Candlestick Trading Blog: July 2008

July 29, 2008

Intraday Trading

Intraday Trading and Gap Trading Strategies Intraday trading is defined by the SEC as trading that refers to opening and closing a position in a security on the stock market in the same trading day. This can include buying and selling done in order to capitalize on a potential rise in a security’s value or shorting and covering the short to capitalize on a potential drop in value. Intraday traders borrow money by using leverage or margin to capitalize on small moves in the value of a security. Intraday traders should be very strict about cutting their losses by utilizing stop loss orders so that they limit the potential downside for a trade. Intraday trading, often used interchangeably with the term day trading, requires the knowledge and use of technical analysis. Intraday trading also requires the knowledge and use of gap trading strategies and gap analysis. Gap trading is one of the strategies used to buy stock and short stock. A gap is a change in price levels between the close and open of two consecutive days and the purpose of using gap strategies is to find stocks that have a price gap from the previous close and watch the first hour of trading to identify the trading range. Through identifying the trading range, investors can decide whether or not to either buy or short stocks when intraday trading. There are eight gap strategies used in intraday trading. There are four full gap strategies and four partial gap strategies and each has a long and short trading signal which are discussed below. 1) Full Gap Up: Long – The stock’s opening price may be greater than yesterday’s high, so in this instance the trader would revisit the 1-minute chart after 10:30 a.m. and they would set a long (buy) stop two ticks above the high achieved in the first hour of trading. 2) Full Gap Up: Short – This stocks gaps up, but there is not enough buying pressure to sustain the price, then the stock price will either level off or drop below the opening gap price. In this situation investors would set a short stop equal to two ticks below the low achieved in the first hour of stock trading. 3) Full Gap Down: Long – This occurs when the price below the previous day’s close, but the low of the day before as well. In this instance investors should set a long stop equal to two ticks more than yesterday’s low when intraday trading. This can occur due to poor earnings or other bad news and causes the stocks price to drop a lot more than normal. 4) Full Gap Down: Short – In this instance investors should set a short stop equal to two sticks below the low achieved in the first hour of trading stocks. 5) Partial Gap Up: Long – This occurs when the opening price is greater than yesterday’s close, but it is not greater than yesterday’s high. Investors should stop two ticks above the high achieved in the first hour of trading just as they would with full gaps. 6) Partial Gap Up: Short – This is the same as for the full gaps and the successful trader should set a short stop two ticks below the low achieved in the first hour of intraday trading. 7) Partial Gap Down: Long – If the stock’s opening price is less than yesterday’s close then the investor should set a buy stop two ticks above the high achieved within the first hour of trading. 8) Partial Gap Down: Short – In this situation investors should set a short stop equal to two ticks less than the low achieved if a stocks opening price is less than yesterday’s close, within the first hour of trading. The main difference between a full and partial gap, when intraday trading, is the risk and the potential gain. When a stock gaps completely above the previous day’s high it has significant change and the demand is large enough so that the markets are forced to make a major price change to accommodate unfilled orders. Full gapping stocks require that the stocks trend farther in one direction than stocks that only partially gap. When implementing a stock trading plan, investors should know that typically there is a greater opportunity for gain over several days in full gapping stocks. Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

