rule that the downtrend remains in progress as long as they cannot close the price above the tee line. This allows a ‘short’ investor to remain comfortable until they witness a candlestick buy signal and a close above the tee line. The only concern for the short investor is stochastics being in the oversold condition. This makes the application of a logical stoploss very important. Although Friday’s Bearish Engulfing signal may have been the indication the next wave to the downside may be starting, there was still the possibility that wheat prices were in a bottoming stage.

Had today’s trading closed positive, after trading down most of the day, a much different formation would have occurred. A Hammer signal would have formed in the oversold conditions. If that were the case, the 10 minute chart provides a level that would indicate the would be forming on a daily chart. Putting a stop one tick above the early high of the day would have indicated the Bulls were in control. That was a good place to get stopped out of short positions. If the trading had remained positive at the close, the Hammer signal would have been a worrisome signal for a short position. However, as seen on the 10 minute chart, a Hanging Man signal was followed by a Bearish Engulfing signal. This indicated that the price of wheat was heading back down with approximately 30 minutes left to trade in the day. This created the opportunity to reshort the position going into the final few minutes of trading. Why would this be important? The week trading going into the close created a bearish candle, confirming the bearish engulfing signal of Friday, continuing the next leg down. This is completely different than if the price had remained strong going into the close, forming a Hammer signal in the oversold area.

Examining short-term charts allows an investor to extrapolate what the longer-term chart is going to look like. Stopping out of a position when it looked like the position should not be maintained was the prudent thing to do. Reestablishing the short position when it appeared as if the sellers were back in control was once again the prudent thing to do. In this case, stopping how of the short position did not cause the profitability of this trade to suffer. The trade could’ve been reestablished at approximately the same level it had been stopped out. These situations are easily evaluated using candlestick analysis.

No Chat Session Tonight

Good Investing,

The Candlestick Forum Team

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Current Website Specials

Gap Trading 

5-Star Trading Plan

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When you sell currency in the forex market there is actually no physical exchange of currencies. The trades that are placed are only computer entries and the profits and losses are recorded on the trader’s account after they are calculated. The FX market is purely speculative in nature and the only reason that it exists today is to assist in the exchange of one currency to another for those company’s that constantly trade currencies. These companies trade currencies for many reasons some of which include for the costs of services and goods from foreign vendors as well as for payroll needs.

As you learn to trade currency as a FX trader keep in mind that only about 20% of the market volume for forex is due to company needs and about 80% of the actual trades that take place on the currency exchange are speculative.  The 80% of the market volume actually consists of hedge funds, and large financial institutions, as well as individual forex traders.

As you learn about forex trading you will find that currency is always traded in pairs. There are many currency pairs and then there are the major currency pairs that are mostly traded on the forex market. As you sell currency you learn that when a forex trader makes a trade he or she is long one currency and is short the other currency. For example, when looking at the currency pair USD/EUR you will learn that you are short the dollar and long the Euro.
There are forex trading strategies that you will learn about as well as you learn to sell currency. These techniques can include shorting, going long or trading options. Shorting currencies is similar to shorting stocks in that the same concepts apply. If you short a stock or currency then you think that the value of the security will go down (compared to another currency). Going long follows the same concept with stocks as it does with currencies as well. When you go long it means that the trader things that the currency will increase in value (compared to another currency).

There are two options strategies called a strangle and a straddle. They also apply to stocks as well as to currencies. The strangle occurs when the investor buys an out-of-the-money call and an out-of-the-money put option. This trading strategy is only profitable is if there are major movements in the price of the currency. The straddle occurs when the investor believes that the currency’s price will make a significant move but he or she is unsure of the direction it will take. This is a very risky strategy because if the currency moves either way, but with a small movement instead of a major movement, then the investor will lose out on the trade.

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Market Direction

Eat like a bird and poop like an elephant! That is the description of most investors mental attitude. It represents what most investors have a tendency to do. When they buy a stock, and it goes up, they are very quick to take profits.

