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Candlestick Stock Analysis – Candlestick Stock Analysis
Anticipating the Stock Market – Anticipating the Stock Market
Bargain Stocks – Bargain Stocks

Trading Chinese Stocks – Trading Chinese Stocks
Low Stock Market Volume – Low Stock Market Volume
Oil Stocks – Oil Stocks
Trading Stocks in a Bear Market – Trading Stocks in a Bear Market
Earnings Reports – Earnings Reports
Stocks Trading at a Discount – Stocks Trading at a Discount
Selling Gold – Selling Gold
Buying US Treasuries – Buying US Treasuries
Retirement Stocks – Retirement Stocks
Consumer Stocks – Consumer Stocks
Buy Cheap Stocks – Buy Cheap Stocks
Find The Market Bottom with Candlesticks – Find The Market Bottom with Candlesticks
Trading During A Recession – Trading During A Recession
Basic Stock Trading – Basic Stock Trading
Foreign Investment – Foreign Investment
Stock Trading in a Volatile Market – Stock Trading in a Volatile Market
Picking Depressed Stocks – Picking Depressed Stocks
Trading Gold – Trading Gold

Investing with Candlesticks – Investing with Candlesticks
Successful Trading System – Successful Trading System
Trading Hot Stocks – Trading Hot Stocks
Candlestick Stock Trading – Candlestick Stock Trading
Conservative Stock Investing – Conservative Stock Investing
Profit from Stock Market Gains – Profit from Stock Market Gains
Follow Investment Capital – Follow Investment Capital
Stock Diversification – Stock Diversification
Best Stock Advice – Best Stock Advice
Making Money with Stocks – Making Money with Stocks
How to Sell Stock – How to Sell Stock
Start Stock Investing – Start Stock Investing
When to Sell Stock – When to Sell Stock
When to Buy Stocks – When to Buy Stocks
Stock Price Analysis – Stock Price Analysis
Candlestick Day Trading – Candlestick Day Trading
Strategic Stock Trading – Strategic Stock Trading
Picking Offshore Investments – Picking Offshore Investments
American Depository Receipts – American Depository Receipts
Stock Investment Profits – Stock Investment Profits
Investing in the Stock Market for Dummies – Investing in the Stock Market for Dummies
Risk Premium – Risk Premium
The Strike Price – The Strike Price
Stocks for Dummies – Stocks for Dummies
A Trailing Stop – A Trailing Stop
Stock Market Holidays -Stock Market Holidays
Use the Quick Ratio – Use the Quick Ratio
Finding Profitable Investments – Finding Profitable Investments
Balancing a Stock Portfolio – Balancing a Stock Portfolio
Low Risk Investments – Low Risk Investments
Stock Profits – Stock Profits
Stock Market Indecision – Stock Market Indecision
Picking Hot Stocks – Picking Hot Stocks
Identify Overpriced Stocks – Identify Overpriced Stocks
Best Trading Opportunity – Best Trading Opportunity
Trading Leverage – Trading Leverage
European Style Option – European Style Option
Investing in Japanese Recovery – Investing in Japanese Recovery
Investing For Long Term Profits – Investing For Long Term Profits
Trading Oil Stocks – Trading Oil Stocks
Trading Tactics – Trading Tactics
Sell Stock on the News – Sell Stock on the News
Market Correction – Market Correction
Best Trading Practices – Best Trading Practices
Trading Stock Volatility – Trading Stock Volatility
Trading with Japanese Candlesticks – Trading with Japanese Candlesticks
Identify Stock Buying Opportunities – Identify Stock Buying Opportunities
Get Ahead of the Market – Get Ahead of the Market
Analyzing Stocks – Analyzing Stocks
Buy Calls – Buy Calls
Buy Puts – Buy Puts
Consolidation Pattern – Consolidation Pattern
Trading Breakouts – Trading Breakouts
Stock Value Analysis – Stock Value Analysis
Stock Market History – Stock Market History
Business Cycle Investing – Business Cycle Investing
Useful Stock Investment Information – Useful Stock Investment Infomation
Trading Basics – Trading Basics
Stock Futures – Stock Futures
Stock Trading Signals – Stock Trading Signals
Interest Rate Investing – Interest Rate Investing
Consolidate Stock Gains – Consolidate Stock Gains
Long Term Stock Profits – Long Term Stock Profits
