Currency futures are transferable futures contracts that specify the price at which a specific currency can be bought or sold at future date. These contracts allow the forex investor to hedge against foreign exchange risk. With this type of currency, the investor is able to close out of their position and exit from the obligation to buy or sell the currency prior to the contract’s delivery date.

In today’s article we discuss terminology that you may come across when learning about forex and futures.

Futures Contracts

Futures contracts are agreements to buy or sell a particular commodity or financial instrument at a pre-set price in the future. This contract contains the quality and quantity of the underlying asset and some futures contracts call for the physical delivery of the asset. Most however are settled in cash. When learning about currency futures you should also learn about the foreign exchange risk mentioned above. There are two pieces to the foreign exchange risk. First, it is the risk of an investment’s value changing due to changes in currency exchange rates. Second, there is the risk that an investor will have to close out of a long or short position (see short selling) in a foreign currency at a loss due to adverse movements in exchange rates.

Currency Forward

A currency forward is a forward contract in the forex market that locks in the price at which an entity can buy or sell a currency on a future date. The currency forward is also referred to as an outright forward currency transaction or forward outright or FX forward. These contracts are non transferable. Spot Exchange Rate – this is the rate of a foreign exchange contract for immediate delivery. These rates represent the price at which a buyer expects that he or she will pay for a foreign currency in another currency.

Currency Pair

The currency pair is the how the pricing structure of currency futures are traded in the forex market. The actual value of a currency is determined by its comparison to another currency. The first currency of a currency pair is referred to as the base currency and the second currency is referred to as the quote currency. The currency pair shows how much of the quote currency is needed to purchase one unite of the base currency when forex trading.

There is a lot more to learn about as it relates to currency futures. Not only do you need to understand the forex market but you must also understand the futures market as well.

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Market Direction

The Nasdaq has been up 12 days in a row. It has done this eight times since 1986. The result is higher moves afterwards on a longer-term basis. However, with the big price move in the market today, this exuberant buying needs to be watched carefully over the next few days. On a short-term basis, be watching for a candlestick ‘sell’ signal. Obviously, this has been  a very profitable trend for those that were cognizant of what should happen after a cradle pattern. If the markets show more exuberant buying tomorrow, definitely be prepared for a profit-taking reversal. A gap up tomorrow would warrant setting profit taking stops immediately.

How do you take emotions out of your investment decisions? By knowing what each signal and pattern illustrate. The expected result of a Cradle pattern has kept us in this uptrend until we see a candlestick reversal signal. Today’s exuberant buying prepares us for a possible candlestick sell signal. Candlestick signals and patterns provide a visual map of the direction of the markets. The more you can utilize the maps, the less guesswork or emotional decision-making you will do.

DOW

Why do candlestick patterns work? They are the reoccurring representation of what occurs in investor sentiment. The reason they are recognized is because of the predicted results occurring after a pattern/signal is witnessed. As illustrated in our recent recommendation of VCI, there were expected results if a Fry pan bottom pattern shows a breakout. The formation of the pattern was the result of investor sentiment slowly turning positive, eventually reaching to the exuberant stage. If you always return to the basic description of a candlestick signal or pattern, you will trade with much more calmness. Candlestick signals are formed by the accumulative knowledge of everybody buying or selling during a certain time frame.

Unless you have access to a huge research department, the individual trader cannot know what is going on in every company. However, it has to be assumed that there are some people that follow specific companies/sectors will they very high degree of interest. The candlestick signals provide a visual thermometer of what the smart money is going. As seen in the VCI chart, the development of a Fry pan bottom pattern was the result of waning investor interest slowly building back up. The Candlestick Forums recommendation to buy the stock on July 16 was based upon the potential of a Fry Pan Bottom breakout.

Will there are always be a Fry pan bottom breakout? Not always, but there is an extremely high  percentage  probabilty that  makes this chart pattern extremely valuable to learn.

VCI

The confirmation of a Fry pan bottom breakout is very easy to view. It is instigated by a gap up or a big trading day coming out of the level where the Fry Pan Bottom pattern started. This allows for excellent timeliness for option trades. That creates extremely good opportunities for option trading. First, it allows an investor to immediately enter option trades before most investors recognize a new dynamic had come into the price. Secondly, because the pattern has been so lethargic for the previous three weeks/3 months/6 months, the price of the options are usually very low.

MICC

Do you want to learn how to trade options correctly? Then first learn how to identify when the big price moves will occur using candlestick analysis. Once you have achieved that, then you can apply very simple and correct option trading strategies. This is not rocket science. This is merely common sense put into a graphic depiction.

Good investing,

The Candlestick Forum Team

Live cattle commodity trading has been lucrative this last year in a bull market. Fundamental analysis of factors that influence the price of live cattle including the cost of feed, herd sizes, and weather is useful in live cattle commodity trading. So is technical analysis of the live cattle commodity market. Commodity and futures training will help you understand commodity prices and commodity futures in trading live cattle. Live cattle are cows from calf stage up to 600 to 800 pounds when they go to a feed lot to put on another 500 pounds or so and are called feeder cattle. Successful commodity investing in live cattle starts with a few basics.

Live cattle trade on the Chicago Mercantile Exchange as LC. Live cattle commodity trading is in lots of 40,000 pounds which translates to about 80 cattle. Prices are quoted per pound in increments (ticks) of $0.00025. Thus one tick comes to $10 (40,000 X $0.00025). As of this writing live cattle futures are trading at $95.075 for April settlement and as low as $90.425 for August settlement. These figures translate to around $3.8 million for a lot with movement of a dollar in price coming to $40,000 in profit or loss in trading commodities in live cattle. Technical analysis charts used in commodity trading are just as useful for live cattle futures as they are for stock trading, options trading or Forex trading. As in using Candlestick charting the use of technical indicators to evaluate market history tells traders what the market will do next.