How foolish they would look if they had profits that they allowed to turn back into a loss. To escape that embarrassment, they take their profits very quickly, usually leaving some good potential gains on the table. On the other hand, if a stock price immediately goes down, the ego does not allow investors to say I made a mistake, get out of the position immediately. They will hold a position with the hope that it will turn around and go positive. After a while, they hope the price will get them back to break even, where they will intend to come out of the position. As the price continues to go lower, the hope gets bigger. They are just waiting for the price the turn around. Finally, when they cannot stand the pain any longer, they sell out. This is usually near the bottom.

How do you keep yourself from cutting your profits short and letting your losses run? Candlestick analysis provides a very easy solution. When you buy a position, it was done on the basis that a candlestick signal was showing the Bulls were taking control. If/when the price comes back down and negates the bullish signal, close out the position immediately.

When prices go up, most investors feel the anxiety that they need to take profits. The further prices continue to move, the more the fear of losing gains become. Candlestick analysis provides some very simple parameters for relieving that anxiety. When do you buy? When you see a candlestick buy signal! When do sell? When you see a candlestick sell signal. However, that ‘sell’ signal needs to be more compelling as a trend continues. The same facets to show a candlestick reversal signal are also built into a price trend. The longer a price trend continues, the more ‘set’ investor sentiment becomes. The trend will continue until a dramatic change of investor sentiment occurs. This usually requires a candlestick sell signal AND a close below the T-line.

DOW

The T-line creates some very simple strategic parameters. The candlestick signals illustrate a possible change in investor sentiment. A close below the T-line illustrates high probability confirmation a change in investor sentiment has occurred. If you know what each candlestick signal represents, you gain an immense amount of clarity about a trend move when it is applied to other successful indicators. Understanding the relationship of candlestick signals and the T-line will provide a dramatic improvement in portfolio profits. It provides a twofold affect. Profits are improved by executing trades at more appropriate price levels and an investors minds remains much more clear for making investment decisions. This clarity dramatically improves an investors analytical confidence.

Having the ability to decipher between a profit-taking pullback and a full-scale reversal allows an investor to take advantage of price patterns. This becomes important when trying to identify the optimal spots to have investment funds. All boats will rise in a rising tide. The advantage candlestick analysis provides is the predetermined results of candlestick patterns. Whereas a normal price move in a bullish market might produce a 10% gain, the results of a Fry pan bottom, scoop pattern, or cradle pattern may produce a 30%, 50%, or hundred percent gain in the same market conditions.

CSIQ illustrates high profit pattern potential. The initial cradle pattern is followed by a Jay hook pattern. A Jay hook pattern confirms at an obvious breakout area. Having the knowledge of where to sell and where to buy back provides a powerful trading platform. Not taking advantage of the information produced in a candlestick chart is like investing with one leg of the stool missing.

CSIQ

There is nothing difficult about candlestick analysis. Once you learn the common sense built into the signals and patterns, you gain a very valuable investment tool that you will be able to apply for the rest of your investment career. Whether you are trading stocks, options, bonds, currency, or commodities, prices move based upon investor decision-making. If you acknowledge the fact the Japanese Rice traders merely mapped out what investor sentiment was doing, your investment returns will improve dramatically.

Chat session tonight at 8 p.m. ET for members.

Good investing,

The Candlestick Forum Team

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This Week’s Special

Major Moving Averages

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Small cap stock investing is, by definition, investing in a company with a capitalization less than $500 million. Research indicates that smaller companies provide a higher rate of return on investment than middle sized and larger companies defined as between $500 million and $2 billion and above $2 billion respectively. However, in small cap stock investing it is important to understand that small cap stocks are more volatile with greater stock market risk and are even more prone to failure. On the other hand large cap stocks were once small cap stocks. Thus you can hit a home run in small cap stock investing if you invest in the next Microsoft, Google, or Cisco when they are starting up.

The risk in small cap stock investing is that the small company will fail and you will lose your money. Despite this fact a basket of small cap stocks will outperform a basket of large cap stocks or mid cap stocks in the stock market over the years. This is because when a small cap stock is very successful its stock price may well multiply by a hundred or more over a few years. A couple of big gainers in small cap stocks will more than make up for a few bankruptcies. A common estimate of how many small cap stocks you need to invest in to average out the risk is 40. A common estimate for large cap stocks is 10. If one takes a basket of 40 small cap stocks, for example, it will outperform a basket of 10 large cap stocks over the years.