Stock Fundamentals – Stock Fundamentals
Increase Investment Profits – Increase Investment Profits
Buying Futures – Buying Futures
Fundamental versus Technical Analysis – Fundamental versus Technical Analysis
Use Puts to Protect Profits – Use Puts to Protect Profits
Successful Long Term Investment – Successful Long Term Investment
Stock Price Pattern Analysis – Stock Price Pattern Analysis
Predicting Stock Price – Predicting Stock Price
Successful Ratio Investing – Successful Ratio Investing
Technical Stock Investing – Technical Stock Investing
Investing in Earnings Potential – Investing in Earnings Potential
Stock Index Trading – Stock Index Trading
Earning Stock Trading Profits with Candlestick Signals – Earning Stock Trading Profits with Candlestick Signals
Be Your Own Stock Analyst – Be Your Own Stock Analyst
Stock Investment Success – Stock Investment Success
Gain Stock Investment Perspectives – Gain Stock Investment Perspectives
Online Stock Options Seminar – Online Stock Options Seminar
Interactive Stock Training Class – Interactive Stock Training Class
Learn Candlestick Analysis – Learn Candlestick Analysis
Be a Profitable Trader – Be a Profitable Trader
Basic Stock Market Training – Basic Stock Market Training
Online Training Webinars – Online Training Webinars
Selling Commodities – Selling Commodities
Buying Commodities – Buying Commodities
Fundamental of Trading Commodities – Fundamental of Trading Commodities
Commodity Pattern Analysis – Commodity Pattern Analysis
Purchase Commodities – Purchase Commodities
Futures Price – Futures Price
Analysis of Commodities – Analysis of Commodities
Commodity News Reports – Commodity News Reports
Basics of Commodity Trading – Basics of Commodity Trading
Commodities Research – Commodities Research
Commodity Supply And Demand – Commodity Supply And Demand
NYMEX Commodity Futures Price – NYMEX Commodity Futures Price
Successful Commodities Trading – Successful Commodities Trading
Learning about Commodity Futures – Learning about Commodity Futures
Commodity Price Breakout – Commodity Price Breakout
Trade Commodities – Trade Commodities
Commodity Price Reversals – Commodity Price Reversals
Commodity Price Trend -Commodity Price Trend
Commodity Volatility – Commodity Volatility
Coal Futures – Coal Futures
Sell Commodity Futures – Sell Commodity Futures
Commodity Market Liquidity – Commodity Market Liquidity
Commodity Value – Commodity Value
Long Term Commodity Investing – Long Term Commodity Investing
Tracking Commodity Profits – Tracking Commodity Profits
Bad Commodity Trading – Bad Commodity Trading
Best Commodities to Trade – Best Commodities to Trade
Investment and Trading Potential – Investment and Trading Potential
Commodity Options – Commodity Options
Commodity Futures Profits – Commodity Futures Profits
Commodity Price Patterns – Commodity Price Patterns
Scalping Commodity Profits – Scalping Commodity Profits
Commodity Futures Price – Commodity Futures Price
Commodity Trends – Commodity Trends
Winning with Commodities – Winning with Commodities
Commodity Market history – Commodity Market History
Commodity Trading Patterns – Commodity Trading Patterns
Learn Commodity Trading – Learn Commodity Trading
Agricultural Commodity –  Agricultural Commodity
Commodity Trading Signals – Commodity Trading Signals
Basic Commodity Information – Basic Commodity Information
Commodity Futures Options – Commodity Futures Options
Commodity Futures Trading – Commodity Futures Trading
Technical Commodity Analysis – Technical Commodity Analysis
Live Cattle Commodity Trading – Live Cattle Commodity Trading
Fundamental Commodity Analysis – Fundamental Commodity Analysis
Commodity Futures Equivalent – Commodity Futures Equivalent
Technical Commodity Trading – Technical Commodity Trading
Commodity Trading System – Commodity Trading System
Traded Commodities – Traded Commodities
Hedging Commodities – Hedging Commodities
Trading Commodity Futures – Trading Commodity Futures
Market Commodities – Market Commodities
Beginning Commodity Futures Trading – Beginning Commodity Futures Trading
