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Futures Education

A futures education requires that you learn about the futures markets and all that entails. This market is the place where buyers and sellers of commodities meet for the purpose of providing an efficient system for the management of price risks. These commodities include items such as metals, agricultural products, petroleum, and stock indexes as well as foreign currencies. Buyers and sellers in this market use futures contracts as a way of achieving their goals. Futures contracts are used to establish a price level now for items to be delivered in the future. There are two types of futures contracts. Those that call for a cash settlement and those that provide for physical delivery of a commodity during a specific month that is specified in the contract.

There are two types of roles that you will learn about in your futures education. These include hedgers and speculators. The interaction of both hedgers and speculators aids in providing an active, liquid and competitive market. Hedgers are the people who make purchases and sales in the futures market in order to establish the known price level for a commodity that they intend to buy or sell in the cash market at a later date. Hedging, as it is referred to, aims to use futures to lock in an acceptable margin between their purchase cost and their selling price. Basically, their goal is to buy futures contracts to lock in a price and therefore obtain protection from rising prices. They sell futures contracts in order to lock in a price and therefore obtain protection from declining prices. A hedging strategy is used to achieve some sort of insurance as protection against adverse price changes.

Your futures education will also consist of learning about speculators. These individuals seek to profit from expected increases or decreases in futures prices on the futures exchange. They accept the risk that hedgers try to avoid and in doing so they provide the risk capital needed to make hedging possible. These individuals do not intend to make delivery of or take delivery of the commodity itself, but instead intend to profit from the change in price. Basically, they sell when they anticipate declining prices and conversely they buy when they anticipate rising prices of specific commodities in the commodities markets.

Additionally, your futures education will consist of learning about floor traders. They are also known as locals, and their purpose is to buy and sell for their own accounts on the trading floors of the commodities exchange. The presence of floor traders also makes the markets more liquid and competitive. Basically, if there isnít a speculator or hedger who will take the opposite side of your order at or near the opening price, there is most likely a floor trader who will. Even though there is no guarantee that the floor trader will make a profit they may be able to offset the trade at a small profit.

There is a lot to learn when studying the futures trading, but this article should get you headed in the right direction. Continue your futures education and determine if this is the right market for you.


Market Direction -  Candlestick reversal signals have one clear element that other technical indicators do not provide instantly. The confirmation of a signal. Many technical trading methods involve witnessing a reversal of a trend,followed by a percent move. The percent of the reversal move is usually big enough to demonstrate there is new dynamics in the trends. This often means a decent percentage return is left on the table before participating in the new trend. Candlestick signals require much simpler verification. Candlestick signals, occurring in the proper conditions of a trend, merely require the confirmation of the reversal signal. This allows for immediate entry into a new trend, participating in the returns that most technical trading systems require for confirmation.

Having knowledge of what each signal requires for confirmation becomes a valuable trading tool. It allows for getting into a trade much earlier than other investors. It also protects from getting into a trend that is not confirming. As illustrated in the Dow chart last Thursday, a major bullish engulfing signal appeared. It had the potential of showing support where the markets had supported over the past months. However, there was one element to  candlestick analysis that would have kept investors from rushing back into the market. The stochastics, although near the oversold conditions, were not quite into the oversold conditions. This made the next days buying, on Friday, done with a little  confirmation required. A strong bullish day was needed going into the close to confirm the reversal had occurred.

DOW

NAS

This would have produced a couple results. First, a bullish day would have confirmed the Bullish Engulfing signal, continuing the stochastics in an upward direction. Secondly, it would have closed the Dow above the tee line. With the market closing lower, it resulted in the failure of both of those things. Additionally, with the trading closing more than halfway down the bullish candle of Thursday, the bears were still in control. Keep in mind, the Japanese rice traders put great emphasis on the halfway point of a body. Their logic was that if the bears could negate more than half of a signal that indicated the Bulls might be in control, the bears were obviously still in control.

Monday's trading confirmed the weakness of Friday. The support level, that has been experienced in the Dow for the past month, is about to be tested again. The sideways market, anticipated since early October, is still in progress. A breach of the lower support level would confirm a wave three pattern taking the Dow down toward the 7000 area. With the vast majority of stocks in the oversold area, it becomes difficult to determine which stocks might be the best shorts. This becomes an area to use the short funds. The QID or MZZ short funds allow for producing profits when the markets are heading down.

With the markets not showing any great strength and/or possibly had a much lower, candlestick signals still provide profitable benefits on the long side. There will be specific stocks that have inordinate strength appearing. This strength will usually be visualized by very strong candlestick signals. Identifying these stocks is relatively easy. The magnitude of the strength of the reversal signal are easy-to-identify. Once identified, it does not take too much time to research what conditions were affecting that particular stock move.

HTE is an example of excessive strength in a stock price when the rest the market is weak. The Kicker signal last week revealed excessive strength potential. It has been confirming the bullish strength in the face of a declining market over the past couple days. This is not sophisticated technical analysis. This is merely utilizing the information incorporated into strong candlestick buy signals.

HTE

There are probably 10,000 trading entities. Simple scanning techniques allows for the identification of the one or two positions that an investor may want to participate on any given day. How can you keep track of what is going on in all industries and all stocks? You can't! But the candlestick signals can direct you immediately to situations that are moving contrary and inordinately strong against current market trends. This allows an investor to quickly pinpoint and participate in trades that have the most upside potential without having a huge extensive research department. The market is heading down. You will be able to make money buying the short funds. You'll also be able to make money by identifying the extremely few and far between good bullish trades.

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Good investing,

The Candlestick Forum Team


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