Buying a Call is a decidedly Bullish position on an underlying stock value. The investor has the opportunity to participate in the rise of the stock’s value for the term of the contract with a predetermined risk. Most investors will look to sell their contract at a profit, while others may intend to exercise their right and purchase the underlying shares.

To exit a call you have three options. You may let the call expire worthless (lose the premium paid for the option). You may exercise the call at the agreed upon strike price, and turn around and sell the stock at the current market price and profit from the difference. You may sell your call when it rises in premium in tandem in the rise in the under lying stock value.

The main benefit of buying a call is the limited risk of capital. The investor has a much smaller cash layout, with a limited downside loss, and unlimited upside gain. On the flip-side, the option investor does not have the same rights of the individual shareholder such as dividends and voting rights.

In theory, the potential profit on a long call is unlimited as long as the underlying value continues to rise. The potential loss is limited to the premium paid for the contract.

Buying Calls is a long call strategy that is best used in a bullish market where a rise in the price of the underlying stock is anticipated.  By electing to purchase a long call option instead of the under lying stock, you increase your leverage and reduce the inherent risk of the trade. The most you can lose on your purchase is the cost of the premium. Buying Calls can be a great way to increase your participation in certain stocks without tying up a log of funds. Options allow you to control a larger number of shares for less capital.

The Chicago Board Options Exchange (CBOE) provides this concise definition for Buying Calls. Buying an equity call gives the owner the right, but not the obligation, to buy 100 shares of underlying stock at a specified price (the strike price) at any time before a specific time (the expiration date). This is a bullish strategy because the value of the call tends to increase as the price of the underlying stock rises, and this gain will increasingly reflect a rise in the value of the underlying stock when the market price moves above the option’s strike price.

The profit potential for the long call is unlimited as the underlying stock continues to rise. The financial risk is limited to the total premium paid for the option, no matter how low the underlying stock declines in price. The break-even point is an underlying stock price equal to the call’s strike price plus the premium paid for the contract. As with any long option, an increase in volatility has a positive financial effect on the long call strategy while decreasing volatility has a negative effect. Time decay has a negative effect.

---

Return to main Options Trading Category

It is always nice when someone gives you something for nothing, an extra doughnut at the bakery or that tool you need. Other people want to give you something for free as well; an education paper trading options. Paper trading options is a process in which you can simulate the real decision-making process of options trading without committing real money. 

You approach paper trading options the same as you would a real trade in the stock market, taking into account everything you would consider if you were making a real investment, and implementing your positions on the computer. By analyzing how your theoretical investments perform you can evaluate whether your stock trading plan and your technical analysis tools are working without the pressures of possible financial loss.

Why Paper Trading Options Is A Good Idea

Paper trading options gives you the opportunity to practice and learn without the financial danger of real losses. You can fine-tune your stock trading system, test it and improve your investment philosophy in theory before going live. You can learn stock market terms, techniques and practices without pressure. 

It is also easier for you to test your trading rules in a simulated trading environment than in the real market. When you have actual money at stake, emotional reactions such as greed and fear can sometimes affect sound judgment. If you can resist those feelings and follow your stock investing system , your paper trading options approach, and later your live options trading, will be much more successful. 

A Little Explanation of Options 

Options trading is different from typical investing in the stock market or bonds since you don’t actually own anything. In options trading, A stock option is not a physical thing like holding shares in a company. Instead it is a contract between two parties. When you own stock you actually own part of a company. An option is an agreement, or contract, where one party agrees to deliver something to another party within a specific time period and for a specific price.

This distinction is important because with options you are not borrowing anything. For example, in the case of stock, you must first borrow the stock if you are selling short; with options there is nothing to borrow so you can short options without the worry of borrowing first. Options are popular because they can help you leverage your positions, meaning that you don’t move on a few shares but hundreds or thousands. Instead of buying a stock outright, you can enter into an options contract which can be much cheaper but have the same, or even better, returns.

The Profit Potential of Options Trading

With options trading, you have the best of both worlds; limiting your risk and at the same time leaving you open to make unlimited profit if the market rallies. It is important to say that not all stock option trading strategies have the same payoff benefit. Only if you are buying options can you limit your risk. For option sellers, this is the reverse since they have unlimited risk with limited profit potential. While this sounds dangerous, once you understand the options available to you and how to use them, you can limit even the unlimited risk when you sell strangle.