The commodity market in live cattle derives information from a number of sources. Feed prices are critical to success in livestock management and to making a profit raising beef. When the price of grain/feed goes up ranchers often will cull their herds. This reduces their costs and reduces the supply of beef in the year to come for live cattle and in the months to come in case of feeder cattle. However, culling herds means slaughtering many animals and this brings a lot of beef to market all at once. This makes steak cheaper in the market and reduces the commodity price for feeder cattle and live cattle in the short term. When the winter weather on the Great Plains and Corn Belt is severe livestock numbers may not drop but the cold stress will slow weigh gain of animals, reduce profits for ranchers, and delay the amount of beef that will come to market. Successful commodity trading requires that you understand how ranchers operate and how herd size and temporary swings in beef supply will affect live cattle commodity trading.

Commodity trading software will help the beginning commodity trader. To get the most out of online trading software it is best to take Commodity and Futures Training. To keep current on herd sizes visit the Department of Agriculture’s Cattle on Feed Report. This routinely published document will tell you how many cattle there are in feedlots and how many “live cattle” there are, namely how many have been weaned and are up to 800 pounds and still feeding on grass. Live cattle commodity trading is dealing in a complicated commodity market that, in the end, feeds the nation. Commodities trading in cattle will always be there with profits to be made by those who assess the fundamental and technical analysis correctly.

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Market Direction

The effectiveness of the T-line in candlestick analysis can clearly be demonstrated watching the trend of the markets. Note how the Dow has used the T-line as support. Every time it moved away from the T-line, sideways trading brought the Dow back to the T-line. These past few days of trading saw the formation of an Evening Star signal. This could have been the beginning of a possible downtrend. However, one important factor was not fulfilled. As seen in Thursday’s trading, the Dow could not be pushed down through the T-line. This makes for one simple observation, the uptrend remains in progress. This may seem like a very simplistic method for analyzing a trend, but fortunately candlestick analysis is the process for making trend analysis easy. There is a  simple rule. An uptrend will continue until there is a candlestick sell signal AND a close below the T-line. Without both of those parameters, the uptrend will usually remain in progress.

DOW

The same analysis can be applied to commodity trading. As illustrated in the May Feeder Cattle chart, the T-line provided a very compelling indicator. Note how the trading below the T-line revealed indecisiveness. Also note, the only solid close below the T-line during the uptrend was on March 28. This close did not follow a candlestick sell signal. Had the position been closed out, as it closed below the T-line, there would have been a much more compelling reason to buy back immediately as it gapped up and traded positive the next day. This would have been based upon some very simple trading rules. One, the longer an uptrend persists, the more compelling the candlestick reversal signal needs to be. Two, the lack of a candlestick sell signal followed by a close below the T-line should be considered more as a profit-taking stage versus a reversal. Three, the gap up the next day formed a mild kicker signal.

GFK0

The moving averages are very good support and resistance indicators. Commodity trading sees more activity around the T-line, the 20 day simple moving average and the 34 day exponential moving average, whereas stock trading sees much more activity around the 50 day moving average. Once you have learned which confirming indicators work well with stock trading, commodity trading, currency trading, or any other trading entity that involves fear and greed, you can utilize candlestick signals and patterns in all trading markets.

The combination of candlestick signals and the T-line helps an investor to decide when to get into and out of a position. It helps when holding a position. One of the greatest fears most investors have is giving back profits. Using the simple rules applied to candlestick trends keeps the emotions out of a trade.

May Soybeans

As illustrated in the May Soybean chart, the sell signal was quite evident: A Doji, followed by a bearish confirmation and a close below the T-line. The downtrend did not show any dramatic change of investor sentiment until buy signals occurred in the oversold condition, followed by a close above the T-line. As can be seen in this chart, there would have been many days where positive trading would have made somebody holding short positions very nervous. However, the candlestick investor would have had peace of mind, knowing the effects of the T-line.
Denver – Steve Bigalow will be providing a free presentation to the Denver trading club on Saturday, April 3. It starts at 9 AM and goes until 1 PM. There is a small room fee. It will be located at the Summit Event Center.

Join us if you can. Steve will also be arriving on Friday evening and meeting people for dinner at the Homewood suites hotel. Everybody will meet in the lobby at 6:30 PM if you would like to join Steve for dinner.

Chat session tonight at 8 PM ET.

Learn which sectors are performing well in the sideways market.

Good Investing,

The Candlestick Forum Team

Stock market cycles are the inherent results of investor sentiment. Stock market cycles occur due to investor confidence building up and investor confidence waning. Prices do not change because of the fundamentals. Prices change based on investor perception of fundamentals. Candlestick signals are excellent analytical tools for projecting the tops and bottoms of stock market cycles.

The signals produce an immense advantage in trend analysis. Stock market cycles, when evaluated properly, produce the opportunity to make extraordinary profits from the markets. Utilizing Candlestick signals at major support and resistance levels increases the probabilities of identifying the tops and bottoms of stock market cycles.

Candlestick signals immediately identify the results of investor sentiment at important technical levels. Some of the strongest support and resistance indicators are major moving averages. Learning to use the 50 day moving average and the 200 day moving average dramatically enhances trend analysis results. These moving averages are important because they are utilized by the major money managers.

