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Learn the Stock Market

Learn the Stock Market Basics

The stock market is a large market where stocks are traded by different vendors in a way that is similar to how other things are traded. Stocks are traded at auction and prices are subject to supply and demand by the market participants. These market participants include buyers and sellers of stock as well as dealers and stock brokers. Once you learn the stock market basics, you will know that as the demand for stocks goes us so does the stock price. Conversely, when the demand for stock goes down, the stock prices follow.

To learn the stock market and all that entails you must learn stock market terminology as well as the lingo associated with the stock market. Stock brokers are those market participants that handle your money, or in other words, who sells stocks for a dealer. The dealer can be a brokerage firm and the dealer hold inventories of stocks and sells them through the broker. (Brokers are also known as specialists) If the sell order comes across a computer at what the dealer thinks is an attractive price, then the dealer will add this stock to the inventory. Again, the broker or specialist is the actual person who buys the stock on the dealer’s behalf. As you learn the stock market basics you will also learn that the brokers are responsible for bringing the dealers and the investors together on the open market through the use of computers.

There are several different prices that stock traders and investors must learn about the stock market. These prices are listed and explained below.

Opening price – This is the first price that is paid after trading begins and when the stock exchange opens for the day. This opening price occurs in the morning at markets open.

Closing price – This is price is the opposite of the opening price and it is the price of stock when the stock market closes at the end of the trading day.

Ask price – This is the price that investors will pay for a stock. This is one of the stock market prices that is slightly higher than the trading price because the dealer’s commission is included in the price.

Bid price – This is the price that the broker will buy stock for. This stock market price is slightly lower than the trading price.

Spread – This is the difference between the ask and the bid price. (See bull call spread and bear call spread)

There is a lot more to learn about the stock market but this article should cover the basics to get your started. Continue your stock market education and good luck!


Market Direction: Many investors never learn how to trade the stock market correctly. They never realize that price movements are based upon emotions. Prices move based upon investor sentiment, the reoccurring emotions involved with different aspects of a price trends. Even when that is acknowledged, many investors have a problem controlling their own emotions. Candlestick analysis is the purest form of technical analysis. It allows for the evaluation of what prices are going to do based upon the reoccurring facets of human emotions. Price patterns and signals are the graphic depiction of human emotions. Once you have learned how to interpret the signals correctly, you have gotten through half the battle for consistently trading profitably.

The other half of the battle is controlling your own inner conflicts. Investing has many elements that require constant decision-making. It is not a static decision process. Once an investor decides to buy, price movement continues to require constant analysis. When is it time to cut losses? When is it time to take profits? Is this a reversal or merely profit-taking? Fortunately, candlestick signals provide a trading platform that allows an investor to get a handle on their own emotions. Candlestick signals and patterns have been identified because of their high probability results. Understanding these results produces an if/then trading decision process. When you understand what a price movement should be doing, emotional decision-making is dramatically reduced. You can make decisions based upon the mechanics of a trade versus what you expect from a trade.

Where do you emotions get tugged at the most? What a reversal is in progress. As demonstrated by the Dow chart, a reversal incorporates indecisive trading signals. This past week has experienced a bullish day followed by a bearish day, followed by a bullish day, followed again by a bearish day. Investor indecisiveness is one of the aspects that alerts that a reversal is in progress. The purest form of indecision is seen in a Doji signal. Indecision can also be witnessed in a long series of indecisive trading. Once you dissect investor sentiment during a reversal, you will have a much better understanding of how and what to trade during that time frame.

DOW

Yesterday, both the Dow and the NASDAQ confirmed the bearish control. Both of them closed below the T-line. One of the very simple rules of candlestick analysis allowed investors to take decisive action immediately. Simple rules applied to candlestick signals and the T-line make exiting profitable trades at highly opportune times. It takes the guesswork out of when to close a trade. It eliminates the emotional hesitation caused by the fear of closing out a trade too early, leaving profits on the table. The close below the T-line yesterday produced a new dynamic in the market trends. The probabilities now swung to the side of a downtrend scenario.

NAS

What should be done on a day such as today where bullish sentiment still seemed be in control? Without the knowledge of confirming indicators, today's trading could have been a nail biting day for those that have established short positions yesterday and today. Is the downtrend truly over? Should I cover my short positions immediately? To save some of the whipsaw possibilities, utilizing the simple factors that make candlestick highly successful, keeps an investor from getting whipsawed because of the change of direction from one day to the next. Short positions should have been held provided they did not negate the sell signal or trend. The Dow and the NASDAQ should continue to be considered in a downtrend until a candlestick buy signal is now followed by a close back up above the T-line. This is a very simple technique to keep from getting squeezed out of a profitable position. Was this merely a pullback during an uptrend? That will be better answered upon how they open and trade the markets tomorrow. At that time, there will be a much better assessment for closing the recently established short positions or establishing new long positions.

The reason there are established trading rules is due to the high probability of a price move performing as expected a high percentage of the times. As can be seen in the COF chart, a failure at the 200 day moving average, demonstrated by the Bearish Harami, makes a test of the 50 day moving average highly likely. A Bullish Engulfing signal, following a Doji, makes a retest of the 200 day moving average a possibility. This would be more evident upon a positive open tomorrow. Conversely, a lower open would continue the downtrend to the expected support level, the 50 day moving average. If one moving average fails, the next moving average will be tested.

COF

Candlestick analysis is merely applying the simple rules that have worked in extremely high percentage of the time in the past. Why do they work so often? Simple, investor sentiment works with a reoccurring expectancy. Investor sentiment has been well identified for centuries. The candlestick signals are the evidence that investors think and act in reoccurring patterns.

Option traders, candlestick analysis provides a trading format that utilizes option strategies to their maximum. Direction, magnitude, and targets can easily be assessed using candlestick indicators. This summer, the Candlestick Forum will be presenting training sessions on how the use candlestick signals and options affectively. In keeping with the training mode of the Candlestick Forum website, these training sessions will be demonstrating how to simplify option trading analysis versus making it so difficult, you have to keep coming back for more. To get the optimal results, please take advantage of this week's special. If you know and understand the 12 major signals and the High Profit Patterns, you put the probabilities of being in extremely profitable option trades greatly in your favor. You not only increase the probabilities of being in a trade that is moving in the correct direction, the signals and patterns also demonstrate price movements that are going to be inordinately strong compared to regular trend moves. Click here for this week's special.

Chat session tonight at 8 PM ET - Learn the common sense aspects of when and where to apply stop losses. Trend reversals create a trading environment that can be indecisive. Utilizing some simple rules will keep investors from experiencing big losses. But learn why this is not the most important aspect of common sense stop loss placement. Click here for instructions.

Good investing,

The Candlestick Forum Team


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