Getting Started Paper Trading Options

There are a large number of companies on the Internet that offer free options paper trading; a simple search will give you more choices that you can imagine. These companies offer this service in hopes that after you get comfortable paper trading options, you will open a commodity account with them. In the meantime, once you have registered simply follow the directions of the stock market investing software and you are ready to begin. 

What You Might Notice

If you try to implement positions before you understand options trading, you will probably be surprised; options trading has a different set of terminology, different strategies and even the trading software will probably be confusing. So before you try to begin giving yourself an option trading education; learn the terms, learn the techniques, and learn the stock trading software where you are paper trading options. 

Does Paper Trading Options Really Matter? 

In and of itself, paper trading options is not crucial; it is merely a simulation of the things required to trade options in the real world. What is important while paper trading options is your mental approach; if you treat this like a game or don’t understand the importance of learning options trading, you should seriously reconsider attempting to trade options. This is a skill and the consequence is losing your money so don’t take paper trading options lightly. 

Conclusion 

Getting something for free doesn’t happen everyday, especially in the business world. It is time that you put down that free doughnut and take advantage of this unique opportunity and start paper trading options today.

The S&P 500 stands for Standard and Poor’s 500 Index and it is one of the most commonly used benchmarks of the U.S stock market. It consists of 500 companies that are extremely diverse in relation to their industries and these companies are chosen by the S&P Index Committee. The 500 companies that exist on this index are not simply the largest 500 companies but instead are actually chosen by the committee for a variety of reasons. These reasons include their market capitalization, revenue, liquidity, and sector representation in the stock market community. The team of analysts referred to as the S&P Index Committee also looks at factors such as the market value weighted index, meaning that the weight of each stock in the index is proportionate to its market value. Basically, the companies on this index are the leading companies in leading industries.

The S&P 500 is meant to be the leading indicator of the U.S. equities and to show the risk and return characteristics of the large cap universe (see large cap stocks). It represents about 70% of all the U.S publicly traded companies and part of what made it so renowned is the Vanguard 500 Index fund. This index fund is the largest of the mutual funds in the entire world. This index of 500 is also popular as a result of the first exchange traded fund (ETF), Spiders (AMEX: SPY), as well. These new exchanged traded funds are becoming more and more popular due to the lower expense ratios. There are also a small number of international companies that are included on the S&P 500 however the Standard and Poor Index Committee has stated that it will only continue to add United States based companies to the index in the future.

The Dow Jones Industrial Average (DIJA) used to be the most popular index for U.S. stocks. Most people however agree that the Standard & Poor’s 500 Index is a much better representation of the stock market in the United States. Additionally, the Dow Jones Industrial Average only contains 30 companies which is a smaller representation. There are also other Standard & Poor’s indexes such as the S&P 600. This index consists of small cap companies (see small cap stocks) with market capitalizations between 300 million dollars and 2 billion dollars. In addition to the S&P 500 is the S&P 400 which consists of mid cap companies with market capitalizations ranging from 2 billion dollars to 10 billion dollars.

---

Market Direction

What is one of the most powerful elements of candlestick signals? The visual depiction of what is occurring in investor sentiment right now. “Right now” can relate to a one minute chart as well as a daily chart. The added information provided by the open and close each day/time frame is extremely important. It is a trading techniques that has been refined for many centuries. This is a huge advantage over trying to learn investment techniques that have recently been discovered. A proven trading method passes the test of any market/trend conditions. It allows for accurate evaluation of a trend reversal as well as the analysis of when a trend will continue. Having the confidence that candlestick analysis works effectively allows for the continuation of its refinement. Candlestick analysis provides  all of the above.

What is the T-line? This question is often asked in many of our chat training sessions. It is merely the 8 exponential moving average. A major advantage provided by the trading chat room on the website is the exchange of ideas for improving someone’s trading technique. The 8 exponential moving average has very consistent analytical features. Rick, who has utilized candlestick analysis for many years, has discovered other trading indicators that greatly enhance the probabilities of being in the correct trade at the correct time. He discovered the use of the T-line allowed for much more accurate transactions for entering or exiting a trade as well as continuing to hold during a trend. This is just one of the indicators that has allowed him to produce a very successful day trading career.