Market Direction

The Dow and the S&P 500 have pulled back to the 50 day moving average and the 200 day moving average. What does this indicate as far as trend analysis? A common rule of technical analysis is that once an important technical level is breached, prices will come back and test that level. Applying this knowledge simplifies the analysis of what the next trend move might be.

The S&P 500 indicated a Doji forming right on the 50 day moving average. Although the Dow did not show a major reversal signal, it also showed strength right on the 50 day moving average. This analysis, with the analysis of the signal formation in the NASDAQ, provides more evidence of what investors are doing. The NASDAQ formed a Bullish Harami. This, occurring when seeing support at the moving averages in the other indexes, can now be assessed as buying starting to come back into the markets.

SPUS

The NASDAQ has been showing buy signals as it has declined toward the 50 day moving average. There have been two Bullish Harami’s and a Hammer signal followed by a Bullish Engulfing signal, in the past few days. Wednesday revealed another bullish Harami as the trend has pulled back very close to the 50 day moving average. These are all indications that the downtrend has been slow and controlled.

Sector Play

One of the strongest signals in Candlestick analysis is the Kicker signal. The appearance of a Kicker signal occurring right at a major moving average is an extremely strong reversal indicator.

The Semiconductor Equipment and Materials sector formed a Kicker signal on Wednesday right at the 50 day moving average. What does this indicate?

To the Candlestick investor, this should indicate that the best stock trades should be showing up in a sector that has indicated an extremely strong reversal. If the sector index reveals a strong reversal, individual stocks in that sector should be producing some very strong signals. Finding strong Candlestick signals from a sector indicator can be applied to the strong stocks in the sector.

Notice in the Applied Materials Inc. chart that it also produced a Kicker signal at the 50 day moving average. This becomes strong criteria for entering a trade.

AMAT

Any signal moving off of a moving average, when stochastics are in an oversold condition, becomes an extremely high probability trade opportunity. The moving average, that is acting as a support level

As a stock price moves up and down over time it will tend to stay within a range. As the stock price moves up traders will sell and take a profit. When the price of a stock moves down traders will buy stock again. The apparent barriers to up and down movement of the stock price are called support and resistance zones. The ability to understand current support and resistance zones and to predict when they will change is integral to successful day trading. Understanding and using Candlestick patterns helps the trader make profits by predicting support and resistance zones successfully.

Over time stock prices move higher and lower so the support and resistance zones of a given stock will move up and down. The line running through a series of support prices on a stock chart and one running through resistance prices are called trend lines. Trend analysis is basic to predicting the future of a stock’s resistance and support zones. Trend stock trading has to do with continuing stock analysis, closely following stock price history, and accurately predicting future support and resistance levels. A company making good profits may see its stock trend lines gradually go up over time. A company that has a sudden increase in sales may find that its stock breaks out of its resistance zone only to establish new support and resistance zones as trading progresses. Candlestick pattern formations will let the market tell the trader what the market is about to do.

Trading support and resistance zones works because traders will sell stock at or before the resistance zone of a stock in order to insure a profit and day traders will buy stock at or before the support zone in order to insure a stock purchase before the stock price goes up again. There are two factors at work here. One is that support and resistance levels stay put so long as there is no breaking news about the stock, the market sectors in which it operates, or the economy. When there is no new information the stock market, market sectors, and stocks fall into a trading range. Stocks break out of their trading range, their support and resistance zones, when new stock market information is available.

Sometimes new stock information is not immediately available to every investor and day trader. This is part of where technical analysis tools such as Candlestick chart analysis are particularly valuable. When a few investors or traders have information or insight that others lack they will start buying or selling stock. The market reacts and technical analysis will pick up on the new “investor sentiment.” It doesn’t matter in technical analysis what reason others have for buying or selling. It just matters that they are. The old Candlestick adage is to let the market tell you what the market will do. Candlestick analysis picks up on what the market is doing and predicts what it will do next based on similar scenarios from the past. Using Candlestick basics will allow the trader to pick up on a change in support and resistance before the rest of the crowd.

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Market Direction

When is it time to buy after a hard hold back in the markets. The Japanese race traders say the weight of the market will continue to push the market down. This is why a ‘severe’ buy signal is required after a sharp pullback. Keep in mind, trends move based upon investor sentiment. What occurs after a severe pullback? Investor sentiment takes some convincing to get back into a bullish mode. Most investors do not take advantage of the beginning of an uptrend because of their emotions. They are still affected by recent losses created by a hard selloff.

Obviously, the candlestick investor has a great advantage. The graphic depiction produced by signals and patterns immediately illustrate what is occurring in investor sentiment. This allows an investor to interpret what is occurring in market price trends on a rational basis versus an emotional basis. The visual aspects of candlestick analysis provide a trading format that can completely eliminate investors emotional reactions. In talking with the most experienced traders, one basic learning technique is addressed. Profitable trading did not occur in their accounts until they were able to control their emotions. The visual characteristics found in candlestick signals creates a completely dynamic mental attitude for an investor. They are now concentrating on what the market is telling them is occurring versus what their emotions are hoping will occur.

The Dow showed when investor indecision was about to demonstrate a strong change in the market trends. The Stick Sandwich pattern two weeks ago indicated a potential change was about to occur. This should have immediately prepared the candlestick investor to ready for a trend change. The past three trading days, when training became very indecisive, with stochastics in the oversold condition, now produces another potential change in investor sentiment. Knowing the characteristics of candlestick reversal patterns creates a forewarning. A flat indecisive trading days of the past few  days produces the probabilities of a cradle pattern. Exiting short position strategies can be established, as well as setting up new long positions. However, action does not need to be implemented until one basic rule is fulfilled. Witnessing a candlestick buy signal followed by a close above the T-line. Until that occurs, it has to be assumed the downtrend is still in progress. That was evident in today’s trading. 