Diversifying a Stock Portfolio – Diversifying a Stock Portfolio
Trading Momentum Stocks – Trading Momentum Stocks
Stock Market Volatility – Stock Market Volatility
Equity Market – Equity Market
Criteria for Buying Stocks – Criteria for Buying Stocks
Mid Cap Stocks – Mid Cap Stocks
Investment Capital – Balancing Risk Vs. Opportunity
Support and Resistance Zones – Support and Resistance Zones
Stock Market Report – Rolling With The Changes
Stock Quote – It’s Necessity in Today’s Electronically Driven Markets
Online Stock Market Investing – Online Stock Market Investing
Stock Investing Ideas – Stock Investing Ideas
Penny Stock Investing – Penny Stock Investing
Small Cap Stock Investing – Small Cap Stock Investing
Basics of Stock Investing – Basics of Stock Investing
Stock Worth Investing In – Stock Worth Investing In
Moving Average Trading – Moving Average Trading in Technical Analysis
Stock Market Trading Tips – Stock Market Trading Tips
Holiday Gifts – Holiday Gifts; Give the Unique Gift of Education for Individuals New to Investing in the Markets
Stock Market Trading Day – Stock Market Trading Day
Penny Stocks Trading – Penny Stocks Trading
How to Trade Forex – How to Trade Forex
Foreign Exchange Trade – Foreign Exchange Trade
Day Trading Options – Day Trading Options
Forex Mini Account – Forex Mini Account
Day Trading Futures – Day Trading Futures
Trading Fibonacci – Trading Fibonacci
Stock Trading Advice – Stock Trading Advice
Trading to Win – Trading to Win
Trading Success – Trading Success
Buying Margin – Buying “on” Margin
Currency Options – Currency Options
Options Trading Strategies – Options Trading Strategies
Trading Currency Online – Trading Currency Online
Forex Strategy – Forex Strategy
Buying on Margin – Buying on Margin
Currency Rates – Currency Rates
Stocks Shares – Stocks Shares
Trading Journal – Trading Journal
Bearish – Bearish
Buying Currency – Buying Currency
Sell Stock – Sell Stock and Buy Stock with Technical Analysis
Purchase Stock – Purchase Stock Options
Understanding the Stock Market – Understanding the Stock Market
Online Stock Trade – Steps for Placing an Online Stock Trade
Dow Theory – Dow Theory
Technical Analysis of Stock – Technical Analysis of Stock
Commodity Trading Online – Commodity Trading Online
Sell Currency – Sell Currency
Blog Articles – August 2009
Buy and Sell Stocks
Sell Short
Dividend Yield
Buy Online Shares
Future Contracts
Futures Trade
Futures Commodities
Investment Adviser – Investment Adviser
Buy Mutual Funds – Buy Mutual Funds
Buy Options – Buy Options
Technical Analysis Software – Technical Analysis Software
Currency Futures – Currency Futures
Calls and Puts – Calls and Puts
Forex Trading Software – Forex Trading  Software
Trade Stocks Online – You Want to Learn to Trade Stocks Online?
Trading Options Online – Trading Options Online
Blog Articles – July 2009
FX Trader
Commodity Trader
Forex Technical Analysis
Trading Course
Trade Account
Buying Stocks
Trading Volume
Stock Buying
Sell Stock
Buy Forex
Currency Trade – Currency Trade
Day Trading Tips – Day Trading Tips
Stock Analysis for Trading Gaps – Stock Analysis for Trading Gaps at the Bottom and Top of a Trend
Margin Call – What is a Margin Call
Foreign Exchange Market – Foreign Exchange Market
Forex Review – Forex Review
Trading Account – Trading Account
Blog Articles – June 2009
Sell Shares
Trading Day
Currency Trading Online
Brokerage Account
Margin Account
Margin Buying
Trading Forex Online
Option Trading  
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One of the best techniques when learning how to invest in stocks is selling covered calls. Selling a covered call means that there are investors willing to pay for the right to take a stock if it reaches a much higher price. Selling a call requires that you have at least 100 shares of a stock. It is an excellent stock market strategy to implement while waiting for a stock to reach your identified sell point. This technique can be used over and over, and it can be a great way to create income.