Because small caps are more volatile, this comparison may well not work comparing one low cap stock to one high cap stock. The high cap stock is a company that has been around for years and is usually quite stable. However, to be secure while investing in stock, statistically you need ten large caps to average out the risk of disaster in one company whereas you need forty small caps to take advantage of this investment opportunity and balance your risk.
Stock investors expect a higher return for taking a risk. Thus investors will pay less for the presumed value of a small cap stock, deducting for risk. A common estimate of long term gains on small cap stock investing versus investing in large cap stocks is that you will make two percent per year more on your stock investment.

In stock day trading, you are buying shares and selling shares by the day, hour, or minute so your concerns are mostly with technical analysis. In stock investing, especially buy and hold investing, you are interested in long term performance and avoidance of the overhead cost of repeated transactions. In small cap stock investing you want to take advantage of a potentially higher rate of return on a small cap stock or stocks. The stock market risk of dealing with one small cap stock is diminished by buying a basket of up to 40 stocks or by investing in a small cap stock index fund.

It is not the purpose of this article to give stock advice on small cap stocks versus large cap stocks or to recommend long term investing versus day trading. It is to educate you in one aspect of stock market investing. Good luck!

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There will not be a Market Direction today.

Good investing,

The Candlestick Forum Team

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Specials

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In today’s article we discuss general information and tips for investors when penny stocks trading. Penny stocks are low priced and speculative stocks of very small or very young companies. These types of stocks typically have market caps under $500 million, are priced below $5.00, and can also be referred to as over the counter stocks.
When penny stocks trading, there are certain things that you should keep in mind. These are explained below.

1. Investors should look for positive single day movers with higher than average volume when investing money in penny stocks. They should also look for those companies that are developing new products, services, or technology as well as those companies that do well in the marketplace when compared to their competitors.
2. Penny stock trader should also build a list of penny stocks (about 10 – 20) to focus on. This enables the investor to manage their portfolio and monitor their stocks.
3. Take a look at the history of those penny stocks that you choose to trade. You can use stock charts, when penny stocks trading, in order to find stock chart patterns. Those stocks with a history of odd trading patterns will most likely not sell due to their unpredictability.
4. Research the current financial status for those companies who you are going to invest in. Those companies that have either no debt or a small amount of debt, and those companies that show a pattern or increasing profit margins are good stocks to add to your list. Investors should also find out how many shares the company has in its float, and if the company’s product is patented. A patent will affect the consumer demand as well as the competition. If these things check out you may want to consider this company one of your best penny stocks.
5. Stock traders can also find these stocks in the pink sheets and the Over the Counter Big Board (OTCBB). The companies listed here are typically new companies that are rolling out new products and once they are more established companies they will most likely move onto one of the other major markets. In fact, many of the stocks that are now traded on the major stock exchanges such as the NYSE were at one time listed on the Pink Sheets or the OTCBB.

There is a lot more to penny stocks trading and you should continue to do your research to find out if this is a market for you.

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Market Direction

Understanding the results of patterns  is vital for successful investing. There are two major reasons successful investors utilize trading patterns. First, it allows an investor to take advantage of what the market is doing right now. Being able to visualize what the current trend is doing dramatically improves the probabilities of profitable short-term trades. Secondly, it keeps an investor prepared for taking action at specific technical levels.

As viewed in the Dow chart, the short term trend has been pushing up against the upper trend channel. The longer-term trend has been using the 50 day moving average as a support level. The shorter term trend has been using the tee line as support. Today’s trading produced a Morning Star signal supported on the tee line. This obviously negated the bearish sentiment that could have been forming over the past two days of trading. The upper trend channel could be seen as a resistance level. Another test of the upper trend channel will have valuable information.