Candlestick analysis illustrates what is occurring in investor sentiment. Candlestick reversal signals represent a change of the previous investor sentiment. The longer a trend continues in a specific direction, the more compelling the reversal signal needs to be to show there has been a change of investor sentiment. The T-line acts as a very powerful indicator to demonstrate the continuation of investor sentiment or the confirmation of a change in investor sentiment. A trend has inherent forces that make it move in a specific direction. Until these forces are completely altered, the trend will remain consistent in a specific direction. As illustrated in the Dow chart, the recent downtrend evaluation was consistent with the trend remaining below the T-line. A Morning Star signal at the bottom indicated the confirmation of a reversal with prices closing above the tee line. This made the uptrend evaluation very simple. The uptrend would continue until a candlestick reversal signal and bearish confirmation below the T-line was experienced.

DOW

There will be ‘down’ days in an uptrend. There will be up days in a downtrend. However, unless a reversal signal is confirmed, the simple rules applied to the reversal signals and the tee line will keep investors in a position until a true change of investor sentiment has occurred. The major problem most investors experience involves their own emotions. When do I take profits? Not to take profits and give back hard-earned gains is one of the biggest fears for investors. Candlestick analysis eases the process. Applying simple rules with the signals and the trends dramatically reduces the anxiety most investors experience. Cut your losses short and let your profits run! Much easier said than done. Learning how to properly use candlestick signals and confirming indicators greatly reduces the possibilities of being left behind during a strong uptrend.

ES

NUAN

The candlestick rice traders took advantage of the information conveyed in candlestick analysis. Their processes greatly reduce the emotions involved with investing. If you use signals/patterns correctly, you wiii not be exposed to emotional forces that tug at most peoples investment decisions. This is true for the beginning investor as well as a seasoned trader. The more emotions can be taken out of investing, the more rational thought processes can help exploit consistent and large profits from the markets. Candlestick signals are proven. Learn how to use them correctly, your rate of return will grow dramatically.

As seen in the Dow chart, there has not yet been a candlestick signals with a significant close below the tee line. The uptrend still remains in progress until that simple combination appears. Remaining in positions, especially the financial stocks, using a simple rule produce huge profits on Thursday. BAC was up 35%, FITB was up 30%, FAS was up 40%. The financial stocks had been recommended on the candlestick forum for the past few weeks. Maintaining positions to eventually participate in big profit moves is made much easier when applying the tee line to the evaluation.

Public Chat Session tonight at 8 PM ET – it will be an abbreviated session so everybody can enjoy the long weekend.

Good investing,
The Candlestick Forum Team

Basics of Futures Trading
Futures Trading for Beginners
Paper Trading Futures
Futures Trading
Futures Markets
Trade Futures
Futures Trading Plan
Futures Orders
Futures Analysis
Futures Exchanges
Futures Trading Advisors

Basics of Options Trading
Options Trading for Beginners
Paper Trading Options
Options Trading
Options Markets
Trade Options
Options Trading Plan
Options Orders
Options Analysis
Options Exchanges
Options Trading Advisors

A major candlestick continuation pattern is called the three methods signal and be classified as a rising three, which is bullish, or a falling three, which is bearish. Both signal small interruptions but do not signal a reversal. Taking the concepts of supply and demand into consideration, the three methods are predicated by uncertainty in the market. However, the market corrects itself when the bulls see can’t be made or when the bears see that a new high cannot be made. In either situation, the original trend continues. The bulls become bullish again and the bears become bearish again. The three methods are related to support and resistance lines, which can be penetrated, and the Rising Three Methods signal and the Falling Three Method signals are ways of confirming that the attempted penetration will fail, and that the trend will continue.

The Falling Three Method begins with a long black candle followed by a series of upward reaction candles. These candles all form within the range of the original candle, but have smaller bodies. Normally, the smaller candles would be white, since the large trend candle is black. The fifth and final candle is the same as the original trend candle but it closes at a new low and opens lower than the close of the previous day. The only difference is that the candle will be higher or lower, depending on the trend of the original candle.