July 26, 2008

Practice Trading Stocks

Practice Trading Stocks with Online Paper Trading New investors should first practice trading stocks with online paper trading before investing actual money. What is paper trading? Online paper trading is the use of paper credits to engage in live trading of the markets instead of real money to provide a feeling of how trading will be to new investors. Many online stock trading systems will offer demo accounts for to new clients who are new to trading stocks, and also to seasoned traders who would like to try new investment strategies. The differences between paper trading and live trading are again, the use of paper credits instead of real money, and also the fact that with paper trading, there is a lack of the true emotions as with live trading. Trading with paper credits to practice trading stocks is a great tool for investors to learn how to trade the markets however, the fear of losing real money is absent. Investors may do great when practicing but when they actually begin to trade with real money they may find themselves trading poorly. This is due to the fact, that when trading with real money, fear is introduced. Greed and Fear can cause investors to do things that they wouldn’t normally do with paper trading. For example, if the price of a stock goes down, an investor may be reluctant to sell shares for fear of losing money, so he or she may hold onto the shares longer than they should according to their stock trading plan. The price then inevitably ends up going down even more and the investor therefore loses more money than they would have if they would have stuck to their trading plan and sold their shares when they should have. Seasoned investors as well as new investors practice trading stocks through the use of online paper trading. Seasoned investors can practice new trading methods to develop new skills and can also refine their trading strategies. Paper trading also comes in handy for new investors who are trying to find their trading niche. Not every trader knows what exactly they would like to trade at first, so this allows them to try different financial instruments such as forex trading or perhaps commodities. This also helps new investors to become familiar with various features of the trading platform that they choose, such as limit and stop loss orders. Another option to paper trading is the use of historical data to review possible profitability of a chosen trading strategy. Investors will sometimes take a sample of past data an analyze it based on their trading methods. It can also ensure that trading strategies work in different market conditions. Trading in the stock market is a great way to make money, but it is a job that requires a lot of studying and a lot of practice in order to be successful. Open a demo account with the brokerage firm of your choice, and start practicing trading your financial instrument of choice. Good luck! Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

July 22, 2008

Swing Trading Stocks

Swing trading stocks is another from of short-term trading similar to that of day trading. Swing traders hold onto stock for a short period of time such as one to five days, or weeks instead of daily. They use intraday and daily stockcharts to predict how their stock might move and they look to make larger profits than with day trading. Of course while there is potential to make more profit, it contains higher risk. This is due to the fact that when you make fewer trades, as in swing trading, you attempt to reach higher profits per trade, therefore adding additional risk. There are also risks associated with market exposure since holding onto stock for longer periods of time makes your trades more susceptible to market fluctuations. This technique of trading requires a lot of time on the investors part. He or she will have to research stocks for several hours each day in order yield the high returns sought after when swing trading stocks. Throughout the years online trading has become more popular with the advent of the internet. There are many tools, resources and investment strategies available to the investor when swing trading stocks. For instance, online discount brokers are now offering trading accounts with very low commissions. This allows investors to trade a variety of ways. Also online trading platforms have become extremely sophisticated offering various analysis tools Trading strategies and systems are also available online offering both short and long-term investment strategies. It really is amazing what the internet now offers to the individual investor, which otherwise was only available to large companies and to the wealthy. Swing trading stocks relies upon the natural tendency of the stock market to ebb and flow. Stock prices do not move in straight lines and therefore must be monitored on stock charts. Stocks move up in price, then fall back and sometimes push to new highs! Most swing trading systems available to investors will incorporate both the bearish and bullish outlook, which then allows the trader to diversify their trades for changing market conditions. This strategy helps to protect the investor’s stock portfolio against losses due to changes in the overall market trends. It is important to note that swing traders incur less commission charges than other types of short-term traders since they are trading less regularly. A swing trader will look for short-term opportunities in the market to get short at a relative high, or to go long at a relative low. The expectation is that they will close their position on one to several days but they avoid holding an open position more than one or two weeks. A wise trader will utilize stop loss orders to prevent any one trade from creating a sizable account loss when swing trading stocks. Luckily there are sophisticated stock market trading systems these days that can establish a pre-defined profit stop! Continue to research trading strategies and swing trading techniques in order to successfully trade in the stock market. Knowledge, practice, and focus are the keys to successful trading! Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

