Option trading education becomes a much easier process when utilizing candlestick analysis. Option trading education usually involves 'implementation' for option trades. Many investors want to obtain an option trading education as part of their investment strategy. Unfortunately, an option trading education without knowledge of the direction (or the non-direction) of the underlying trading entities is worthless. Candlestick analysis becomes the focal point for directional analysis. Once an investor learns how to use candlestick signals and trading patterns successfully, then they can add the strategies developed through their option trading education.

An investor should not make the mistake of emphasizing option trading as their primary profit strategy. Establishing an option trade should be one of the investment methods for exploiting  price moves, after the candlestick analysis has been completed. Many investors try to find a trade that will fit the option strategy that they are trying to implement. The correct option trading education is learning the different option trading strategies so that it can be applied appropriately to fit the analyzed trade.

Candlestick analysis revealed that the markets were going to sell off over the past week. This became a very simple analysis when understanding what the signals were revealing. An Evening Star signal, right at a major moving average, becomes a strong sell signal, as we witnessed in the Dow this past week. The indication of the failure of the 50 day moving average now becomes a potential bearish pattern. Utilizing this knowledge allows investors to better analyze market direction. The same patterns in individual stocks produce the same information. And, that information is reinforced with the knowledge that the market in general should be getting weaker. Shorting those positions is one strategy. Buying puts would be another strategy. Buying puts and selling calls would be yet another strategy. The candlestick signals provide the clear  analysis of when to buy and when to be sell. Your option trading education should be learning the different strategies to take advantage of price direction. The Candlestick Forum highly recommends the teaching methods of Options University. Knowing which direction a price is going to move and the knowledge to apply the best option strategy for exploiting that move (while minimizing your risk) makes for a very powerful profitable combination. Click here for more information on Option University programs          (We have received numerous requests for information on option trading..  Be on the look out….. within the next few days I will be sending you information for a ‘pilot’ program I have been urging my friend, Ron Ianneri, to put together. I know you will be pleasantly surprised.)

Market direction - The Blue Ice Failure pattern, as described by Dave Elliott of WallStreetteachers.com, reveals that when prices fail to come up through a moving average that it just came down through, the next leg of that price move is down to the previous lows or the next major moving average, the 200-day moving average. As seen in Thursday's trading, the Dow went down through the 200-day moving average and formed a hammer/doji signal. Stochastics are in the oversold area. Is this the bottom? Probably, or there could be some junkie trading at these levels. click here for more trading patterns and technical analysis products from WallStreetteachers.com.

DOW

What does this information provide for the candlestick investor? It is time to start watching for buy signals and be ready to cover short positions. Long positions that are establishing candlestick buy signals should be slowly added to the portfolio. The probabilities indicate that this is the area to be adding long positions. Can the market go down further? Certainly, but if that  occurs after you have added some long positions at these levels, the stop loss procedures become very easy to visualize using candlestick analysis. Essentially you'll be buying long positions at the right areas. If the market does not confirm the buying, the long positions will be closed out immediately with small losses, waiting for the next buy signal.

The probabilities are now better for looking for long positions than they would have been three trading days ago. Company charts that are revealing good buy signals can start to be added. One strategy would be adding a half position upon seeing a buy signal being confirmed. The other half of the position can be added upon seeing the price closed strong on that trading day. This makes for a conservative strategy for entering a trade. Further details can be found in the entry and exit strategy e-book.

MWY is an example of a strong buy signal chart. Buying upon confirmed strength after the Bullish Engulfing signal would have a very simple stop loss strategy. Being able to analyze where the bottom has occurred and identifying what potential pattern could be forming. a  potential Scoop pattern makes this a high probability trade situation. If the Scoop pattern performs as expected, the 200 day moving average could be the potential target during the next uptrend. This analysis is made based upon identifying candlestick signals creating the buy situation and then using candlestick analysis patterns to analyze where a price  can potentially move to. Isn't this the investment strategy that every investor would like to have? Where to buy, where is the stop loss point, and what should be done at specific levels of the uptrend.

MWY

Use the information that has worked for centuries to improve your investment strategies. Whether buying stocks or putting on option positions, being able to analyze your entry and exit points produces a much higher profitable trading format than other investment methods. The candlestick signals reveal a tremendous amount of information. Use that to your advantage.

Chat session - chat session tonight at 8 p.m. ET

Good investing,

The Candlestick Forum Staff