For example, say that you purchased 500 shares of ABC Corp in 2000 for $25.50 per share. Since the current price is $26.00, you have basically broken even in six years. While you didn’t know what would happen during that time, you still could have been making money on your investment by selling covered call options against your shares. This would have allowed you to make money investing in stock even though your investment was sitting around doing basically nothing. You have 500 shares, so you can sell five options, since options must be sold in groups of 100. In this example, you are going to sell out-of-the-money (OTM) covered call options. This means that the stock has a strike price (the target price for the buyer) which is higher that the current price. The covered call that you are selling has a strike price of $30.00 per share and a premium of $ 0.25. Since you have 500 shares, the five covered call options that you sell will bring in a total of $125.00. This technique works well especially if you want to keep this investment in your stock portfolio. Only a substantial move higher forces you to sell; since successful trading is making money, this is a good thing!

By selling covered calls, you are able to accumulate income passively over time by collecting the premiums on your options. If your option doesn’t reach and maintain the strike price during the time period, the premium and the stock are yours. If you get assigned on your options and are forced to sell your covered calls, it is even better. When the $30.00 strike price is met, not only did you receive $125 from the premiums, but you also have a gain on the stock from your original purchase price of $25.50. That turns into a $2,250 profit. Ultimately, the mark of a successful trader is making money, and that’s what you did selling covered calls.

Selling covered calls is an excellent stock option trading strategy, but it is no substitute for technical analysis and learning how to read stock charts. If you purchase a stock on a strong upward trend and someone forces you to sell your covered calls, you no longer have the stock and you are missing out on its upward climb. If you want to continue holding stock in this company, you must buy again and you will be forced to pay a higher price for it.

Selling covered calls is a great way to make money on your favorite holdings while you wait for them to trend upward. This is a great technique which will help you while you are playing the stock market.

Return to main Options Trading Category

Learning the correct option techniques greatly enhances an investor’s ability to exploit profits while the same time minimizing risk exposure.  The minimum time and effort that it takes to become educated on the proper options trading strategies allows an investor to extract large profits from the markets. Combining the knowledge of candlestick analysis with the insightful knowledge conveyed in our Free Resources Directory on Trading Options puts investors in the position of controlling their own high profit strategies for the rest of their lives.

Full explanation for Bullish Options Trading Strategies, Bearish Options Trading Strategies and more.  Click Here to access additional Options Trading Explained.

Quick Reference Links 

Options Trading Strategies

Buying Calls     Selling Puts     Bull Call Spread     Bull Put Spread

Buying Puts     Selling Calls    Bear Call Spread     Bear Put Spread     Put Hedge

Buy Strangle     Buy Straddle    Sell Strangle     Calendar Spread

Click Here for a Glossary of Option Trading Terms

CLICK HERE FOR RECOMMENDED OPTION TRAINING TUTORIALS

CLICK HERE FOR OPTION EXPIRATION CALENDAR

Deciding on a futures trading advisor is actually more of a decision about commitment. Some people want no sense of responsibility beyond depositing money in their commodities account while others want to grab the bull by the horns and make all of the decisions themselves. Each successful trader has one unique trait: the ability to know oneself and seek the futures trading advisor that will best help that investor.

There are four basic ways to manage a commodity account. Each method has its advantages and best fits certain personality types. These four methods of account management are: trading your own account, enlisting an account manager, using a commodity trading advisor and joining a commodity pool. No matter which method you choose, there is a futures trading advisor that can help you with your commodities trading. Here is a brief introduction to each method.

