Candlestick Trading Blog

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With a history of over 160 years, futures trading has a rich past as well as a bright road ahead. Although futures trading has been around for such a long time, it is currently viewed by many as the ”next new thing.” With the buzz that has been surrounding futures, a little history lesson in commodity trading might be in order.

The Origins of the Futures Markets
The origins of futures markets are found during the 1840’s, when Chicago was transformed from a sleepy town to a booming commercial center. No longer isolated from the East, Chicago now was connected by both the railroad and the telegraph. About the same time, the McCormick reaper was introduced; this machine revolutionized wheat production and lead to tremendous increases in yields at harvest time. Farmers from throughout the Midwest came to Chicago to wheat dealers; these dealers in turn shipped the wheat all over the country.

When a farmer arrived in Chicago, he was hopeful that he would receive a fair price for his crops. Unfortunately, the city had very few storage centers and no standard methods for weighing or grading the grain, creating a very unstable market. In the end, a farmer was left hoping for the best, having to rely on the dealer to be fair with his evaluation and pricing.

Creating a Fair Solution
In 1848 a central location was opened, the predecessor of futures exchanges, where dealers and farmers could meet to deal in “spot” grain; this was similar to an open market where dealers paid cash to farmers for on the spot deliveries of grain.

The next phase occurred when farmers and dealers began to agree on futures contracts; this business practice was beneficial to both the farmers and the dealers since both could know in advance exactly what the price of the wheat would be. The two parties may have exchanged a written contract detailing this agreement and may have even exchanged a small amount of money representing a "guarantee."

History in the Making
Over these contracts became common and could even be used as collateral for bank loans. Transferability was also created at this time. If a dealer held a futures option but didn’t want to take delivery, he would sell his options to someone who did want the grain; the same might occur if the farmer didn’t want to deliver at a certain price as well. Factors such as weather and harvest size had a direct impact on the cost of the grain.

No long after this form of arrangement took place, others got involved that had no intention of actually buying or selling wheat. These people were speculators who looked for the price fluctuations and bought and sold contracts, taking the investment risk in order to capitalize on these price differences. Even in these early days, the very principles of futures trading could be seen as modern-day futures trading was born and took shape.

Some Things Never Change
Just as the basis of commodities trading is unchanged from the 1840’s, the best method for tracking and analyzing the futures market has its basis in history. Japanese Candlesticks was invented during the 17th Century for use in the Japanese rice markets. The principles used have evolved into the very best solution for market analysis in today’s futures markets.

Conclusion
Part of understanding the present is understanding the past. The principles of the American futures market have their origins in the 19th Century but they continue to go strong even in the 21st Century. Such is the beauty of the history of futures.

Everybody enjoys pulling out that dusty old box that holds the family photographs; you remember, the one with Uncle John on his tractor, another with parents wearing those awful hats on their cruise, and of course the one of you crying while you sat on Santa’s lap. There is something refreshing about looking back at the past; it seems to help strengthen our memories and even make things in the present seem clearer. The same is true with looking again at the stock market principles that you have already learned. The things that have made you successful in the stock market so far are good to remember.

Remembering What Worked in the Past
You have made money and your stock trading plan has been successful. Now is the time to pull it out and review the stock market principles that you included in it. Have you implemented stock market strategies that you never put in your plan or did you change your strategy and fail to write it down? Now is the time to update things and take a trip down the “memory lane” of your stock market principles.

In addition, take a look at other investors; there are always things you can learn from others that have found success in the market. Have you ever read anything from Benjamin Graham? He is known as the “Dean of Wall Street”. How about anything concerning the strategies of Warren Buffett? He is widely considered the greatest investor ever on Wall Street. People that are great successes usually have implemented great stock market principles that create their success. Take the time to learn from the experts. As you are beginning investing in the stock market, you can benefit from those who have already been there and from the stock market principles that are important to them.

Bad Stocks are Always Bad Stocks
This stock market principle is like holding a bad hand grenade; the two best things to do with a faulty grenade are to avoid having one and if you do have one, to get rid of it fast. The same is true of bad stocks; even though stock volatility can give the illusion that a bad stock is ok, you are still holding a faulty grenade. One wrong move and you can be left with some devastating consequences. Stay true to your stock trading system and don’t get caught up chasing bad stocks.

Remember that Investing Can Be a Game of Chance
If you choose to participate in day trading, IPO flipping, or buying from your “friends’” tips, you might as well have taken your investment money to the local casino. Remember the stock market principle that technical analysis and stock charting techniques eliminate risk and improve your chances to make money investing in stock.

Any Job is Easier if You Use the Proper Tools
No matter what you are doing, it’s hard to succeed without the right tools. Albert Pujols is a great baseball player but he will struggle mightily if you take away his bat and ball glove. This is also a wise stock market principle; you might have the best investment strategies ever but if you are not using your fundamental and technical analysis tools, you just won’t get the results you want. In addition, if you are using a stock investing system like Japanese Candlesticks, you will increase your chances of success even more. This system of chart and stock market data analysis gives you the ability to view today’s events to predict future trends.

Conclusion
The stock market principles that shaped your trading plan before are still good for today. Like you did with those dusty old photos, you should pull out your trading plan and look over the stock market principles it contains. The good news is that you won’t have that embarrassing picture with Santa to view!