A failure of that level could produce another pullback. Would that pullback be to the 50 day moving average? That is where the first target area should be projected. Could the Dow finally break through the 50 day moving average and have a much stronger downtrend?

DOW

Analyzing the Dow by itself does not give the full picture of what is occurring in the overall market. The NASDAQ chart is showing a different downside potential. There are two factors that should be well noted. The past three tops in the NASDAQ chart had been exactly at the top of a trend channel. The exactness of that resistance level is usually a precursor to a possible hard selloff. There is another factor that should be added to the analysis. The NASDAQ has been forming a Spreading Formation. A failure of point 5 could start a very powerful down move. It will be important to see what type of candlestick signals occur as the top of the trend channel is tested again.

NASDAQ

Point 1, 3 and 5 are at the top of the spreading channel,  Point 2 and 4  at the bottom of the pattern. A failure to break up through the current point 5 level could induce hard selling.

Utilizing candlestick signals and price patterns creates a huge advantage. Expected results occur after specific price patterns. A failure to break out of the top trend channel has  expected result based upon historical analysis. The next wave could be a very strong downside move. A breakthrough of the upper trend channel makes for a different analysis. The short term pattern would be giving a different evaluation. A price move through the recent high would  confirm a Jay hook pattern, indicating more upside potential. This would also negate the development of the Spreading pattern.

The result of this if/then situation is much easier to evaluate when witnessing which candlestick signals are forming at the upper trend resistance level. Knowing what could result from a breakthrough or a failure of that level allows the candlestick investor to be prepared for establishing the direction of the portfolio. This pattern analysis works effectively in stocks, commodities, currencies, or any trading entity that involves human input.

Take advantage of the information that can be provided by the combination of candlestick signals and patterns. It allows you to maintain control of your investment analysis. High probability expected-results occur after recognized patterns setups. It is not difficult to visually learn when to reverse a portfolio or add to the direction of a portfolio.

Chat session tonight for members at 8 p.m. ET. Check the Member Area for instructions.

Good investing,

The Candlestick Forum Team

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In 2001, we watched the stock market plummet like a rock because the Internet bubble burst. Millions of traders and investors lost money, but quite a few didn’t. Investors who didn’t lose it all were either lucky, or good at their game. Successful money management techniques and their intense desire to learn how to play the stock market is what saved them.

If you want to make money investing in stocks, you need to be good at money management, not lucky. A lucky streak is always well received, but the moment you require luck to succeed you’ll not make the grade. They key to consistently making money by trading and investing in the stock market is dependent on your knowledge of how to lose money correctly via strict money management techniques.

Although this seems opposite to our usual way of thinking, it actually makes a lot of sense. If you expect to trade and not be willing to accept losses from time to time, it should be understood that this is not a realistic approach. The truth is many of the most successful traders lose money more often than the unsuccessful ones. However, they are still able to achieve success in the long run. There are two reasons for this:

First of all, successful traders never lose a large outlay of cash on a solitary transaction.

Trades have five possible outcomes:

• Lose a large amount of money
  
• Lose a small amount of money
  
• Lose no money and make no money
  
• Make a small amount of money
  
• Make a large amount of money

Here’s the secret: Find ways to diminish or eliminate the first possibility!

Second, successful traders refrain from investing too much money into a “favorite” position.

If you invest too much money into your “pet stock of the moment”, you are setting yourself up for disaster.

Successful traders, not unlike successful casino gamblers, establish a maximum value that can be risked in a single trade (or bet). And when even a small loss from that investment results in a large dent in your account, you are not trading optimally.

If your accounts total $1000, and you never want to risk over 5% of that on a single trade, does that imply that you can only purchase a $50 position? Absolutely not, you couldn’t make money that way. In the scenario where the most you’re willing to lose on any one trade is $50, you could set up a $500 trade in a way where you are guaranteed not to lose over $50. This can be done with a pre-set “stop-loss” where you instruct your broker (or program it into your stock market online investing system), to get you out of that position if that limitation is ever reached. This technique gives you the ability to know your maximum risk before making the trade.