DOW

The inherent benefit of understanding how to correctly use candlestick signals is twofold. First, it allows for the identification of strong price moves. Secondly, due to the statistical characteristics of candlestick signals and patterns, an investor has much better control of their analytical prowess and greatly reduces the emotional aspects of investing. This is not an unimportant point! Many investors learn how to use a trading technique, but they do not learn how to manage their own emotions. When returns do not produce expected results, usually based upon decisions that did not correlate with the trading technique principles, most investors blame the trading technique. The most important element of investing successfully is combining the benefits of a training program and applying the correct mental perspectives. Candlestick analysis creates a natural mental discipline.

Knowing that a price pattern has specific results dramatically reduces the ‘hoping’ concept. You, as an investor, have a trading plan for when to enter and when to exit a trade. This is based upon the probabilities associated with the recognition of the price pattern in the first place. The analysis of PVTB is clear evidence that a pattern can produce expected results based upon the investor sentiment that built the pattern. As can be seen in the PVTB chart, the breakout of a fry pan bottom pattern has produced excellent profits during a time when the market in general has been solidly negative. This chart pattern was pointed out during the day in the Candlestick Forum chat room. It then became a recommendation. Although the markets have been very bearish over the past couple of weeks, the stock price has been more affected by the Fry Pan Bottom result.

PVTB

Whether the market trends is up or down, candlestick analysis allows investors to make a profit. Going along during a downtrend is not necessarily putting the probabilities in your favor. But it does demonstrate the effectiveness of candlestick scanning. There will always be stocks moving up in a down market. The visual aspects of candlestick signals allows investors to pinpoint those stocks. Candlestick signals continually provide the information to make consistent profits in the markets.

Online candlestick training -February 20 and 21st

The Candlestick Forum has been providing a very effective two-day online training program for the past few years. Once you learn how to analyze and utilize candlestick analysis correctly, you gain a very powerful control over the markets. The reason candlestick signals are available today is due to their statistical performance. They work a high percentage of the time. Knowing how to use them correctly makes them a viable trading program on their own. Adding candlestick analysis to your existing trading program greatly enhances the effectiveness of that program. The signals and patterns provide an immense amount of information.

If you are just now becoming familiar with candlestick analysis, there should be one aspect that stands out the most. The concept of candlestick analysis is based upon common sense investment principles. Do not miss the opportunity to gain an extreme amount of knowledge from this training program. This program has been developed in a manner that allows an investor to methodically build and understand the correct methods for trading profitably. You will gain much more knowledge than you anticipate. The information conveyed through the visual training of how to recognize and interpret the signals puts you in control of your investment future forever.

Take advantage of the knowledge built into candlestick signals. Stay in your pajamas, with your cup of coffee or cocoa.

The training sessions are limited in size. This is to allow each participant to actively ask questions. Unlike many other training programs, Mr. Bigalow provides a training format that continually reinforces the profitable aspects of candlestick investing. Do you have trouble entering a trade? Do you have trouble placing a stop loss? Do you have trouble taking profits when you are supposed to? The advantage of candlestick analysis is utilizing the information that has been proven for the past few hundred years. Sign up today! Change your investment perspectives forever. 

Chat session tonight at 8 PM ET. 

Good investing,

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This Week’s Special

12 Major Candlestick Signals Educational Package!

5 Star Trading plan

Click here for details

If you are interested in buying commodities there are a number of things to do before opening an online trading account. The obvious ones are to research online trading software and take an online trading course such as Commodity and Futures Training. Aspiring traders will also want to have a fast internet connection and computer hardware with the capacity to handle lots of data in a hurry. A Windows 2003 server is typically sufficient. As a general rule of thumb the trader will want at least 4 GB of memory and a dual core 3.2 GHz processor or two Quad-core 2.6 GHz processors. Then the system will need two network cards, one pointed towards the system and the other pointed towards the exchange. A hard drive with 30GB or more memory capacity will be needed to store the software and log files. Once the trader has the hardware set up, the software installed, and has taken the first online class the work starts. To engage in successful online commodity trading the trader needs to develop a trading strategy for buying commodities.

A commodity is a thing that is bought, sold, and, commonly, consumed. Buying commodities like corn futures and oil futures is done for two reasons. Producers and processors of these commodities engage in hedging in the commodities markets in order to reduce investment risk. Other traders buying commodities and selling commodities do so in order to profit from recurrent commodity price fluctuations. Gold futures are different in that industrial use is a small aspect of the value of this precious metal. Gold prices fluctuate with the state of the economy and concerns about inflation. However, when buying commodities the trader is concerned about price. How the commodity is used is only important so far as that information affects commodity supply and demand. Buying commodities is profitable in so far as the trader is able to anticipate rises in commodity prices. The trader will buy futures on the commodity and then sell once the price has risen. If the price is likely to head down then the commodity trader will want to sell commodities instead of buying and then buy when the price has gone down.

The point of this discussion is that a commodities trader needs to learn the fundamental analysis of the commodity he trades and needs to use his trading software to do continual technical analysis in order to profit. Developing a commodity trading system is of utmost importance which is why a formal start to learning about buying commodities is important. An alternative to buying commodities is buying calls or buying puts on futures contracts. Unlike buying commodities, buying options does not confer an obligation to buy the commodity. The trader buys the right to either buy or sell the commodity future in question. He or she need only exercise the options contract if the price moves in the right direction. Although the options trader pays a premium for buying options he does not lose money based upon unexpected price movement when buying commodities.

