Candlestick Trading Blog

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What constitutes a successful stock trade? Success in trading stock is defined by making a profit. However, one stock trade, a buy or a sell, is only half of the job. The day trader needs to buy and sell, almost always on the same day. Picking stocks with low prices that seem to be on their way up may look good until a market trend reverses and the price goes down. What started out looking like a good stock trade becomes a recipe for loss. Successful stock trades come in pairs. In and out with a profit is what works.

Trend trading is when the trader assumes that a stock going up will keep going up and one going down will keep going down. The trader buys on the way up and shorts the stock on the way down. A variation of trend trading that requires very rapid execution is scalping. Scalping works on highly liquid stocks. The trader aims to take advantage of market inefficiency when volume is very high. This technique applies technical analysis and looks for stocks that are over or under bought, support and resistance zones, trend analysis and trading channels. The basis of scalping is to enter and exit the market quickly during periods of high volatility and, typically, wider trading ranges. This is trend trading on steroids. Scalping relies heavily on trading software that reads technical indicators and offers suggestions that the trader takes or not. Scalping is for experienced traders and not for someone just learning the basics of stock investing.

A way to trade stock without the second to second ulcer causing potential of scalping is options trading. The trader or investor can buy options, either put options or call options, when he or she believes that a stock will move appreciably up or down but does not have the time or expertise to execute very rapid trades to make a profit scalping. The trader or investor can trade stock options by buying a call. This gives him or her the right to buy a stock after if has gone up but at the original contract price, called the strike price. He or she then sells at the market or spot price and pockets the difference minus the premium paid to buy the option. To buy put options is to buy the right, but not the obligation, to sell a stock at the strike price if it goes down in value. The options trader then buys the stock at the lower price while selling at the higher price and is richer by the difference, minus the premium.

A successful stock trade is often the result of understanding Candlestick patterns and Candlestick trading tactics. These techniques are hundreds of years old and work as well today as when they were invented in Japan. The basis of a successful trade is understanding the stock involved as well as market sectors that come to bear on the stock. Knowing trading tools and how to use them is essential for trading to win. Whether in day trading or after hours trading a practical trading strategy, diligently applied, will help in picking stocks to trade and making successful stock trades.