Recognizing continuation patterns is important, whether you are in a long position or a short one. Besides adding to positions, it also confirms your other indicators. Even if you are trading on the short side, the three methods can help you use the continuation pattern to do much more.

FALLING THREE METHOD

Description

The Falling Three Method is basically the opposite of the Rising Three Method, The market has been in a downtrend. A long black candle forums. It is then followed by a series of small candles, each consecutively getting higher. the optimal number of uptrending days should be three. Again, two or four or five counter trend days can be observed. The important factors are that they do not close above the open of the big black candles and that the shadows do not go above the black candle’s open. The final day of the formation should open down in the body of the last uptrend day and close lower than the first big black candle’s close.
Criteria

1. 1. A Downtrend is in progress. A long black candle forms.
   2. A group of small bodied candles follow, preferably white bodied.
   3. The close of any of the uptrend days not does close higher than the open of the big white candle.
   4. The final day opens up into the body of the last uptrend day and proceeds to close below the close of the first big black candle day.

Pattern Psychology

The Falling Three Method is considered a rest in the downtrend. Just lie the Rising Three Method, the appearance of the white candle unnerves the bears. But any they see the bulls unable to take the prices higher, the bears gain their confidence back and resume their selling. The concept is that the first black candle day brings some doubt ino the bull camp. The next day does the same. By the third day, the bears are now convinced that the bulls do not have the strength to push prices up anymore. The bulls get their courage back and start stepping in.

Back to Continuation Patterns

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

Learning how to read stock charts can be a very simple process. The major signals clearly illustrate trend reversals.  Most investors, when learning how to read stock charts, feel that they need a multitude of indicators on one chart.  Candlestick analysis does not require numerous indicators. When utilizing the major candlestick signals, chart analysis becomes very easy. The major signals reveal an immense amount of information. When learning how to read stock charts, the process should be as simple as possible.     

The Doji is one of the most revealing signals in Candlestick trading. It clearly indicates that the Bulls and the Bears are at an equilibrium, a state of indecision.  The Doji, appearing at the end of an extended trend, has significant implications. The trend may be ending.  Just this fact alone creates a multitude of investment programs that can produce inordinate profits. What is the best method for making big trading profits? Knowing how to read the stock charts!  Knowing the direction of a trading entity and the strength of that move! Candlestick analysis perfects that trading strategy. Candlestick charts reveal high probability profitable reversals.  Hundreds of years of investing refinement have proven that point.

The Japanese say that whenever a Doji appears, always take notice. A well-founded rule of Candlestick charts followers is that when a Doji appears at the top of a trend, in an overbought area, sell immediately. Conversely, a Doji seen at the bottom of an extended downtrend requires buying signals the next day to confirm the reversal. Otherwise, the weight of the market could take the trend lower. Knowing how to read the stock charts reveals the parameters that make a major signal most effective.

The Doji signal is comprised of one candle. It is formed when the open and the close occur at the same level or very close to the same level in a specific time frame.  In candlestick charting, this essentially creates a cross formation. As the following illustration demonstrates, the horizontal line represents the open and close occurring at the same level. The vertical line represents the total trading range during that time

DOJI STAR

Upon seeing a doji in an over-bought or oversold conditions, (over-bought  or oversold conditions can be defined using other indicators such as stochastics), becomes an extremely high probability reversal situation.  When a doji appears, it is demonstrating that there is indecision now occurring at an extreme portion of a trend. This indecision can be portrayed in a few variations of the doji.
 
Criteria

• The open and close are the same or nearly the same
• The length of the shadow should not be excessively long, especially when viewed at the end of a bullish trend.

Signal Enhancements

• A gap away from the previous day’s close sets up for a stronger reversal move.
• Large volume on the signal day increases the chances that a blowoff day has occurred, although it is not a necessity.
• It is more effective after a long candle body, usually an exaggerated daily move compared to the normal daily trading range seen in the majority of the trend.

There are many variations of Doji. To read further, select The Dynamic Doji – A Clear Trend Reversal Signal  OR Return to Candlestick Explanation of the Major Signals

Training Tutorial – The Dynamic Doji     One of the most informative and revealing candlestick signals.