Although not absolute, stop losses work as intended most of the time. Occasionally, various market conditions cause your broker to miss your stop-loss price. Smart traders establish stop losses while keeping this possibility in mind as part of their overall stock trading plan.

Money management is the single most overlooked aspect of trading. It’s far more important to manage your account’s value correctly than it is to locate the exact bottom or top of the market. Money management can make the difference between success and failure. If you’re considering stock trading and investing, or if your stock market investing strategy isn’t as successful as you’d like it to be, you owe it yourself to become an expert at this technique.

Stock value analysis comes in two forms, long and short term. In long term investing the individual does fundamental analysis and looks for intrinsic stock value in the form of anticipated forward looking earnings. In short term stock trading and stock investing traders look for stock price fluctuations using technical analysis with Candlestick patterns. They apply Candlestick trading tactics to profit from these fluctuations in the stock market and individual stock prices. Both types of stock value analysis can lead to profits in stocks. Long term stock value analysis coupled with Candlestick analysis assisted short term stock value analysis can be doubly profitable. The long term investor typically ties his hopes and aspirations to solid stocks with the likelihood of long term growth and the substance to weather economic storms along the way. By using Candlestick patterns as a guide this investor will not only profit from the long term growth of a company but will greatly enhance these profits by adding the stock to his portfolio at the most advantageous price.

Stock value analysis is especially useful and, perhaps, the most profitable after stock market crashes. This is the blood in the streets scenario. Everyone, except those who anticipated the crash using Candlestick charting techniques, has suffered gigantic losses. The general feeling, as opposed to a rational belief, is that things could get worse, the economy could collapse, and that the stock market, much less ones own stocks, will never recover. Using short term stock value analysis of prices with Candlestick stock charts, the investor and trader can anticipate price changes and pick up the best deals by buying at the bottom. The savvy investor or trader knows that extremes of a market crash often have to do more with a contraction of credit and a panicked psychology of investing than with the true state of the economy or an individual stock’s fortunes. He will buy heavily and profit as the market and individuals stocks recover. The Candlestick devotee will have bought puts on his stocks before the market went south and will, thus, sell at the strike price of his options contracts and purchase promising stocks when they are cheap. He may even buy back the stocks on which he was buying puts just before the crash.

Considering the blood in the streets scenario above we can see that stock value analysis can run full circle. One profits from picking stocks with long term promise and resistance to economic down turns. The investor then uses both long term and short term analysis to anticipate a market reversal. He either sells stock or buys puts to protect himself against loss. Using Candlestick chart analysis he can successfully predict the bottom of a stock price and reinvest his money in stocks with both long and short term promise. Maintaining perspective is critical to successful stock value analysis. Remembering that when there is blood in the streets is often the best time to be hunting for stocks is how many successful investors profit from the predictable ups and downs of the stock market.

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Market Direction

Has the selling of the past two days indicated a market reversal or a profit-taking pullback? This is the question always asked when selling comes into an uptrend. The candlestick investor can analyze a trend with a more accurate view when knowing if candlestick signals appeared at the reversal or not. The lack of candlestick sell signals in a reversal area provides completely different information than if a candlestick sell signal has been identified. The lack of a candlestick sell signal will usually indicate merely profit-taking versus a change of investor sentiment.

DOW

NASDAQ

Today is selling was mostly in the NASDAQ. Wednesday’s trading had formed a Doji in the Dow. The S&P 500 formed an evening star signal. However, the NASDAQ demonstrated a hard selling day but without a candlestick sell signal. The selling in the NASDAQ today was much more significant compared to the Dow and the S&P 500. Both of those indexes showed indecisive trading after candlestick sell signals. Although the downtrend probabilities are still relatively high, the strength of the downtrend does not appear to be very strong. This is based upon the lack of collaborating sell indications by all the indexes.

S&P 500

EVENING STAR

Recognition

A three candle pattern at the top of an uptrend. The body of the first candle is white, confirming the current uptrend. The second candle is an indecisive formation. The third candle is black and should close at least halfway down the white candle.Pattern Psychology: After an apparent uptrend the Bears step in and open the price lower than the previous day’s open. The price finishes lower for the day and the Bulls are concerned and begin selling to take their profits.Related Articles: How to Trade the Evening Star Signal Swing Trading with an Evening Star Signal Training Tutorial: Morning Star & Evening Star Signals.