Trading Your Own Account

This is the most daring method of the bunch. With this method, you start a commodity account and with or without the help of a futures trading advisor, taking responsibility for your own trading decisions. You will do your own research, ensure adequate funds are available in your account, and initiate your own positions. Many brokerage houses have divisions related solely to futures investing and some even cater to those who manage their own accounts, focusing their efforts on providing the most comprehensive, up-to-date information available. This is the most economical method of the bunch since the only expense you have is maintaining the account and paying premiums on your trades. This type of account is only intended for those with significant experience in commodity trading.

Having Someone Manage Your Account

This is the “play it safe” method. When a futures trading advisor manages your account, he or she will have power of attorney power to make and implement decisions for you. You will still be contacted to all investment options that your account manager suggests and you are financially responsible for your account, but you are counting on someone that is a professional to do the dirty work for you. This is a good method for someone who doesn’t have the experience, training or time to successfully handle an account; you are able to rely on the experience of your account manager.

Utilizing a Commodity Trading Advisor

This method is somewhere between the previous two. A commodity trading advisor is someone who is paid to offer advice on commodity trading, including specific trading recommendations such as when to establish a particular long or short position and when to liquidate that position. A commodity trading advisor will help you with your investment philosophy but is not assigned specifically to your account. This method offers the ability to manage your own account yet have the advice of an expert at your fingertips.

Participating In a Commodity Pool

The final method of account management is called a commodity pool. This method is similar to a stock mutual fund. It is the only method that does not require you to have your own individual trading account; the money you invest will be combined with that of others in the pool and traded as a single account. The risks are the same as an individual account but the increased funds can enable you to make a wider variety of investments.

Stock Market Movers – don’t get me on a rant! I tried to find relevant advice for finding these gems of the market. Instead, I found a plethora of websites proudly displaying nothing, zip, nada to assist an investor on furthering their education. Please, just a little tidbit that evenly remotely relates to stock market movers would be nice! But NO, the ever increasing familiar lists of everything from Art to Sports and how did anyone work in Stock market movers into a Home and Garden website. Somebody help me! I’ve experienced the same frustration of the rest of the internet community and this website continues to provide FREE, on-going, training materials to help anyone find stock market movers with high profit potential.

Stock Market Movers are easier to spot with candlestick patterns. Stock research for finding stock market movers can become very complex. However, the trained candlestick investor sees the familiar candlestick patterns and immediately knows whether a specific stock pattern merits any further of his time and attention. Some so-called stock market movers turn out to be stock market stinkers!  You can surf the net looking for stock market movers or you can spend your time learning candlestick signals. My vote is obvious, check our website each week, we promise to continue to deliver new training material. Learn the Candlestick Signals. Below is a favorite pattern, which demonstrates some very anxious sellers.

Trading the Three Identical Crows Pattern

Three Identical Crows

Description

The Three Identical Crows have the same criteria as the Three Black Crows. The difference is that the opens are at the previous day’s close.

Criteria

1. Three long black bodies occur, all of close to equal lengths.
2. The prior trend should have been up.
3. Each day opens at the close of the previous day.
4. Each day closes near its low.

Pattern Psychology

After an uptrend a long black candle forms. However, the selling is more sever. There do not appear to be any buyers at the next day’s open. The long black candles, having a stair-stepping pattern to them, indicates a much greater motivation to get out of the position.

Training Tutorial

Candlestickforum Flash Cards  These unique Flash Cards will allow you to be “trading like the Pro’s” in no time.

Return to Candlestick Explanation for Secondary Signals

Commodity trading principles are the basic elements incorporated in the candlestick signals.  Commodity trading principles are easier to analyze than stock trades.  This is derived from one simple factor.  Commodity trading principles are based upon supply and demand.  Whereas stock analysis involves a multitude of external factors that can affect a price, commodity trading principles relied mostly upon the perception of supply and demand.  This creates a much smoother trend analysis than stock prices.

Candlestick signals were developed on the most basic commodity trading principles.  400 years of investor observations occurred while trading Rice, one of the most basic commodities. Over the past four centuries, the 50 or 60 candlestick signals became recognized.  Of these, 12 signals were found to occur a majority of the time.  Their appearance also indicated extremely high probability reversal situations.  These 12 signals are now considered the major candlestick signals.  Learning these signals allows an investor to gain valuable insights into investor sentiment.

