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Trading Stock Volatility

Without changes in stock prices there are few profits to be made in trading stocks. Thus, it is in trading stock volatility that traders make their money. Certainly there are dividend stocks that have stable prices. These can be good gwidow and orphanh stocks in that they provide a predictable rate of return and typically have a good margin of safety in the form of property, low debt to asset ratio, and other hard assets. The problem with such overly secure dividend stocks is that they may barely keep up with inflation. They are typically found in the stock portfolio of a retiree and not among the stocks held by someone looking for better than average profits or traded by a day trader.

Stocks in upward market trends rarely move up steadily and often are subject to a stock market correction. This stock volatility allows a person interested in long term investing to get into the stock on a correction in order to enhance his long term stock profits. The short term trader will commonly trade just stock volatility, buying stock on the correction and selling stock on the rebound. To trade stock volatility the trader can use Candlestick stock charts to accurately predict the next profitable moves in stock prices. Likewise the long term investor will take advantage of Candlestick analysis in order to optimize the prices at which he buys or sells stock.

Trading stock price volatility profitably requires that the trader find volatile stocks. It requires that the trader chooses a profitable level of volatility. For example, an extremely volatile stock may hold great profit potential but may be so volatile as to make technical analysis with even Candlestick pattern formations difficult to use profitably. On the other hand the stock price of a stock with little volatility may be easy to predict by consulting Candlestick patterns but may not be especially profitable. Thus trading stock volatility requires an ability to pick the right stock with the right degree of predictable volatility, do the appropriate fundamental and technical analysis and trade effectively with Candlestick trading tactics.

Trading stock volatility is not confined to any special market sectors or price ranges of stocks. In picking stocks to trade large cap stocks may be appropriate as can be small cap stocks. The trader only needs to be knowledgeable about what fundamental factors are driving stock price and to apply good technical analysis of price movement using time honored tools like Candlestick chart analysis. One issue in successful trading of volatile stocks is the degree of liquidity the stock offers. If the stock trades in high volume the traderfs technical analysis will be more effective. Thus a volatile large cap stock may be more reliable to trade than a small cap or penny stock. The point of this is that extremely volatile stocks may, potentially, offer huge profits but they will also offer huge losses. If the trader is unable to accurately use his Candlestick signals to understand where a stock price is going he needs to stay out of the trade. The point is to make money in trading stock volatility and to do it time after time. This approach requires knowledge and discipline but can lead to lifelong profits. Candlestick signals are not a gamblerfs tool. They are the tools of disciplined and successful stock traders. Use them accordingly.


Market Direction: The markets appear to be forming some bottoming  candlesticks. When the Dow and the NASDAQ start showing different signs of strength or weakness, a change is occurring in the market direction. Today's trading action revealed the Dow trading weaker most of the day while the NASDAQ traded stronger. There is also a great divergence in the number of stocks that were trading positive as to those trading negative. It could be seen over the past few days that during considerable market weakness, there was still a good number of stock positions trading positive. This would give more of an indication of profit-taking in the markets versus a full-fledged reversal.

DOW

A candlestick signal is considered a signal because it has been identified through hundreds of years of visual analysis to be a very high probability formation that is going to cause a reversal. A candlestick pattern is the visual identification of a price movement that has a high probability result. These are powerful indicators. What becomes even more compelling is the combination of specific candlestick signals Incorporated into the development of a price pattern. The SWI chart reveals this combination.

SWI

Note how the strong wave one has been followed by profit-taking. Today's kicker signal clearly indicates the profit-taking is over and a J hook pattern is in progress. It is this type of evaluation that allows a candlestick investor to be in the right trades at the right time with an extremely high degree of accuracy. Candlestick analysis provides the visual trading platform that puts investors in the right trades at the right time, providing the opportunity to be in extremely strong price moves, with an extremely higher percentage probability than the average investor.

Fraternity stories! Usually stories that have little social redeeming value. They often involve excessive alcohol, sexism, and debauchery. And they are usually only enjoyed by the fraternity brothers that participated in the story, which is now usually been exaggerated through the years. However, one of the best/funniest one-liners came from a fraternity story. Usually on Saturday morning, our fraternity brothers that lived in the house would congregate in the dining room on the main floor for breakfast. Many were hung over and bedraggled. As each one would enter the dining room, somebody that may have known of that person's antics from the night before would yell out an observation of that persons past night activities that would usually create another round of raucous laughter. The same was true when George came through the dining room door after another late night evening, attempting to persuade his date whom he had once again lured into bed, but without successful results. The sounds of the under the covers wrestling match apparently could be heard through the walls. When asked if he was ever going to learn that it was a mistake to try to compromise the virtues of this particular young lady once again, he replied, "Don't worry, I'm not the type of person to make the same mistake seven times." Everybody in the dining room was roaring with laughter.

Unfortunately, investing brings forth that one-liner quite often. How many times have you told yourself that you are not going to make that same mistake again. The same mistake you have made over and over! The human mind works in a much different fashion when it comes to our own investment funds. Our investment practices seem to follow what should be the obvious but usually more correct, what seems to be the easiest. If you have ever found yourself yelling, I'm not going to make this mistake again! Then Candlestick Profits - Eliminating Emotions with Candlestick Analysis is a must read for you. It delves into the mental mistakes most investors do not address. There are numerous books that point out what investor mental flaws are but there are very few books that then go on further and shows how to correct those flaws. Candlestick analysis is the evaluation of price movements based upon common sense interpretation. The basic "truisms" found in candlestick analysis provide a strong foundation for correcting improper investment thought processes. Please take the opportunity to peruse the table of contents on the home page. If you have ever told yourself you're not going to make that mistake again, you need to read Candlestick Profits - Eliminating Emotions with Candlestick Analysis.

 

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Good Investing,

The Candlestick Forum Team


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