What is the best strategy for these market conditions? Most investors do not have a clear perspective of what to be doing under these market conditions. This is mainly due to the fact that they do not have the insights that candlestick analysis is able to provide. The commonsense elements built into candlestick signals allows a candlestick investor to make a relatively accurate prognosis. This helps establish the correct trade positioning in a portfolio. After the appearance of potential sell signals yesterday, the premarket futures help indicate where a market direction is heading. A lower open after the appearance of candlestick sell signals should instigate the closing of long positions that are looking weak and establishing short positions.

CRUS was a short recommendation on the Candlestick Forum site. It had formed a bearish left/right combo on Wednesday. The bearish engulfing signal closed below the T line. Stochastics were starting to turn down. The gap down on today’s open was clear confirmation of the strong sell signal. The Doji trading day of today provides another opportunity to go short if the price opens lower tomorrow. A major advantage of candlestick analysis is that trade strategies are made very easy based upon the expected results after a candlestick reversal signal or pattern breakout.

CRUS

Please take advantage of the immense amount of information that is built into candlestick signals. Learning the commonsense aspects of candlestick analysis allows each investor to have a high probability game plan put in place. This is whether you are a day trader, swing trader, or a long-term investor. The visual aspects of candlestick analysis makes it easy to identify high profit pattern breakouts as well as when to take profits.

Chat session tonight at 8 PM ET

The Candlestick Forum Team

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Profitable Candlstick Trading

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The saying is so often repeated that even newcomers know it. Over time, the average stock market return is 10% annually. This seems to suggest that if you’re investing in the stock market, you will earn 10% if you can just stay in the market long enough. The problem with a statement like that is incompleteness of thought and downright deceptiveness. The stock market average return is 10% annually? Let’s discuss this statement and its implications further.

Put Your Money Where Your Mouth Is

Maybe the people saying it are promoting a new e-book or they just don’t know any better. In any case, this statement purports the idea that if you can only buy a few (or maybe only one) stocks you are going to achieve that famous 10%. That is some really good Wall Street news! Oh, by the way, which stock was that?

It’s sad but true that there are people who really believe in this mythical 10% stock market average return investment philosophy. For that matter, what really are stock market average returns? What is your definition of the market? If it was the S&P 500 in 2004, it didn’t even make it. Mutual funds? The same year neither the Russell 3000 nor the Russell 500 made it.

The Truth About Stock Market Average Returns

The flaw in the entire discussion is that the performance of “the market” doesn’t matter; what matters is the performance of the investments in your stock portfolio. If you make a 100% return on your portfolio, you had a great year regardless of the S&P 500. If the Dow made 2% and you beat it with 2.5%, did the net result in your portfolio really give you something to brag about?

For successful traders, the only comparison necessary is your bottom line. Comparing average stock returns against the NASDAQ is fun and it gives you something to brag about to your buddies, but it means nothing to your investment portfolio.

How To Quantify Your Stock Market Average Returns

Remember, you’re not buying “the market” so any comparison with the market indexes is purely for entertainment purposes. It’s time to dust off your stock trading plan and go from there. What are your goals for your investing? If you are looking at long term investing, your approach will rely on good returns but also strong investments that likely include dividends. In addition, you can supplement your income with options trading. If you are near retirement age you will likely take a more conservative approach than someone in their 20s or 30s who has time to rebuild their account if they run into problems.

The analysis of stock market average returns is to determine which types of equities should be the focus of your investing in order to get to where you want to be financially. At the end of each quarter or at the end of the year you can ask yourself if your performance in the stock market is meeting your goals.

Conclusion

The stock market is a great tool for meeting your financial goals and dreams but it must be approached like a business. Careful planning, fundamental analysis and frequent review of your performance against your goals are always better than dwelling on average market returns. For investors who are building for the future the key is to buy stocks from solidly performing companies and let someone else try to find out where the mythical 10% went!