Candlestick Trading Blog

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Governmental Budget Surpluses or Deficits
A country’s ability to govern within the money available in its budget is a huge factor in its overall fiscal health. Foreign exchange trading views a budget surplus as a favorable factor in the worth of a currency while a deficit can lower the value of a currency when trading Forex. Such a theory is evidenced when the United States announces its annual budget or makes monthly statements about its fiscal standing and the Forex news and markets adjust based on the reports.

Trade Deficits or Surpluses
This is another economic factor that can have a huge impact on the Forex markets. Trade deficits and surpluses speak to the economic health of a country. In most cases, a country that has a trade surplus is more prosperous and stable than a country that is operating at a deficit. For example, foreign exchange trading views the American dollar as less stable and less valuable because of the huge trade deficits that the country experiences. Forex currency trading for beginners should always include a discussion of the effects of trade imbalances on the price of currencies in foreign exchange trading.

Inflation
There tends to be a delicate balance between the phenomenon of inflation and recession. The state of a country’s economy is never stationary. It is either growing too fast or too slow. This pendulum-effect is not lost on successful traders in foreign exchange trading. A recessed economy can have a positive effect on a currency because investors perceive that people have more money to spend. Inflation tends to have a negative effect on investment philosophy because it reduces people’s spending power and in turn, demand for a particular currency in foreign exchange trading.

The Power of Technical Analysis
With so many outside factors involved, how can investors prosper in foreign exchange trading? Like investing in the stock market, the answer is relatively simple. For an investor to be successful in foreign exchange trading, he or she needs to follow some simple rules: create and follow a trading plan, perform technical analysis and use a charting system to monitor movements in the market.

By outlining your objectives and investment strategies in a non-emotional way, you are able to find investment methods that work best for you. After doing this, your technical analysis becomes very important because knowing the conditions affecting a country’s currency can make it easier to predict what it will do. Finally, using a charting system can help investors to see trends in foreign exchange trading. Finding a trend can go a long way to an investor make a profit. The best system for tracking and charting currency is Japanese Candlesticks. This system has a proven history of helping traders to identify trends and make successful trades.

• Choosing an online options trading solution



• Creating an options trading plan



• Paper trading options



• Technical analysis

It is important to consider your trading plan and do some Internet research before you decide. Different firms offer different rates and levels of service, so it is important to consider your own investment philosophy before you choose. If you are looking for low cost and don’t mind doing your own fundamental analysis, you will likely choose a different online options trading provider than if you want a lot of the research to be provided for you.

Creating An Options Trading Plan
This is your insurance policy against making emotional investment mistakes. You will outline your entire investment strategy here. Conservative or speculative, long-term or short-term profit taking, stop loss strategies....you should include it all here. Investors that are not prepared well typically make mistakes when the pressure is on and your trading plan can eliminate this problem by taking the emotion out of your online options trading decisions.

Paper Trading Options
Learning the hard way isn’t so bad if it doesn’t cost you anything. That is the whole reason for paper trading options. If you have $50,000 in your paper trading account and you lose it, no problem right? Would you say the same thing with $50,000 of your hard-earned money? I doubt it. Your paper trading account can help you get acquainted with the online options trading broker you have chosen as well as testing your trading plan. This is an excellent way to learn how to invest so take advantage of it.

Technical Analysis
Technical analysis is central to the success of every trader. An investor who doesn’t do any technical analysis probably isn’t going to last very long. This is another factor to consider when choosing your online options trading account. If you want your technical analysis included as part of your package you will probably pay more than if you do your research at other technical analysis sites. This goes back to the level of support that you want to receive from your online broker. The more you get, the more you’ll pay. Remember one thing; be honest about your needs and tendencies, then select a broker based on them. Paying a little more in commissions is a goodthing if you need your broker to provide more services to you.

What Is An Inverted Yield Curve?
Like the signals you can find when you trade stock, the investment timing of an inverted yield signals a potential change of direction of the economy. An inverted yield curve occurs when short-term Treasury note yields are higher than long-term Treasury bond yields. When this occurs, it means that investors are more favorably inclined to purchase 10-year Treasury bonds, at a lower yield, than 1-year Treasury bonds. Such trading and investing can reveal a trader’s technique for dealing with periods when it is less secure to trade stock and a variation on one’s trading plan is necessary.