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Market Direction

When is it time to take profits? This is a difficult function for most investors. Many investors know how to enter trades, but they have a very difficult time knowing when do come out of a trade. That process is made  simple using candlestick analysis. Because the signals have definite expected results, profitable trading strategies become very simplistic. The signals are usually the strongest indicators for when there has been a change of investor sentiment. Confirming indicators also dramatically improve the probabilities that a trend reversal has occurred.

As illustrated in the ARNA chart, there was an obvious time to come out of that trade. The Doji, followed by the Bearish Engulfing signal, known as a left/right combination, indicated more weakness than what should be expected for an uptrend. The tee line acted as a possible support level. However, when the Doji was formed on the tee line, the candlestick investor had a very simple trade strategy. Knowing that the trend would move in the direction of how it traded after the Doji is a very simple but valuable trading tool. The lower open confirmed the downtrend. This was also reinforced by the fact the tee line did not act as support. That was the appropriate time to be out of this trade.

ARNA

There will be times when it is advisable to take some profits even though a candlestick sell signal has not yet formed. This is illustrated in the ADY chart. If buying at the Morning Star signal, and then seeing the price breach the tee line, what becomes the next logical target? The 50 day moving average! What assumptions can be made about the 50 day moving average? Everybody will be watching that level. They will be watching that level as a potential target. As a candlestick investor, taking profits as the price reached the 50 day moving average became more compelling. Note where the stochastics had moved to by the time the prices got to that level. Also note what occurred the previous day. A big bullish candle in the overbought condition. The following day, when the price moved a good percentage again to reach the 50 day moving average, taking half of the position off at the 50 day moving average is prudent even though there would not have been a candlestick sell signal developing at that time. Visibly the candlestick investor would be able to see the exuberant buying in the overbought condition.

ADY

The following day, when prices opened higher, the candlestick investor has some very simple entry and exit strategies. If the price continued bullish, coming back up through the 50 day moving average, and the previous days high, half of the position could have been bought back. That bullish strength would have indicated the 50 day moving average was not going to be  resistance anymore. Filling the gap from early August would now be the next potential target. If the price had opened lower after the Doji, the remaining half position would’ve been closed out immediately. When the price opened higher, a simple stop loss strategy could be put in place. Placing the stop loss one penny below the previous days open, the Doji, would’ve indicated the bears were still in control.

Candlestick analysis is not merely identifying where the reversals are occurring, is using common sense visual elements of a candle bodies to decide when to be in or out of positions. Utilizing this information takes a great deal of the emotions out of ones investing.

Chat session tonight at 8 PM ET. – for members
Good Investing,
The Candlestick Forum Team

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Current Website Special

Quick-Start Trading Package – 50% OFF!!!

Fall 2010 E-Learning Online Training Schedule

Basic Stock Market Training with Candlestick Analysis
September 25 & 26, 2010

Options Training Course 
October 16 & 17, 2010

Commodity Training
November 6 & 7, 2010

Boot Camp
November 20 & 21, 2010

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

The strike price is the price of a stock or other equity specified in options contracts . The strike price is the price at which a contract in options trading will be delivered should the buyer choose to execute it. The strike price will be the price of satisfaction of the options contract no matter what the market price, also called the spot price , is at the time. Specifically, it is the price at which owner of options can buy stock in case of a call option or sell stock in the case of a put option. The strike price of an options contract is also referred to as the exercise price. When trading options on stocks the trader carries out the same types of fundamental and technical analysis that he would when buying stocks or selling stocks directly. He will use Candlestick analysis to gauge market sentiment and assess a stock’s margin of safety and intrinsic stock value in order to have a clear view of the stock’s eventual value.

Using Candlestick patterns as a guide, traders in the options markets seek to anticipate if stocks are likely rise above the strike price of available options contracts or are likely to fall below the strike price. If the trader anticipates a rise in stock price above the strike price he will seek to profit by buying calls on the stock at given strike price. If he expects the stock price to fall he will seek to profit by buying puts. Buying calls gives the trader the right to buy stock and buying puts gives the trader the right to sell stock, in each case at the strike price specified in the contract. In neither case of buying options does the buyer have an obligation to buy or sell. It is the seller of puts or calls who gains premiums for taking on the risk of unanticipated, by him, changes in stock prices.

Options contracts vary length. As the contract runs its course the contract will have intrinsic value and time value. The intrinsic value of the stock is the difference between the current market price or spot price and the strike price of the contract. The time value is what the market consensus assigns a stock based upon expected price movement between the current date and the contract expiration date. As the time to contract expiration becomes less so does the time value of the contract. Finding profitable investments in the options markets takes the same sort of attention to fundamental analysis and technical analysis as does buying or selling stocks directly. To the degree that an options contract has less time to run the fundamentals become less important. Technical analysis tools such as Candlestick pattern formations , however, are always useful as they can spot short term changes in market sentiment. They always have the potential when coupled with Candlestick trading tactics to lead to short term profits in trading options on stocks or other equities.

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Market Direction

Today the NASDAQ gap down on the open, revealing that the pennant formation had now been breached to the downside. Although the Dow and the S&P 500 held up reasonably well during the day, the question became whether the Dow and the S&P 500 would start selling off to match the selling of the NASDAQ or with the NASDAQ start showing strength because the Dow and the S&P 500 were not selling off. The first scenario had to be watched more diligently due to the gap down in the NASDAQ. That indicated there was some strong selling forces occurring in the markets.