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

Buying puts is a bearish, somewhat speculative technique in which the investor anticipates that a stock will decrease in price during a set period of time. The trader realizes a profit when the stock and its underlying put option decrease in price during a set amount of time. The profit potential in such a deal is limited because a stock price can never go below zero. Also known by the term “buying in-the-money puts”, this technique is speculative; if the price of the stock remains steady or rises during the option period, it is possible for the trader to lose the initial investment. This risk reward ratios, however, are limited to the amount paid for the premium on the put option.

The technique of buying puts is dependent on timing and charting a stock’s movement to catch a downward price movement. Accurate charting of a stock and technical analysis of its performance and direction are critical when buying puts. There are a variety of events that can move the price of a stock down as desired, such as poor earnings reports, buyout or acquisition of the company, and new product introduction are among the events that can shape the views of investors and impact the stock market. This strategy of buying puts can also put more money in the pockets of successful traders.

The downside of this technique tends to be the possibility of an error of judgment. If an investor decides to buy puts on a stock without properly researching its position or charting its movement, it is possible that stock will be bullish or changing from bearish to bullish. In essence, if a stock reached its bottom or is rising, the trader has moved at the wrong time and is in danger of losing the premium for the trade. Investing mistakes such as this are a prime example of what can go wrong when buying puts.

Buying puts is actually an alternative to selling short on a stock. While being similar to buying calls, the advantage of buying puts over selling short lies in the ability to leverage the transaction and make your trading more successful. Since the puts can be purchased on the margin, it is possible to control a much larger number of shares, thereby increasing the profit potential on the purchase. Downward movements in stock prices and their underlying put options create much larger returns than by simply selling short.

The price of a premium for buying puts is affected by two variables. First, the time period involved for the option is a determining factor in price. The longer the time between purchase and expiration dates, the higher the price. Second, the movement of the underlying stock affects the price of the premium, especially in relation to the stock’s strike price. A stock that has been in a bearish trend will have a higher premium than a stock in a bullish trend. This is a stock market basic that can be successful even for a beginner investing in the stock market.

Buying puts is one of the stock option trading strategies that provides the investor with the opportunity to make money on a stock expected to be bullish. Remembering to follow a proven stock market trading system will help deter the trader from moving on the wrong stock.

---

Return to main Options Trading Category

Stock market investing 101 should include as easy a process to learn the stock market as possible. Candlestick signals incorporating common sense investment practices meet those criteria. Stock market investing 101 is a process that should allow investors to understand why prices move. The psychology incorporated into candlestick signals makes understanding what is going on in an investor’s mind very easy to analyze. The signals were created through hundreds of years of visual analysis and interpretation by successful Japanese Rice traders.

Most stock market investing 101 courses want to include fundamental reasons for why prices move. MBA’s graduate every year with the concept if you can read a strong balance sheet, the price will move. One of the biggest misconception of investing is anticipating prices to move based upon fundamental reasons. The first lesson of stock market investing 101 should be that prices move based upon the “perception” of fundamental reasons. The Japanese Rice traders discovered this many centuries ago. Why do prices go down when good news is announced? Because the anticipation of that good news was already built into the stock price.

Candlestick signals are formed based upon the investor sentiment that indicates a change. Use this information to your advantage. You may not have a research staff or access to extensive research, but you can take advantage of the information conveyed in candlestick signals. Why do candlestick buy signals occur at the bottom? Because the smart money is anticipating what the future potential is for the price. That future potential may be good news. The prospect of favorable news  is what makes the smart money buy when everybody else is selling. The announcement of the good news is what makes the smart money sell at the top when everybody else is buying. That information is conveyed through numerous candlestick signals.

Trading The Three Black  Crows Pattern

Description

The Three Black Crows got their name from the resemblance of three crows looking down from their perch from a tree. The signal, occurring after a strong uptrend, indicates the crows looking down, or lower prices to come. This pattern is the opposite of the Three White Soldiers.

Criteria

1. Three long black bodies occur, all of close to or equal length.
2. The prior trend was up.
3. Each day opens within the body of the previous day.
4. Each day closes near its low.