With this trading system, investors believe they will make more by holding onto the longer-term bond than if they kept buying and reinvesting in short-term bonds or trading stocks which will return much less in the near future. While this seems illogical because long-term investing is usually rewarded with better interest rates since investors don’t have access to this money. However, if investors think that the economy will be slowing over the next couple of years, and then speeding up again in the long-term future, they will be content to tie up their money until then.

Part of learning how to invest is knowing the signals behind such moves. In this case, an inverted yield curve suggests a move towards a recession, hindering those who normally trade stocks. This phenomenon occurred just before the recessions of 1981, 1991 and 2000. If making money investing in stock is possible, it suggests to many economists that there is enough liquidity in the economy to prevent a recession. The inability to successfully trade stock can be a strong indicator to many analysts that the economy is headed for a downturn.

Can Investing In Bonds And Trading Stock Co-Exist?
These types of investing seem so different that it’s easy to understand such a question. The truth of the matter is that these two investment philosophies SHOULD be used together. They are the “yin and yang” of portfolio diversification. In a strong portfolio, speculative investments should be offset by stable, long-term investments. That way, if an investor loses his or her speculative ventures, the long-term investments are there to stabilize the portfolio.

When you trade stock or invest in bonds like this, you are following the basics of defensive investing. This discipline focuses on a strategy that works over years and doesn’t get overly excited about short-term highs and lows. Speculative investments are balanced by trade options that are lower yield, but lower risk as well.

In The Tea Leaves.....Or The Rice Fields
This isn’t reading tea leaves, using a Ouija Board or Tarot Cards....the idea of stock market predictions is that many people believe that the cycles and trends in the stock market are reoccurring and that there are signals of what is going to happen. Successfully analyzing stock market indexes allows you to find the patterns and draw educated conclusions about what a particular stock is going to do, making it easier to know how to invest in the stock.

One such method of stock market predictions is the one that we believe in and teach....the Japanese Candlestick method. We believe in it so much that our name, the Candlestick Forum, is derived from this method. Learning to make stock market predictions with Candlesticks is a matter of learning how to create chats and evaluate the major Japanese Candlestick patterns. This method dates back to the 17th Century in the rice markets of Japan when a man witnessed the repetitive nature of the trade and successfully implemented his way of monitoring it. If today’s markets, Candlesticks has become a powerful tool for not only charting the daily activity of a company but also for making accurate stock market predictions and helping investors make money investing in stock.

What Is Different About Stock Market Predictions With Candlesticks?
There are a number of ways to make stock market predictions. For many people this has entailed learning how to read stock charts and listening to the latest Wall Street news. Myself, I bounced around for a number of years trying different methods and largely coming up empty. When I was introduced to Japanese Candlesticks I found its abilities to predict the stock market very compelling.

This method is made up of three things: the charts, the symbols and the patterns. In Candlesticks, the chart is really about the same as with any other method. You can set your frequency for review (usually daily) and then begin adding the symbols. Whether you are looking at stock charts with rising trends or falling ones, the chart itself is pretty much the same.

The symbols are a different matter. Each day the symbols for Candlesticks have a great deal of information included in a simple looking package. Open, close, high, low and whether to stock closed up or down are all included in one symbol. Other market systems don’t even have this much info to try and make stock market predictions....but Candlesticks has more!

Finally, these symbols are combined to create patterns. The major Japanese Candlestick patterns are repetitive combinations of the symbols and how they respond to each other over a period of time. Whether you find “Dark Cloud Cover” or a “Shooting Star” you are able to recognize these patterns and make stock market predictions based on these Candlestick chart patterns.

The Japanese yen is a widely traded and held currency. It is regularly one of the most active in currency trading and the yen is frequently held in reserves by other governments as part of their investment strategies. This has been the case in New Zealand and recent events there underscored the need for successful Forex traders to regularly monitor the news. Such an effort can help protect the value of current holdings and contracts as well as helping to identify upcoming acquisitions.