July 19, 2008

Stock Market

The stock market is a public or a private market that exists for the purpose of trading company stock and derivatives of company stock at an agreed upon price. They are listed in the form of securities on a stock exchange. The stock market allows businesses to raise extra capital through the selling of shares of their company in the market. The Dow Jones Industrial Average, along with the Russell 2000 and the S&P 500 are designed to show how those companies traded are performing. These averages indicate the general health of stock prices and also indicate to the investor the tendencies of the markets. If the prices of stock as a whole tend to rise, it is referred to as a bull market. Conversely is the stock are falling as a whole, it indicates to the investors a bear market. Participants involved in the open market include individual stock investors as well as hedge fund traders whose orders end up with a professional that can carry out their order. To own stock means that the individual is a shareholder who owns a portion of a company’s profits. There are three big stock exchanges in the United States. These include the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), and the National Association of Securities Dealers (NASDAQ). The NYSE is a listed exchange in which orders are handled by a specialist who works with the trading floor to trade stock. The specialist’s job is to match buyers and sellers orders. The NASAQ is a virtual listed exchange in which all of the trading is completed over a computer network. Buyers and sellers are electronically matched. In order to buy and sell stock on the stock market, you can go through a stock broker who can place orders on your behalf. They will charge a commission in order to provide this service or you. You can also trade stock online, in which you still go through a brokerage firm however you use trading software to place your trades instead of going through a live person. Investment strategies used to invest include fundamental and technical analysis. Fundamental analysis is generally used for long-term investors and this method analyzes the financial statement for the companies at interest. This method of analysis takes a look at the general economic conditions and business trends as well in order to determine the companies to invest in. Technical analysis is typically used for short-term trading and it is the study of price movement in the market. This method requires the use of stockcharts in order to predict future prices trends and it doesn’t focus on a company’s financials. The stock market is a very exciting and interesting place for investors, but it can be very dangerous for investors with little to no education. There are a lot of different methods and strategies available and each investor much study and practice the method of their choice before attempting to invest. Investors can also practice paper trading as a great way to practice without actually trading real money. It is highly recommended by investors to practice online paper trading successfully for at least 6 months to a year before actually investing real money. Knowledge, patience, and practice are the keys to successful investing! Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

July 15, 2008

Bullish

Bullish Markets Characterized by Optimism Bullish refers to having a positive outlook on a particular security or on an investment. The use of this word versus bearish was derived from the way animals attacked their opponents. A bull will thrust its horns in to the air while a bear swipes its paws down. Theses actions are used as metaphors for the movements that take place in the stock market, as well as other markets such as bonds, currencies, or commodities. Bull markets are characterized by optimism and are associated with increasing investor confidence. As a result, investors are encouraged to buy in anticipation of future capital gains. Conversely, bearish markets are accompanied by pessimism and investors anticipate further loss which then motivates them to sell. The United States was considered to be in a long-term bull market from about 1983 to 2007. You can study trends that took place during this time to have a better understanding of this market trend. Secondary market trends are a temporary change in price within a primary trend. They can last a few weeks to a few months. A temporary decrease during a bullish market is called a correction, and conversely a temporary increase during a bearish market is called a bear market rally. It is interesting to note that as trends begin to appear in stock charts, analysts will debate on whether or not the trend is a correction, or a rally, or rather a new bull or bear market. Sometimes a correction will foreshadow a bear market. The definition of a correction in the market can be characterized by a drop of 10 to 20% over a short period of time. Investors will frequently confuse bear markets with corrections, but a correction is different than a bear market because it contains a smaller degree and duration. In other words, corrections are must shorter lived whereas bear markets occur over a longer period of time. When patterns form on stockcharts, such as candlestick charts, most require a bullish confirmation. Without the confirmation, these patterns would have mere implications of a support level and would be considered neutral. Japanese candlestick patterns typically will have this type of confirmation within in 1 to 3 days after the pattern, if it is in fact confirmed. This time period is typical for candlestick patterns because they are short-term and only effective for 1 to 2 weeks. The most famous bear market in history was between 1930 and 1932 and marked the start of the Great Depression. This market also occurred at a milder level from about 1973 to 1982. Again, it is important to understand that a bear market is not a simple decline, but a substantial drop in the prices of a range of issues over a definite period of time. You must learn to differentiate between this market and that of a correction. Continue to study both markets in order to fully comprehend the characteristics of each. This article only provides a brief glimpse of the potential state of the markets however every investor should study them deeply before they begin to trade stocks, trade commodities, and also foreign currencies. Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