Understanding the investor psychology that formed the major signals is the basis for fully understanding commodity trading principles.  The facets of supply and demand do not immediately change commodity prices.

The perception of what supply and demand forces may be doing is what changes commodity prices.  Candlestick signals are the graphic depiction of those reversals in investor sentiment.  Understanding the factors that go into a candlestick signal formation makes understanding commodity trading much easier to comprehend. You can follow Stephen Bigalow’s live futures and commodity trading account.

The Bearish Harami is one of the major signals that exhibits common sense  into graphic depiction.  Candlestick analysis provides a clear understanding of what happens to investor sentiment at the reversal areas.  The elements that create a Bearish Harami produce clear insights into what was going on in investor minds at a reversal.

BEARISH HARAMI

Description

The Bearish Harami is the exact opposite of the Bullish Harami. The pattern is composed of a two-candle formation. The body of the first candle is the same color as the current trend. The first body of the pattern is a long body; the second body is smaller. The open and the close occur inside the open and the close of the previous day. Its presence indicates that the trend is over.

Criteria

1. The body of the first candle is white; the body of the second candle is black.
2. The uptrend has been apparent. A long white candle occurs at the end of the trend.
3. The second day opens lower than the close of the previous day and closes higher than the open of the prior day.
4. For a reversal signal, confirmation is needed. The next day should show weakness.

Signal Enhancements

1. The longer the white candle and the black candle, the more forceful the reversal.
2. The lower the black candle closes down on the white candle, the more convincing that a reversal has occurred, despite the size of the black candle.

Pattern Psychology

After a strong uptrend has been in effect and after a long white candle day, the bears open the price lower than the previous close. The longs get concerned and start profit taking. The price finishes lower for the day. The bulls are now concerned as the price closes lower. It is becoming evident that the trend has been violated. A weak day after that would convince everybody that the trend was reversing. Volume increases due to the profit taking and the addition of short sales.

Having insight into the effect of Haramis provides an opportunity to maximize returns. If all of your investment funds are being fully used, a Harami may reveal that one of the positions has stalled for a few days. An aggressive trader may want to move those funds to a better trade, and then come back after a few days to reinvest once the position is moving.

In addition to his popular books on “Profitable Candlestick Trading”  and “High Profit Candlestick Patterns”, Stephen Bigalow has many articles featured in “Future’s Magazine”, “Stocks & Commodities”, “Trader’s World”, London’s “Morning Star”, and other investment publications.

Refer to this page often to enhance your education on the art and science of using Japanese Candlesticks to trade effectively.

The ability to analyze factors affecting stock market movement provides an additional advantage for being able to evaluate the direction of the markets. Those factors are not hard to find. They are usually what are being reported on the financial news stations. Recently, Crude Oil has been an influence. Also, the decline of the US dollar has become a factor.

The Candlestick signals provide the insights on how the outside influences will affect the Dow and the NASDAQ. The US dollar has formed a few Doji’s when the stochastics were in the oversold condition. There may be an opportunity for a rally in the dollar over the next few days. There appears to be some strength being shown after the Doji’s. If this is one of the factors that is affecting the stock market, having a better visual concept of what one of the influences is doing makes for a better evaluation.

Crude Oil prices, after their decline from the $57 range down to the $46 range, provided strength to the stock market indexes. As anticipated, with the stochastics in the oversold condition, Crude Oil prices bounced back up to the 50-day moving average after it had broken down through that level. Currently, the January futures contract of Crude Oil has been hugging the 50-day moving average. It formed a Doji on Monday, right at the 50-day moving average. This now becomes an easy evaluation. A bullish day after the Doji would send prices up through the 50-day moving average, indicating that the 50-day moving average is not acting as resistance. On the other hand, seeing the Crude Oil prices heading lower after the Doji would reveal that the 50-day moving average was now acting as resistance and it would be feasible to see new recent contract lows in the near future.