Economic Events In Japan
The Japanese economy has been growing at a brisk pace, allowing the government to raise interest on Japanese government bonds in an effort to draw investment back to Japan. The result of this increase in bond rates has a double-edged effect. Investors are drawn to invest in Japanese bonds as hedge funds and the Japanese yen experiences a continued strengthening. This strengthening of the Japanese yen is also has an effect on the Forex markets as the stronger Japanese yen has been making advances against various other currencies.

On The Currency Front
Nowhere is the effect of a strong Japanese yen on commodities trading more evident than in New Zealand. The Federal Reserve of New Zealand sold its holdings of Japanese yen on June 11, 2006 in order to slow down an investment rally that has been created by people borrowing cheap Japanese yen in New Zealand in order to buy New Zealand's bonds and bills. This tactic offers an extra yield over the borrowing costs in Japan.

The result of this technique has been a strong run by the Japanese yen against the New Zealand dollar, with the Japanese yen increasing by 26% over the past year against the dollar. The Reserve claimed that this sustained rally had been costing New Zealand jobs as exporters shifted manufacturing opportunities overseas. While the entire process is about governmental policy, the importance of these events should not be lost on those starting to learn Forex trading.

A Common Occurrence
Successful traders understand one thing. The events that transpire should have an effect on the strategies of investors. It is impossible to trade profitably without having an understanding of the dynamics in the Forex market. This strengthening of the Japanese yen should have investors researching the possibility of continued growth and searching for other potential currencies to pair with the Japanese yen in order to implement more successful investment strategies.

Is The American Dollar Next?
In addition to the Japanese yen, another currency starting to make it back into the Forex news is the American dollar. After a sluggish period in the economy, indications are that the economy has rebounded, jobs are being created and that the dollar will continue a recent period of growth. Again this merely underscores the importance of understanding that following the news can have a positive effect on your commodity investing.

• Fundamentals – This is the financial nuts and bolts of the company. What is its core business? Is the company financially sound? Is the company growing? These are the types of questions that make technical analysis sites so popular; if you are really interested in taking your investing to “the next level”, you will research the stocks on each and every trade that you consider. This isn’t an optional idea; in order to understand the strength of a company, you simply must invest time to know its corporate and financial stability before determining your investment strategy.



• Price History – You need to know what other investors have been willing to pay for a particular stock in order to evaluate its potential. If you research a stock’s price history and it has reached its all-time high, it’s very possible that it won’t sustain its movement past that point. Stocks have resistance points and you may find you’re making an investing mistake if your stock research doesn’t include this important information.



• Price Target – A good technical analysis tool will help you to not only determine what the price of a stock has done but what it is likely to do in the future. Such stock research can be derived from a tool like Japanese Candlesticks which helps investors to see future trends with its Candlestick signals. By using these signals along with their stock research, investors can better identify what prices will do in the future.



• Catalysts – These are the things that will change a buyer’s perception of a stock and create interest in purchasing shares. Favorable Wall Street news, acquisition announcements and other business moves can generate this interest. Stock research for catalysts usually comes from investment publications or the evening news.



• Comparisons – Those who research stocks place a strong emphasis on the industry where a stock is found, also known as its stock sector. How a stock fares within its particular sector is crucial to determining how it is performing. A stock that isn’t one of the leaders in its sector will have a difficult time being a successful mover in the market.

So How Much Does It Cost When You Are Buying Stock?
This is actually a very vague question. It is influenced by the variables that surround it. For example, MEW Industries is a leading producer of coffee, its common stock closed today at $15 per share. How much will it open for tomorrow? Again the answer is not concrete; for example, before tomorrow’s market could open imagine the results if one of these things occur:

• Panama, the location of MEW Industries coffee farms, is taken over by the recently released Manuel Noriega, severely impacting harvesting.



• The stock market news is buzzing when the President of MEW Industries wins the Nobel Peace prize.



• The American Medical Association finds that coffee cures cancer.



• It is announced that a plague of locusts has damaged the coffee crop.