Mark your calendars – Tina Logan will be the guest speaker for Thursday night May 19 and John Bollinger will be guest speaker on June 9.

June 11 and 12th are scheduled for a two day candlestick training. This will be a follow-up to the 12 major signals training two weeks ago. Get more details on the website. Private training session is now being scheduled for Keuka Lake, New York in August. Serious traders should plan on spending three days on the beautiful waters of one of the beautiful New York State finger Lakes, Keuka Lake. These private training sessions allow investors to get the rural answers and training on flaws they may be concurring in their own investments. More details will be posted later this week on our events and training.
 
Good Investing,
 
The Candlestick Forum Team

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Current Website Special

Scanning Techniques Quick Download

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Stock investing becomes much easier with an established trading program. Candlestick analysis is a highly productive and easy trading method for learning successful stock investing. Candlestick signals not only provide a visual alert for when a reversal is likely to occur in a trend, but the signals themselves hold an immense amount of investment information. Understanding what makes those signals work effectively provides great insights into stock investing psychology. Candlestick charts visually depict the investment psychology.

Once an investor understands why a signal was formed, stock investing strategies become very easy to implement. Fortunately, through the past few years, the teaching of the Candlestick signals has become greatly simplified. As you should have discovered on the Candlestick Forum website, Steve Bigalow has reduced the learning process of Candlestick analysis down to 12 major signals. Understanding the effects of those 12 major signals allows the investor to concentrate on high profit situations.

Although there are many stock investing theories and trading programs, Candlestick signals should be the basic building block for enhancing all other trading programs. The reason is that the stock market data through Candlestick signals tell you exactly what investor sentiment is doing “right now”. Utilizing the information conveyed from the major signals, the analysis of potential high profit patterns becomes further enhanced. This past couple of weeks the Fry Pan Bottom pattern and the Scoop pattern have been discussed during the weekly chat sessions.
They have been illustrated because they have been producing some very profitable trades in the recent past.

BOOM, for example, has produced over a 100% return this past month. ANTP provided a good 40% return and may be in the process of producing some more. These patterns become easier to identify when visually recognizing what the Candlestick signals are indicating.

The Bullish Engulfing signal was also discussed because of its importance when witnessed in the Dow this week.

The Bullish Engulfing signal is one of the major signals that can produce consistent high profit situations.

The Bullish Engulfing pattern at a bottom of a trend provides significant information. Notice where the ARBA price opened when forming the Bullish Engulfing signal. It gapped down! In an extended downtrend, where do most investors panic sell? They sell at the bottom! The question becomes when everybody is panic selling, who is buying?

A Doji formed on Thursday, followed by a Bullish Engulfing signal on Friday with stochastics in the oversold condition and big volume. This is the prime set-up for a reversal. What would be the first potential target? The answer is $9, a 23% potential gain. From there, the next target is the $10 level and if it breaks through there, possibly the $12 level, filling the gap.

Will it get to any of those levels? Who knows? But the appearance of a Bullish Engulfing signal in an oversold condition and with high volume provides an extremely high probability that the uptrend should have started. Does that guarantee a 23%, 30%, 75% return? No, but it does provide a high probability of producing a profitable trade.

ARBA

BULLISH ENGULFING SIGNAL

In today’s article we will take a look at the forex market and have a forex review over information that has been provided in previous articles. Forex trading is very different from the stock market for various reasons. For instance, the forex market has no central exchange. Trading can take place around the clock and there is no regulatory commission such as the Securities Exchange Commission (SEC) that oversees the market.

As part of the forex review you will remember that it is the most liquid market in the world and you can trade forex 24 hours a day. The FX market is not commission based and it is a principals-only market. The brokerage firms for forex are actually dealers rather than brokers so the dealers assume market risk, unlike regular stock brokers and they make their money through the bid-ask spread, instead of through commissions.

The major currencies that are traded on the forex market are seven of the most liquid foreign currency pairs in the world. These seven currency pairs account for more than 95% of the trading that takes place in the currency market, along with their various combinations of pairing.

USD/JPY – dollar/Japanese yen
EUR/USD – Euro/dollar
GBP/USD – British pound/dollar
USD/CHF – dollar/Swiss franc
AUD/USD – Australian dollar/dollar
USD/CAD – dollar/Canadian dollar
NZD/USD – New Zealand dollar/dollar)

As part of the forex review you also learn that the forex market is the most accessible market in the world. It rarely has any gaps in price and it large size equals about $2 trillion dollars each day in U.S. dollars. As mentioned above, forex brokers make their money though the bid-ask spread. The bid-ask spread is the amount in which the ask price exceeds the bid price when trading forex. In other words, it is basically the difference in price between the highest price that a buyer is willing to pay for an asset and the lowest price in which a seller is willing to sell it.

Keep in mind, as you learn about forex currency trading, that it is a purely speculative market. There is no actual physical exchange of foreign currencies that ever takes place. The trades are only computer entries that are handled according to the current market price.

Continue to learn about foreign exchange trading and see if it is a good fit for you. Many find they make a good return on investment in this market.

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Market Direction

Why is it important to see what candlestick signals occur at the end of the each time frame? Today’s trading produced a perfect example. The Dow had been trading down around 100 points most of the day. Had the markets closed near the low end of their trading range, the Dow would have formed an Evening Star signal. This would now have led to the possibility of a slow uptrend finally being over. The NASDAQ would have shown weakness that would have confirmed the start of a potential downtrend had it closed near the low end of the trading range. This would have put the NASDAQ and the Dow right on their tee lines. A weak open tomorrow would have confirmed the bears were in control. This was the likely prognosis for most of the day.

