Stock Futures

Stock futures can be purchased or sold for single stocks or for exchange traded funds based upon stock indexes. Stock futures are traded on margin. A futures contract on individual stocks, like options contracts, is for 100 shares of the underlying equity. Because stock futures are traded on margin, using a margin account, they offer the trader a degree of leverage. Unlike trading options the buyer of stock futures is obligated to buy on the delivery date or execute the opposite trade in order to exit the contract.

Unlike buying calls or buying puts in options trading the trader is not protected against downside risk. Unlike buying options there is no premium paid by the buyer. The value of an options contract starts at zero the moment the contract is made. However, as stock prices move and both fundamental and technical analysis reveal new pricing possibilities the contract gains, or loses value, depending upon if one is buying or selling. As with options trading using Candlestick pattern formations as a guide traders can anticipate stock price movement and profit from buying or selling stock futures.

Single stock futures are not heavily traded in the United States. The largest market for single stock futures is, in fact, in South Africa. Other markets for stock futures include the UK, Spain, and India. Total daily trading is typically less than a million contracts a day. Stock futures exchanges typically act as a clearing house and cover the counterparty risk associated with futures trading. In the United States OneChicago is a market for single stock futures. Unlike single stock futures exchange traded funds futures trade in the millions of contracts per day. The analysis for this type of futures trading commonly leans much more toward technical analysis that that for individual stocks. Using Candlestick analysis a trader can follow pricing for an ETF and profit from recognizing Candlestick pattern formations and trading effectively.

There are somewhat complicated formulas that (theoretically) price stock futures. Despite their apparent complexity they simply put in mathematical terms what is know about stock pricing and what is assumed. The problem for the trader is that much of what is in the formulas is largely fundamental information, such as whether or not a dividend is about to be paid on a stock. Thus, to profit from stock futures, the trader needs to get a glimpse of the future. He does this with technical analysis tools such as Candlestick chart analysis.

By following stock price the trader can commonly anticipate price movement and have a clearer view or what the stock price will be at the time the futures contract expires and the contract must be satisfied. Also, market psychology works as much on futures as on stocks themselves. To the extent that futures seem to act independently of the stocks themselves Candlestick patterns will commonly be a better guide than any “fundamental” information. Using the fact that market price patterns repeat themselves in futures trading as well as trading stocks traders can profit buying and selling stock futures.

Market Direction: The slow steady upward trend of the market may be the result of investors waiting to see what political ramifications will be, now that the election is over. It was reported last week on CNBC news that the Dow had not had a trading stretch where it didn’t have a 100 point price move during the day since 1996. This has allowed for the maintaining of positions that continue stay above the tee line. It has also allowed for the liquidation of positions that have closed below the tee line. Keeping this money in cash will be advantageous for the first day/week of the new year.

There should be some tremendous opportunities after the first of the year. Keep in mind, the holidays are utilized by money managers just as most people use them for themselves. It is a time to reflect on what went right and what went wrong during the past year. It also gives some quiet time to evaluate where the strength in the markets will be in the coming year. It is not unusual to see which sectors are considered to be the ones with the strongest potential on the open the first trading day of a new year. This is where the big money is going to be anticipating the high profit returns. Obviously, most of us do not have the time, smarts, or access to research to make a sophisticated analysis of which sectors should perform well during the coming year. This usually involves analyzing world market and political situations. It also involves a staff of people researching specific industries and countries. Fortunately, the benefit of candlestick analysis is the quick and easy assessment of what the big-money consensus will be.

The longer the Dow and NASDAQ maintains a steady uptrend, the higher the probabilities investor sentiment will maintain a positive outlook. This is important for anticipating the direction of the market during the first two weeks of the new year. It becomes important to be able to analyze pre-market conditions during that first day of trading. Huge profits will be made during the first few weeks of the coming year. It is knowing how to anticipate which sectors will be forming the best patterns. Members should be prepared for a online analysis starting 30 min. before the market opens on January 3. Being in the right sectors on the open can easily produce 25% to 50% profits over a two-week period.

2010 was a profitable year. As usual, although the markets created some stagnant movements during the year, the visual aspects of candlestick signals allowed investors to maintain positions in the strong sectors. Taking advantage of the common sense elements found in candlestick analysis keeps an investor on the front edge of price movements. This coming year, the Candlestick Forum will be concentrating on everybody’s learning process. The mini training sessions are for the purpose of educating investors in all aspects of successful investing strategies, using candlestick analysis. January 4, 2011 will be a mini training on options. This session will expose investors not fully educated on how the option market works. It will also clarify the disadvantages of option trading and how to circumvent those disadvantages with candlestick analysis. If you have been interested or attempting to learn how to trade options successfully, do not miss this training. It will at least mentally prepare you for what you should be expecting for successful option trading, no matter which trading method you plan to use.

Please join us next Tuesday. It should be well worth your while.

There will not be a chat session tonight. Tomorrow’s trading should be fairly lethargic.

Good Investing,

The Candlestick Forum Team


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