What is a margin call?
Trading in a margin count allows you to borrow money from your broker to buy stock and it is different from a regular trading account. Buying stocks on margin allows you to make more than you normally would with a regular trade, however it also allows you to lose a lot more as well. It is risky, but if done correctly, can be a great tool. Before discussing what a margin call is, we will first discuss more about margin trading and what that entails.
Before you can actually trade on margin you must first set up a margin account. Margin accounts require a minimum deposit of about $2,000 to $5,000, depending on the brokerage firm, and your broker lends you the money in order to get the business. This deposit is held as collateral for the loan and you must keep your account balance at this minimum amount at all times. When margin trading, you can borrow up to 50% of a stockfs price in most cases. You donft have to and some stocks may have lower limits. Some online brokers also may not let you borrow that much either. It really varies by the brokerage firm.
If your account balance falls below the minimum account balance level, your stock broker will issue a margin call. This will require that you bring the account balance back up by either depositing more money from another account, for by selling the stock.
When trading on margin there are restrictions and conditions that must be met. For starters you will be charged interest on the money that you borrow from your broker so you should only use margin for short term trading positions. You must be sure you donft hold stocks for too long or you risk cutting into your profit. Keep in mind also that not all stocks are actually available for margin trading. You should check with your online stock broker to determine this. After you sell stocks that are bought on margin, the money owed to the broker is paid first and your profit is whatever you have left in the account afterwards.
A couple of additional things to keep in mind when trading stocks on margin include, first of all, the fact that you can lose more than you invest. You are legally responsible for paying back any outstanding debt that you owe to your broker if you lose all of your money in your stock portfolio. Also, be sure to find out the interest rate that your broker charges on margin balances. They are typically subject to immediate change so be sure that you keep up-to-date with this figure so you are not caught off guard.
Market Direction: What has the market conditions revealed over the past two weeks of trading? To most investors, it was just showing a flat market. To the candlestick investor, the Dojis revealed indecision. It allowed the candlestick investor to be prepared for a break of the sideways motion one way or the other. The weakness in today's premarket futures was an alert the sideways motion of the market was not going to occur on the open today. The extensive downward pressure on today's premarket futures was an immediate alert to take profits on charts that were already beginning to show weakness. The lower open in both the Dow and the NASDAQ confirmed possible candlestick reversal signals, hanging man type signals, and was trading below the tee line.
Candlestick investors have the advantage of visually evaluating what is occurring in a market trend. Even those trends that are absolutely flat can reveal valuable information. A series of Doji's have significant implications. The information built into each candlestick signal indicates the investor sentiment. If one Doji represents indecision, a series of Doji's illustrate much greater indecision. There are some very simple rules/assumptions that can be applied to trend analysis after a series of Doji's. The trend will usually move in the direction of how they break the the trend, either to the downside or the upside. Today's lower trading implies more continued downside.
What would alter that prognosis? Going back to the simple statement provided by the Japanese rice traders, "Let the market tell you what the market is doing!" The past few months have illustrated a slow up-moving market trend that have periods of mild pullbacks before the trend moves higher. Today the Dow just touched the 20 day moving average and closed very close to the 200 day moving average. Having the ability to visually witness candlestick formations allows an investor to make quick and accurate trend analysis predictions. What would make a downtrend very obvious? Continued weakness in the premarket futures tomorrow. But what would indicate the markets were just in a mild pullback? Positive premarket futures followed by a Harami signal. That would indicate the 200 day moving average was now acting as support after it had acted as resistance two weeks ago. This may sound like relatively simple assumptions but those assumptions are much more clearly understood when using the information provided from candlestick signals. The analysis of the general market trend is very important for the implementation of portfolio positions.
Candlestick analysis provides very simple rules. The utilization of those rules creates a trading platform that keeps an investor positions on the right side of the market. Knowing there was weakness coming into the indexes this morning allowed for immediate decisions to be made upon positions that have shown the breach of specific indicators. CSIQ had closed just below the tee line on Friday. It needed to show strength today to continue to hold this position. However, the weakness in the premarket futures and the weakness in the stock price clearly revealed the tee line was not going to be held. This allowed for immediate closure of the position. This may not sound like a sophisticated approach to investing but the simple common sense application of candlestick rules illustrates the times to get into a position and a time to get out of a position with a fairly high degree of accuracy.
Will all stocks go down during a bear market? Definitely not! Candlestick analysis makes it easy to see which sectors are maintaining strength in a weak market. Currently the biotech stocks are picking up strength and do not seem to be affected by the sideways movement/downtrend of the major indexes. Why is this important to know? When candlestick signals can reveal immediately whent strength is coming into a sector, the candlestick investor can be establishing trades well before the rest of the market investors are able to identify the strong sectors and then start coming into them. Getting in early allows the candlestick investor to take advantage of the following buying once it becomes apparent that sector is not be an effective by a market selloff.
Candlestick Forum Online Training clinic June 20 and 21st - Investment programs become much more effective when you understand why they work. If you have been getting bits and pieces of the common sense logic built into candlestick's through the Monday night and Thursday night online trading sessions, you will dramatically improve your understanding of why candlestick signals work effectively when you see it put into an orderly chronological presentation. Steve Bigalow demonstrates the effectiveness of candlestick analysis in a clear to understand training process. His step-by-step teaching process allows investors to gain insights into candlestick signals. This knowledge puts investors in the same thought process stratum as the professional investor. You will learn how to illuminate the emotions of your investment decisions. You'll learn common sense stop loss procedures. Entry and exit strategies will be demonstrated that greatly reduce your participation in failed trades, greatly improving are correct trade ratios.
This is not theoretical training. This is the nuts and bolts of how to make money in the markets. Members Chat Session tonight at 8PM ET. Join Steve tonight for FREE and the rest of this week in the Live Trading room using the password c911. Click here for instructions.
The Candlestick Forum Team