July 11, 2008

Candlestick Patterns

Candlestick Patterns Introduction The Japanese began to use technical analysis to trade rice in the 17th century. Candlestick patterns first came into play at some point around 1850 and much of the credit for the development of these patterns and candlestick charting goes to a rice trader named Homma from the town of Sakata. It is said that his original ideas have been modified throughout the years of trading to take the form of candlestick patterns that are in use today. The interpretation of Japanese candlestick charts in based primarily on patterns and the most popular patterns are examined in three main groups. These groups include the bullish, bearish, and neutral. These groups are then further divided into the reversal and the continuation. To create a candlestick chart, there are four points of data including the open, high, low, and close values for each time period selected to display. The filled or hollow portion of the candlestick is called the body or the real body and the long thin lines above and below the body are called shadows. The shadows the candlestick patterns depict the high and low ranges with the high marked by the top of the upper shadow and the low by the bottom of the lower shadow. A hollow candlestick is formed if the stock closes higher that its opening price and a filled candlestick is formed if the stock closes lower than its opening price. Candlestick patterns are flexible because they can be used alone or in combination with other technical analysis tools. That is actually one of the advantages among many of candlestick charting. Another advantage is that these patterns are easier to read than your standard line and bar charts. Candlestick patterns simply offer more information regarding what is going on in the open market because they add an extra dimension of analysis than line or bar charts. How do patterns interpret what is happening in the markets? Basically there are two groups of people in the stock market, including buyers and sellers. Where exactly a stock closes in relation to the range tells us who is winning between the buyers and the sellers. It a stock closes at the top of the range it means that the buyers were more insistent and more willing to get in at any price, while the sellers were willing to sell at higher prices. When stock closes at the bottom of the range it means that the sellers were in control are were willing to get out at any price. This means also that the buyers were willing to buy at lower stock prices and therefore the stock moves down. Basically, a bullish market indicates that the buyers are in control, and conversely and bearish market (bear market) indicates that the sellers are in control. Candlestick chart analysis is a clear and easy way to identify patterns in the market. It does not require intricate formulas or ratios and the candlestick patterns are easy to see. Learn how you can utilize candlestick chart patterns to increase your profits. Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

July 8, 2008

Trading Stock On Line

There is a lot of lingo and jargon associated with trading stock on line, and for many people it can be overwhelming. With the advent of the internet many investors are taking a stab at trading stock online, only to realize that they are in way over their heads. If you find you are one of these investors, and you are seriously interested in learning to invest in the stock market, then it is important to take a step back and reassess the situation. What do you want to trade, and how much money do you have to trade with? These are two great questions that every investor should ask themselves before they even think about trading stock on line. You need to decide if you want to trade for the long-term or if you are interested in short-term trading, such as day trading or swing trading. When trading stock it is also important that you understand exactly what is at stake. How much are you willing to lose? You also need to decide at what point you will exit the markets each day. These questions will ultimately be determined by not only the type of trading that you will do, but also by the individual trading. Each and every investor has a different trading plan that they stick to. The important part is that they stick to their plan, and learn from their investing mistakes when trading stock on line. It is highly suggested that every investors practice online paper trading for 6 months to a year, before even attempting to trade with real money. Some investors may paper trade longer than one year, and that is okay too. Whatever it takes to learn and to feel comfortable when you trade is okay, just as long as the investor doesn’t wait too long out of fear of trading. Before you can begin trading stock on line, each investor must also find a good online broker. You can either go with a full-service broker or an online discount broker. The main difference between the two is that the full-service brokers provide advice in addition to handling your trades, while the discount brokers only ensure that your transactions take place. Discount brokers are recommended for more experienced stock traders who don’t need the guidance. There are tons of brokerage firms that you can go through when trading stock on line, just be sure that you do your research. You will need to look into their fees, and how often you can trade, as well as the products that they offer. It is also wise to check-out their customer support line to see how long it takes them to pick up the phone. This will give you an idea of the wait time in the event you call and have an issue once you are a customer. Trading stock on line has always been a popular way to make money, however, a very risky one at that. When you first begin to trade stock, be sure that you have realistic expectations and that you are disciplined in your approach. Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