Pattern Psychology

A long black candle forms after an uptrend. This uptrend has now reached levels where the sellers have started to step in. The first long black candle body is followed by two more long black candles. Each having opened in the previous day’s body, indicating that buying was occurring early each day but the Bears kept forcing prices down by the end of the day. This consistent process of selling provides a stronger downtrend potential versus a rapid overselling period.

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

Cradle Pattern Illustration

Cradle Pattern

The Cradle Pattern is a variation of the series of Doji at the bottom. It is aptly named, in that it looks like a ‘cradle’. This makes the Cradle Pattern an easily identified reversal pattern. It begins with the same visual alert found in most candlestick bottoming signals; a large Bearish candle at the bottom of a downtrend. This illustrates the extensive selling at the bottom. The following day shows a candlestick signal such as a Doji, Spinning Top, Harami, Hammer, or Inverted Hammer, indicating that the selling had stopped. Now the candlestick investor should be watching for a Confirmation ‘Buy’ Candlestick Signal. Keep in mind, the small indecisive trading signals may occur for a number of days before the ‘buy’ signal appears.

The Cradle Pattern reveals investor sentiment. If the large dark candle is considered the headboard, the Bullish candle becomes the foot board. The Cradle Pattern formation is now hanging at the bottom, implying that the trend should move up from this level.

---

The Cradle Pattern was first introduced by Stephen Bigalow in his second book titled

High Profit Candlestick Patterns; Turning Investor Sentiment into High Profits

This Cradle Pattern is also part of our Flash Card Set 2 – High Profit Candlestick Patterns

The clear graphics makes learning these high profit patterns an easy process. Each pattern is fully explained on the backside of the card. The description of how and why the pattern is forming makes understanding the potential of the pattern easy to comprehend.  Having this valuable knowledge at your fingertips allows an investor to extract large profits from the markets.

HIGH PROFIT CANDLESTICK PATTERNS

Cradle Pattern
Dumpling Top
Fry Pan Bottom
Jay-Hook Pattern
Scoop Pattern
Trading Channels
Gap Down Hammer at the Bottom
Gap Up Inverted Hammer
Gap Down After a Doji at the Top
Gap Down Doji at the Bottom
Gap Down Bullish Engulfing
Gap Down Bearish Harami
Gap Down Shooting Star
Gap Down Hanging Man
Tweezers Bottom
Tweezers Top
Multiple Tails to the Downside
Series of Shadows at the Top
Series of Doji at the Top
Series of Doji at the Bottom
Doji End of Flat Trading Range Top
Doji End of Flat Trading Range Bottom
Combination Bullish Signals at the Bottom
Combination Sell Signals at the Top
Double Bullish Engulfing Pattern
Double Bearish Engulfing Pattern
Double Bottom
Double Top
Breakout Through Moving Averages
Moving Averages Act as Price Magnets
Moving Average as Support
Moving Average as Resistance

For the Candlestick Forum Original Flash Cards, with the Major Signals, please click here.

Trading a consolidation pattern can result in substantial profits in trading stocks, trading futures, trading options, and trading commodities as well. When the market is coming to a consensus on the value of an equity it often generates a price chart that seems to oscillate above and below a given price. That price median or average price may be stable, trending up, or trending down. The point is that the stock price and other price swings above and below the mid range will tend to tighten up. The market is consolidating its opinion regarding the equity. At first glance this would seem to be the time to get out of the stock, commodity, option, or futures contract. If the equity is trading sideways, where is there any profit? Technical analysis with time honored technical analysis tools such as Candlestick patterns may tell traders that such a consolidation pattern may well be a prelude to a substantial upside breakout of stock price, commodity price, futures price, or option premium price.

Although a consolidation pattern results from market indecision it ends up with market consensus. A consolidation pattern may be superimposed on upward market trends. This kind of pattern can also be a prelude to market reversal. Knowing Candlestick analysis helps the trader anticipate just where the apparent market indecision is going to lead. Buying at the bottom of a downward trending stock price can lead to substantial profits for the trader who accurately reads the Candlestick chart patterns suggesting a consolidation pattern and uses discipline in trading the same. A consolidation pattern evolves as traders using fundamental analysis recognize the basic support and resistance zones of a stock or other equity. As technical traders read this price action they will anticipate price turnarounds and may, in fact, help to shrink the range between highs and lows even more. It comes to a point where the use of fundamental and technical analysis makes it clear to savvy traders that the equity’s basics and the sentiment of the market will support a higher (or lower) price. Then there is typically price a breakout and a substantial run up, or down. Using Candlestick pattern formations as a guide the trader can often gain profits from the accurate reading of a consolidation pattern.

