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Stock Diversification

Stock diversification is a key to successful long term investing as well as risk management in day trading. Stock diversification protects traders and investors from the investment risk of putting all of their eggs (investment capital) in one basket (stock). A well balanced stock portfolio will include stocks from different market sectors so that adverse economic events will not drive all stock prices down at once. For example, in long term investing an investor will often choose banking stocks or stocks of consumer product companies as part of his portfolio. These stocks are commonly considered to be recession resistant. He will then add growth, high tech, or manufacturing stocks which, commonly will do better in a strong economy. Stock diversification and hedging are two common means of limiting investment risk. No matter what techniques are used to limit risk or offer gains, fundamental analysis of a stockfs margin of safety as well as its intrinsic stock value are needed for picking stocks and managing a stock portfolio. Technical analysis with reliable and easy to read Candlestick analysis offers investors and traders accurate assessment of market sentiment for both profits and investment risk reduction.

Stock diversification is not only used by long term investing but in day trading as well. To limit investment risk a trader can limit the amount of capital he risks in a trade. He can also choose a range of stocks from the very volatile to the very stable. The more volatile stock trade may offer more profit while the more stable stock will be less risky. During times of high market volatility it is also possible to balance risk with stock diversification in trading.

Stock diversification is not a cure all. Anyone following a buy and hold investment strategy needs to follow his stock routinely with both fundamental and technical analysis. With the use of Candlestick stock charts an investor can anticipate a market correction or continued market trends and buy stock, sell stock, sell short or trade options accordingly. Hedging by buying options goes with stock diversification as a reliable means of limiting risk. An investor can protect a stock position by buying puts on a rising stock, for example. If the stock corrects he can exercise the option contract or simply exit the position by executing the opposite trade. In exercising the option he sells the stock at the strike price, the contract price even though the spot price or market price is now lower. If he exits his options contract he keeps the stock but gains an amount roughly equal to the drop in stock price. If the stock does not correct the investor only loses the price of the options premium. Using a combination of stock diversification, hedging, and market analysis with Candlestick patterns provides the investor and trader a means of profiting from stocks while containing risk. No matter whether traders diversify or use hedging techniques profits are made by anticipating the market and that is where traders prosper with Candlestick charts.


Market Direction: Candlestick analysis is merely the identification of what investors will repeatedly do during specific price movements. This is not a theoretical statement! The proven results are based upon hundreds of years of price movement observations. The Japanese Rice traders identified candlestick signals and patterns that produced high probability results. As candlestick investors today, we benefit from these hundreds of years of observations. Being able to identify profitable patterns produces the ability to participate in profitable trades without having to know "why" those trades were producing bullish moves. A candlestick signal is the cumulative buying and selling of investors based upon their knowledge and research of a trading entity.

Price movements are not a random aspect of the markets. Investor sentiment reoccurs in the same manner by the majority of investors time after time. Learning how to anticipate the results of price patterns creates the opportunity to consistently pull profits from the markets. Allowing the candlestick chart to tell you what is occurring in a price movement is much more accurate than listening to a so-called "experts" opinion. The market will tell you what the market is doing.

Learn how to trade ETF's - Tonight's chat session will be an open session for everybody. Brad Powell would demonstrate how to trade ETF's effectively. This is the presentation that was moved from last Thursday night due to technical problems. Join us tonight to learn how to trade ETF's. Steve will also provide a few minutes of market/chart analysis after Brads presentation. Passcode tonight is c123.

Chat session tonight is at 8 PM ET.

Good Investing,

 

The Candlestick Forum Team


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