Traders will often purchase commodities because of the potential for wide commodity price variation. Especially in agricultural commodities, prices can fluctuate fifty percent or more in a year. Producers and processors of commodities will often engage in hedging commodities in order to guarantee a stable price structure for their business operations. The hedging by producers and processors of commodities provides a base market in which the trader can profit in commodities trading. In order to purchase commodities, traders will post a margin. Margin requirements to purchase commodities include the maintenance margin which is what the trader must maintain in his account in order to trade. A performance bond margin is monies deposited by both buyer and sells of commodity futures contracts to guarantee performance of the contract. This is essentially a security deposit. To purchase commodities the trader will want to track return on investment. Return on margin is typically used as a measure of success for those who purchase commodities. This is the gain or loss in trading compared to money invested. It should be noted that this is not return on money per commodity purchased or sold but return on the amount of money dedicated to the margin account in order to purchase commodity futures and sell commodity futures. To learn to effectively trade commodities a good place to start is Commodity and Futures Training.
Because of the potential for rapid changes in commodity futures price there is the potential for substantial commodity futures profits. When a trader decides to purchase commodities he or she will decide on the commodity and the delivery date. Commodity delivery dates can be next month, next year, or several years hence depending upon the commodity traded. However, the trader need not hold the commodity contract for its duration. He or she can make the opposite trade to exit the contract. That is the trader can sell the same commodity with the same delivery date. If market fundamentals change or technical factors lead to a substantial market change the trader can exit the trade with a profit long before the contract expires. Traders will follow both fundamental and technical analysis in order to profitably anticipate commodity price movement. The use of Candlestick analysis can help the trader see potentially profitable market patterns and market trends allowing them to purchase commodities and sell commodities in a timely and profitable fashion.
Candlestick basics have been around for centuries. They were developed by commodity traders in the rice market in Japan in the days of the Samurai. Just as in days past a trader can spot a Candlestick pattern indicating that the price of the commodity will likely go up or down in the very near future. Candlestick pattern formations let the market tell the trader what it will do. This is because market patterns tend to be repetitive. Reading the first part of the pattern helps predict the second part of the pattern. This can lead to handsome profits for the trader who uses Candlestick patterns to guide in the purchase of commodities.
Market Direction
What makes candlestick analysis so profitable? The Japanese Rice traders provided a format that allowed investors to anticipate what should happen next. Witnessing buy or sell signals in overbought or oversold conditions produce high probability results. As seen in the Dow chart this past week, it was evident the Bulls were starting to step into the market. The stochastics were in the oversold condition and buy signals started to appear. After Monday’s hard pull back, Tuesday formed a Doji. This made trading on Wednesday very simple. The market was going to move in the direction of how they open that after Tuesday’s Doji. This is not rocket science! This is merely applying the simple rules the Japanese Rice traders identified as high probability situations.
DOW
Upon seeing the premarket futures trading positive on Wednesday morning, after the previous day’s Doji, and with stochastics in the oversold condition, the trading strategy became very simple. Buy immediately! While other investors may have needed further confirmation or they were not prepared to buy immediately on such a strong open, the candlestick investor could utilize the information that is built into candlestick signals. The NASDAQ had a Doji formed on Tuesday. It was gapping higher on Wednesday. This is exactly what the candlestick investor wants to see, especially in an oversold condition. Strong charts were bought immediately.
A major function for profiting from the markets is having a game plan. Candlestick signals allows an investor to be prepared for what price actions might do the next day. Where most investors were crying the blues during the market pullback throughout 2008, most of the candlestick investors on the website did moderately well when establishing positions in the short funds. Whether a fundamental investor or a technical investor, candlestick analysis provides a relatively accurate roadmap for the market direction and individual stock moves.
The same analysis is applied for trading commodities. The benefit of a commodity is that the price does not have multiple outside influences that will change the direction of a trend. Most commodities and currencies trade relatively consistent in a trend due to merely supply and demand. Whereas stocks have outside influences such as the market direction in general, interest rates, political rhetoric, or the shenanigans of company management, commodity and currency prices are usually affected by investor sentiment that is going to remain consistent for relatively long periods of time.
The member chat room is open all day long during market hours. The Monday night training sessions and the Thursday night training sessions are enhancing visual training that allows an investor to clarify in their own minds what a price movement should be doing after specific signals. The daily stock picks should not be used merely as trading vehicles. The daily stock picks and commodity pics should be analyzed to get a better understanding of why those specific recommendations were made. You should have discovered by now that the candlestick charts do not overwhelm you with multitudes of technical indicators. The signals themselves produce an immense amount of information. When you use this information correctly, the confirming indicators allow for an evaluation that will improve the probabilities of a trade.
Chat session tonight at 8 PM ET. Everybody is welcome. Also, consider having your children start learning the concepts of investing during their learning years. That puts them in a much better position when it comes time for them to start managing their own funds.
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Good Investing,
The Candlestick Forum Team
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