Crude Oil

Taking these outside factors into account, it becomes easier to analyze which way the market might go based upon the factors affecting stock market movement. Use the candlestick signals to your advantage no matter which market you are analyzing.

Rising Three Method

Description

The Rising Three Method is an easy pattern to see during uptrends. A long white candle forms. It is then followed by a series of small candles, each consecutively getting lower. The optimal number of pull-back days should be three. Two or four or five pull-back days can also be observed. The important factor is that they do not close below the open of the big white candle. It is also preferred that the shadows do not go below the white candle. The final day of the formation should open up int he body of the last pull-back day and close higher than the first big white candle.

Criteria

1. An uptrend is in progress. A long white candle forms.
2. A group of small-bodies candles follow, preferably black bodies.
3. The close of any of the pull-back days does not close lower than the open of the big white candle.
4. The final day opens up into the body of the last pull-back day and proceeeds to close above the close of the first big white candle day.

Pattern Psychology

The Rising Three Method is considered a rest in the trend or, in Japanese terms, a rest from battle. The concept is that the first black candle day brings some doubt into the bull camp. The next day does the same. By the thrid day, the bulls ar now convinced that the bears do not have the strength to push prices down anymore. The bulls get their courage back and start stepping in. The pattern resembles the Western bull flag or pennant formation, however, the concept was originally developed in the 1700s. In modern terms, the market was just ‘taking a breather”.

Back to Continuation Patterns

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Steve’s Trading Diary

The information in this section contains the unedited thoughts and musings of a professional Candlestick trading expert, Steve Bigalow,  as he goes about his daily Candlestick analysis in search of great trades.

The follow-ups on the daily stock picks displayed here are limited to only the closed or unexecuted trades for previous months. To see the current follow-ups on the open trades, you must be a member of the Candlestick Trading Forum’s paid subscription service.

A savvy, experienced investor has a money making plan for any condition in the stock market. Whether the market is stable or volatile, whether it is bullish or bearish, there is a method for finding a profit. Such is the case with a Sell Strangle. This technique requires the investor to sell a Call Option that is out-of-the-money as well as a Put Option that is also out-of-the-money; both the Call Option and the Put Option need to be on the same stock with the same expiration date. This strategy is very similar to a Sell Straddle but with a Sell Strangle, the strike prices are not the same.

A Sell Strangle is made when the market has experienced a substantial upward move and your expectation is for consolidation. In this case, the possible results are a known, limited gain or unlimited risk. A Sell Strangle isn’t a move for the beginner investing in the stock market since the risk to reward ratio is not positive and extreme care with this maneuver is required.

The gain in a Sell Strangle is only the premium that is received for selling the call option and the put option. Remember, as with any stock transaction, your profit is reduced by any commissions. Done as a response to a dramatic upward move that has occurred, the investor is expecting the market to experience a consolidation and absorb its gains before moving again. Since the market is filled with extreme stock volatility, the cost of the Call and Put Options will tend to be very high. When the market does consolidate, volatility will decrease and lower the price of the options, allowing the investor to buy back the options at a lower price to close the position. With a Sell Strangle, the concept of time decay also works to the advantage of the investor. While this is a somewhat complex transaction, a Sell Strangle is an excellent stock option trading strategy for an experienced trader.

A Sell Strangle requires that the investor monitor the position for unfavorable movement and, if necessary, buy back one of the options if there is any indication that the market will resume its trend or reverse direction. If there is an indication that the market will resume its upward trend, the trader should buy back the call; if the market appears to be heading down, the trader should buy back the put.

It is important that the trader do stock market technical analysis prior to implementing this strategy. The powerful charting capabilities of this stock investing system will offer insight into movements in the market before attempting to enter a Sell Strangle. By using a stock market trading system like Japanese Candlesticks, a trader can not only identify the mood of the market, but identify a stock that is a candidate for a trade like a Sell Strangle.

While a Sell Strangle isn’t advisable for everyone, it is one of several investment options that can create profits for a skilled trader. Using a tested stock trading plan, good technical analysis tools, and a system such as Japanese Candlesticks, a trader will find this method to be something that not only creates a profit, but adds another weapon to the arsenal of successful traders.

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