DOW

The Bulls stepped back in during the final hour. Both indexes closed relatively flat. But the important information revealed was the lack of bearish control. The Doji that formed in the Dow provides a very simple trading platform. If the premarket futures reveal strength in the morning, the uptrend will have a high probability of moving steadily higher. A lower open will still have the support potential of the moving averages. Unless severe selling is witnessed tomorrow, the uptrend is still considered to be in progress. Why is this trend analysis important? Knowing that the uptrend is continuing allows investors to take advantage of high profit price move potentials created by the candlestick patterns.

LDK had a strong day as it was nearing the end of a rough Fry pan bottom formation. Prices coming out of identifiable patterns allows for a number of strategies to be put in place. Because signals and patterns have expected results, a stock position can be greatly enhanced by simple option strategies in conjunction with a stock purchase. A major advantage of candlestick analysis is having a grasp of when a price move should occur and how powerful that move will be. The illustration of the LDK confirmation of a Fry Pan bottom pattern can be used in anticipation of a strong price move. With that analysis in place, due to the consistency of results demonstrated by a Fry pan bottom breakout, an investor can exploit that move with various stock/options strategies.

LDK

ABMD

Most investors have a problem with just identifying the direction of a price move. That problem is greatly resolved when using candlestick analysis. Trading off of high probability reversal signals or price patterns greatly reduces one of the variables in any trade. Candlestick signals and patterns put the probabilities of being in the right place at the right time greatly in your favor.

The Candlestick Forum Option Training program – June 13 and 14th. Learn how to apply the correct option strategy to the correct price movement. You’ll be amazed at how simple option strategies can be put in place when you know the potential of the next price move. You will gain valuable insights from simple strategies that are not taught in most trading forums. For only $797, you will learn how to simplify your option analysis. The Candlestick Forum also provide you with the option to pay for this training in three equal $277.00 monthly payments. For more details please e-mail admin@candlestickforum.com. Click here to sign up for the Candlestick Forum Option Trading program.
 
Good investing,

The Candlestick Forum Team

Quick Look at Stock Trading Terminology for Beginner Investors

Understanding stock trading terminology is crucial before beginning a stock investing career. This article provides a good place for you to start!

Stock Trading Terminology: A Few Simple Terms

Capital Gain

The amount in which as asset’s selling price exceeds its initial purchase price. This is the profit that results from the sale of an investment and generally receives more favorable tax treatment than ordinary gains. An investment that hasn’t been sold yet but would result in profit if sold is an unrealized gain.

Equity

Ownership interest in a corporation in the form of common stock or preferred stock. It is also referred to as shareholders equity, net worth, or book value.

Ticker Symbol

A system of letters used to identify stocks or mutual funds. They are up to three letters and are used for stocks that are listed and traded on a stock exchange. Symbols with four letters are used for NASAQ stocks and symbols with five letters ending in x are used for mutual funds.

Volatility

The state at which the price of a security moves up or down and is found by calculating the annualized standard deviations of daily change in price. High volatility is when a stock moves up and down rapidly over short periods of time. If the stock price almost never changes then it has low volatility.

Understanding basic stock trading terminology is the first step towards a trading career.

Stock Trading Terminology: Methods

Technical Analysis

Technical analysis is the method of evaluating securities by analyzing market data through the use of stock charts of price, volume, and open interest, in order to predict future market trends. This method assumes that market psychology influences trading in a fashion that enables prediction of when a stock will rise or fall. The intrinsic value of the security is not considered, but instead the overall state of the market is examined.

Fundamental Analysis

Fundamental analysis is the method used to evaluate the value of a security in which the investor carefully examines the company’s financials, operation, earnings, growth potential, assets, debt, management, products and competition. This type of analysis takes into account the variables that directly relate to the company itself.
Once you have an understanding of the stock trading methods that you can use, continue to learn other stock trading terminology in relation to these methods.

Stock Market Terminology: Strategies

Buy and Hold

This investment strategy takes place when stocks are bought and held for long periods of time, regardless of the market’s fluctuations. It is based on the assumption that stock prices will increase over the next 10-20 years and the market as a whole will rise despite short-term fluctuations because of rising inflation or business cycles.

Growth Strategy

This investing strategy is based on investing in companies that are growing faster than others in the same industry. The goal is to generate capital gains rather than dividends.

Short Selling

This is the borrowing of a security or commodity futures contract from a broker and selling it with the understanding that is must later be bought back and returned to the broker. This strategy aims to profit from falling prices of stock and the investor’s stock broker will borrow the shares with the promise that the investor will return them later. The profit is the difference at which the stock was sold and the cost to buy it back, minus any expenses and commissions.

Now that you have the basic stock trading terminology down, and you know which methods you will practice, you are on your way to becoming a stock trader. Continue to research online terminology associated with trading stocks and take the necessary tutorials and training courses so that you can get started in your stock trading career. Good luck!

