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European Style Option

A European style option is an option in which the purchasers of options contracts can only execute the contract on the expiration date, not before. In this regard a European style option contrasts with an American style option, which can be executed at any point in time before expiration. A European style option, just like an American style option, can be used for options trading in stocks, commodities, Forex or futures. For traders in options there is still plenty of profit potential in trading a European style option. In buying puts and buying calls the trader will not be able to execute a contract and buy stock or sell stock until the end of the contract period. However, he will be able to exit his position with a profit when the stock price, commodity price, or futures price he is following with Candlestick analysis performs as anticipated. In order to exit a position in a European style option the trader simply executes the opposite trade on the same equity with the same expiration date. If he was buying calls then he sells calls. If he was buying puts, then he sells puts and he is out of the contract.

In the USA European style options are seen on the over the counter market while American style options are typically seen in standard options trading exchanges. Because of the increased flexibility that an American style option offers this style will often trade at a premium when compared to the less flexible European style option. Nevertheless, unless an investor is looking to pick up a stock for long term investment at a low price there is little difference between the two types as both types of contracts can be exited when the trader simply wants to take his profit and not buy or sell the underlying stock, commodity, or future in question. In trading options of either style the trader will be wise to investigate the basics of the equity in question. This is fundamental analysis and it will give the trader a broad view of the potential of the underlying equity in question. To guide the daily buying and selling of options the trader will use technical analysis with Candlestick chart formations. Thereby he will better understand market sentiment and be able to anticipate market trends and market reversal in so far as these market factors will affect the equity underlying the option in question.

Trading a European style option versus and American style option does little to change the leverage and investment risk aspects of options trading. Because in each case the trader can invest only the price of the options premium his capital outlay is the same. Because in each case the trader can exit the position with a profit and not buy the equity his degree of leverage is the same. Because in each case the trader is never obligated to buy the underlying equity unless the price performs as expected investment risk is minimal. In the end the most important aspect of trading a European style option is the typically the same as for an American style option. It is to follow the price of the underlying equity with technical analysis tools such as Candlestick patterns in order to accurately anticipate price changes and to trade accordingly.


Market Direction: The visual capabilities of candlestick signals allows an investor to better analyze what price movements should do at specific levels. The Dow has just now pushed through the resistance level of the recent downtrend. This was fairly well expected based upon the candle formations that came up to that resistance level. Whereas other technical methods may have been tentative in their portfolio positioning prior to the breakout, the candlestick formations were illustrating strong price movements. This observation is much more important than what the actual formations are showing. Having a more clear understanding of what a price trend has a high probability of doing permits an investor to be positioning a portfolio with much more confidence.

DOW

Understanding the results of candlestick patterns also reinforces the magnitude an investor is establishing long or short positions. As can be seen in the RES chart, establishing a long position over the past few days was done so based upon the identified patterns. On a short-term basis, a J-hook pattern indicated a price movement that would be equal to wave one, prior to the profit-taking wave two. Additionally, the longer term chart revealed a Fry pan bottom pattern that was right at the breakout area. Adding the results of a J-hook pattern to the results of the longer term Fry pan bottom breakout, this created an extremely high probability trade result. The price should continue higher. Furthermore, the price should not only move higher, but based upon the results incurred after a Fry pan bottom breakout, the price should move to the upside with excessive force.

RES

All boats will rise in a rising tide. Many stocks will move higher in a rising market. Candlestick analysis allows an investor to take advantage of price movements that are going to produce excessively high rates of return under normal market conditions. To not take advantage of the information built into candlestick signals is doing a disservice to one's own investment capabilities. The Japanese Rice traders accumulated   hundreds of years identifying where price trends are reversing and which price trends have the greater profit potential. The successful investor is going to try to find the best trading programs. A trading program does not remain in existence if it doesn't perform successfully. Japanese candlesticks have been around for hundreds of years. That should eliminate one vital fear most investors have when learning a new trading technique. "Am I learning something that does not necessarily perform well?" If candlestick signals did not work successfully, we would not be looking at them today. Please take the time to learn how to use candlestick analysis correctly and you will have constant control of your investment future for the rest of your life.

What is an effective tool for learning how to use candlestick signals successfully? Although the Candlestick Forum has very easy to understand training CDs on all aspects of candlestick analysis, most investors do not become proficient from just reading about how to use a trading technique. New members to the Candlestick Forum website should be aware of the daily chat room. This is where an investor can reinforce and expedite the learning process. There are many good stock trade ideas being passed back and forth each day. Please take advantage of this valuable tool. It will definitely speed up the comprehension of correct analysis using candlestick signals.

Chat session tonight at 8 PM ET . Learn how to cultivate the trading portfolio to the best possible trade positioning.

Good Investing,

The Candlestick Forum Team


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