July 5, 2008

Best Stocks

Pick the Best Stocks – Penny Stocks Penny stock investing has become a popular method of investing even though the SEC does not require penny stocks to follow their reporting rules. It is for this reason, and others, that penny stocks are seen as a risky investment. When looking to invest in penny stocks, there are a few things that you should pay attention to. This article will discuss tips for selecting the best stocks as well as provide a basic definition of what penny stocks are. Penny stocks are common stocks that are sold for an amount between one and five dollars. They are considered over the counter stocks (OTC) meaning that they are traded through the Pink Sheets for the Over the Counter Bulletin Board. The best stocks of this nature have the potential for rapid growth which can be as high as several hundred percent in just a few months, however, they are extremely risky. The good thing about investing in penny stocks is that you can invest very small amounts of money and still have thousands of shares. Just be sure that you do sufficient research because this type of investing can be very dangerous for the amateur and even the most experienced investors who do not take the time to carefully build a list of penny stocks to monitor. The first tip for selecting the best stocks is to evaluate the potential profit for the company of interest. Determine if they are experiencing sizeable profits by calculating the price to earnings ratio. If they have debt, then you must find out how consistent the company has been with paying off their debt. This is a great indicator of a company’s financial management. The second thing you want to evaluate is industry trends in relation to your selected stocks. This is tricky because you don’t wan to jump on the bandwagon for the obvious hot penny stocks. Instead you should be on the look-out for stocks that are on the edge of more demand. This requires true skill and a lot of effort on the investor’s part, which is unfortunately not something that many investors do. It is also important to look at a company’s tenure in order to select the best penny stocks. A company that has been in business for along time is more established and should have a proven track record. While tenure is important, it is not absolutely necessary when you buy penny stocks. As described above, if you can find an up-and-coming company with great profit potential, then you should invest in it as well. The hard part again is determining their profit potential without a lot of past data since it is a new company. Another very important tip is to stay away from company’s that have in the past been looked at for questionable practices. This while obvious, is still very important and is definitely worth mentioning. The last tip for selecting the best stocks is to invest in stocks that you take a personal interest in. You will be more inclined to study and research something that interests you, therefore making you educated on your stock picks. Penny stocks have great potential for growth with very high risk. They tend to get a bad reputation because of the high potential for scams associated with this type of investing. While this is true, it can be said, that like any type of stock investing, if you do your homework and seriously study your stocks, you can make money. Pick the best stocks that you yourself have evaluated and don’t fall for the get rich quick ‘hot stocks.’ You will surely lose money if you look for short-cuts with this type of investing. Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

July 1, 2008

REIT Stocks

REIT Stocks - Real Estate Investment Trust Stocks REIT stocks are very similar to any other type of stock that represents ownership in an operating business however, it has two unique features. Its business is to manage groups of income-producing properties, and it must distribute the majority of its profits as dividends. REIT stands for real estate investment trust, and it is a security that sells like a stock on the major exchanges. It invests in property (real estate) either directly through mortgages or properties. They receive special tax breaks and are highly liquid often offering the investor high yields. REIT stocks are comprised of two types of REITS including mortgage REITS, and equity REITS. About 10% are mortgage REITS and they loan money for mortgages to owners of real estate, or purchase existing mortgages. Their return on investment is produced primarily from the interest that they earn on mortgage loans. Equity REITS invest properties and revenue is generated mostly through the rent from properties. REIT stocks can be purchased through buying shares directly on an open exchange or by investing in mutual funds specializing in public real estate. One of the major benefits to investing in REIT stocks is that they often are associated with dividend reinvestment. Dividend reinvestment is when the distribution of a limited partnership (REIT) is automatically reinvested into shares of the fund. This is often done at a discount to the current market price as well. REITS often come with DRIPs (dividend reinvestment plans) which are the actual plans offered by corporations that allow the investors to reinvest their cash dividends. In addition to REIT stocks, companies offer REIT dividends, which have great advantages. For instance, as long as 90% of the annual income is distributed to investors each year, these dividends are exempt from federal taxes. REIT dividends are fully taxable however, and they can reach between 8 to 9% each year. These dividends are considered income and are typically categorized with the 401(k) and similar investment options. REIT stocks provide benefits because they are more stable than stocks since shareholders don’t have to depend completely on appreciation in the stock in order to make money. They are similar to bonds as well in that they are very responsive to interest rate changes. Typically when interest rates come down, REITS will rise, and when interest rates rise, REITs typically fall. They are dividend paying stocks and are considered along with high-yield bond funds. Due to the continuously low interest rates, there has been a rise in these stocks. First of all, the low interest rates allow the companies to borrow money on the cheap. Secondly, the low interest rates make these stocks more attractive to investors looking for additional income since by law they are required (as mentioned above) to pay out 90% of their profit as dividends to shareholders. Continue to research REIT stocks as a possible investment to add to your investment portfolio. Just remember that the success of these stocks is dependent on many factors, including the stock market, interest rates, and the economy. Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

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