There are a number of consolidation patterns, none exactly the same. As with trading all patterns the trader who first recognizes where the pattern is leading to may well be the one to make the most profit. Unfortunately, the same trader is opening himself up to losses if, in fact, he misreads what is happening and sees a consolidation pattern where none exists. The conservative trader will seldom over read a pattern but may be the last one in to a market swing and, thus, realize less profit. In both cases the trader is wise to set his stops as he makes his trade, follow the trend, and adjust stops along the way. The wise stock market, options market, commodity market, or futures market trader will continue to use Candlestick charting as a guide as the pattern and its breakout progresses. Learn technical trading with Candlesticks and take advantage of market indecision, market consolidation, and potential price breakouts.

Market Direction

Utilizing candlestick signals provides one huge advantage. They show you when it is time to buy. This also includes what to do after a price as opened much higher. There is valuable information built into the signals and each individual candlestick formation. Fortunately, the analytical tool for assessing what each signal/formation is revealing requires nothing more than common sense. Whether analyzing the market trend in general or looking for specific stock breakout patterns, candlestick analysis becomes mastered by merely recognizing reoccurring price patterns.

Remember how difficult it was to memorize facts, maps, figures, or  historical events in school? The difficulty came from questioning how useful that information was going to be for our future. Most of it was boring. Candlestick charts have a completely different result. Memorizing and understanding the chart patterns is going to create high probability big dollar trades.

As can be seen in the CCME chart, the open gapped up approximately 4%. One of the first questions from our chat room was “Is this open to big to be buying at these levels?” This is where recognizing the chart patterns becomes extremely valuable. Not only the longer term chart pattern, but also the immediate chart pattern. Note how the price of CCME had been drifting sideways and slightly down for the past two weeks. Once the T line caught up, a Morning Star signal appeared. Under these conditions a very simple but highly expected result occurs. The price moves up as if it had a slingshot effect coming out of a mini scoop pattern.

The analysis becomes relatively easy. A Morning Star signal at the lower end of a down sloping trend requires confirmation. A gap up in price is a very viable confirmation. What does it mean when a price after a candlestick reversal signal? The buyers want back into this position very aggressively. This is exactly the type of scenario an investor wants when establishing a position.

CCME

The longer-term analysis also aids in the evaluation of this trade. A huge Fry Pan bottom has developed since the early part of November. The price has also moved up from a Fry Pan bottom/Cradle pattern that formed at the end of December. What do we expect after a Fry Pan bottom? A very strong price move! What do we expect after a very strong price move? The possibility of a J hook pattern! After a pullback to the T line and the formation of a Morning Star signal appearing, what type of pattern would develop if the price move higher? A J-hook pattern! When the price opened higher today, gapping up, this leads to buying immediately. All the makings of a positive trade are in place. Will all trades move up dramatically in this type of situation? Definitely not, but the probabilities project moving up today or over the next four days is greatly improved when using the rules applied the candlestick analysis. This is the type of memorization you want to keep applying to your investment practices. The charts will demonstrate where high profit trades setups will occur just like they have done many thousands of times in the past.

The Dow and the NASDAQ continued to show steady strength. The Dow would be more worrisome due to its lack of consolidation. However, this has been remedied with the NASDAQ pulling back a few days and starting back up, creating a market trend has taken some profits out and is now continuing the uptrend with new strength.

DOW

NASDAQ

The longer this market continues in a slow steady uptrend, the more compelling the reversal signal needs to be. A slow steady uptrend in the markets is very beneficial to the candlestick investor. It allows for price patterns to breakout for inordinate profits. The formation of each candle provides information on investor sentiment.
Chat session tonight at 8 PM ET – We will discuss the appropriate actions after big price moves, such as Netflix. The development of each daily formation allows an investor to create a game plan for whether to stay in or get out. Join us tonight for a look into big price move analysis.

Good Investing,

The Candlestick Forum Team