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Market Direction

What it is the market telling us? Japanese Rice traders had the ability to analyze which direction the market was moving based upon what the signals were revealing. They could do this when analyzing a single trading entity such as Rice. Whether a single trading entity or a market index, the same information is going to be conveyed with candlestick formations. Having the knowledge of the general direction of a trading entity/market provides a huge advantage for extracting profits of the markets. This may seem like an oversimplified statement, but most investment techniques do not have the capabilities to analyze trends as they are in progress. Many investment techniques are used for projecting where a reversal of a current trend may occur.Candlestick signals produce information that makes the evaluation of an in-progress trend much easier to analyze. Being able to assess whether a market trend is in an up trend, downtrend, or sideways mode becomes very important for implementing trading strategies. Obviously, the trading strategy for up trending market will be different than a down trending market. A trading strategy will be completely different when the market is choppy or just moving sideways. Although this may seem like an oversimplified statement, as a candlestick investor, the application of trading strategies becomes much greater refined when knowing what the overall market trend is doing.

Evaluating what the overall market is doing is merely analyzing what it has been doing. As seen in the Dow chart, there has not been any great decisive move for any great length of time one way or the other. What is the overall market trend? If you will notice, the Dow closed the month of July almost at the same level it started July. The sideways movement for the month does not yet indicate whether this is a bounce in a downtrend a market or the bottoming action for the next uptrend. The market conditions over the next few days will have to provide more evidence one way or the other.

DOW

The point of investing is to put funds into situations that provide a higher degree of probability for making profits. The candlestick signals are instrumental for projecting where a trend is moving. They are also as instrumental for analyzing that there is no trend. Obviously, the ability to make profits in a sideways moving market becomes much more difficult. For many investors, it is difficult for them to make money even when the markets are trending up or down. “Sell in May and go away” it is a normal stock market adage. Does that always hold true? Not always, and that is where the utilization of candlestick signals becomes more beneficial. There will be summer rallies. Candlestick analysis will identify those rallies, even though they do not occur very often. Even though most summers are not worth trading, candlestick analysis will identify the ones that are and also identify what would be considered a normal summer blahs. Why is this important? Just like any other activity or job, it is good to get away from it for a while so that the mind, body, and spirit can rejuvenate.

There are positions that are still making money in this market. Identifying them is a function of knowing the candlestick signals and candlestick patterns. As seen in the AMSC recommendation, the Jay hook pattern has produced a good percentage profit despite what the market action was doing. Candlestick signals and patterns have the statistical proven capability of producing good profits during any market conditions.

AMSC

The question now becomes whether it is worth staying by the computer screen and trying to eke out some profits or go enjoy summer activities. If the market does not providing good opportunities, save your mental energy for when the market is producing good potential price moves. This may sound like investment sacrilege, to advise people to take a break from investing, but making money in the markets require each individual’s mental capabilities to be as sharp as possible. Without some rest periods, the mind can become dull and sluggish.
Successful investing is the combination of utilizing a successful trading program and applying the correct mental thought processes to that program. Both are required.

Chat session tonight at 8 p.m. ET, open to everybody. Bring the kids. Invite the neighbors. Click here for instructions. If you already have HotComm installed, click here to connect.

Good investing,

The Candlestick Forum Team

Thanks to computers and the Internet, the trading world will never be the same. Software that has allowed for online stock market trading is now available in the commodity world and trading with Forex software has become an excellent way to trade futures. This software was designed to meet the user’s needs in several key areas. To be truly valuable, the Forex software needs to have:

• Instant Rate Availability – The Forex software for currency trading must be able to provide instant access to valuable rate information. Due to its high level of volatility, Forex news changes fast. If it takes minutes to get a quote, everything could have already changed by the time it is received. This isn’t the case; once this rate information is received, it is possible to trade at that price. Only real-time quotes allow that kind of instantaneous exchange.
• A High Level of Security – Like any other financial transaction that you perform over the Internet, security of your data is the main concern; this fact can be even more critical with your Forex software since the amount of money involved in your transactions can be very high. Successful Forex traders not only want to implement their trades, but they want to do it with the highest security. The majority of Forex software systems use at least one layer of 64-bit SSL encryption in addition to extensive procedures for data backup and recovery methods.
• Anytime Access – Commodity trading has become a 24-hour a day, 365 days a year activity. Forex trading software is available around the clock, providing updated quotes and allowing traders to initiate trades at any time during the week.

Forex Software Platforms

This is the classic discussion with any kind of software solution and Forex software isn’t any different. Forex currency trading for beginners on this type of software is the same no matter which method is used. The decision to provide service as a client-side, or downloaded, software versus web-based software is individual to each company but each will face the same main points.

• • You have more control over your data. Commodities trading with this method not only places the software on your computer, but all of your records as well. In other words, your history of futures trades will be kept on your computer and not in the manufacturer’s database.
  • Access to the markets does not depend on using a portal with the software provider. You can still access the futures markets even if the Forex software manufacturer’s website is down.Client-based Forex – This software solution means that the actual online futures trading software is located on your computer and access to the markets requires only an Internet connection, not an account on the Forex software creator’s website. The advantages of this approach are:

• Web-based Forex – This approach means that all of the operations are performed on the creator’s website and that website needs to be accessed for all operations.  The beginner investing with a system will find advantages such as:
  
  • Everything you need is located on the servers of the software creator.  You don’t have to do backups or worry if you downloaded the latest version of software.
  • If you have access to the Internet you can use the software, no matter where you are.  With this software application, you do not have to be at your own computer for trading Forex.

Today’s standard

Most software companies use web-based systems for their Forex software; freedom to access their account for trading commodities from anywhere in the world, controlled backups of data and transactions and world-class security for personal information make this the solution that is most commonly used.

Conclusion

Forex software has opened the markets to everyone. Offering research materials, current news and secure trading and investing Forex software is an excellent improvement in currency trading.