Candlestick Trading Blog

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Introduction to Candlestick Stock Charts

Candlestick stock charts are used when trading stocks, forex, commodities, or in options trading. The candlestick chart is a combination of a type of bar chart and a line chart that is used to describe price movements of equity over time. These stock charts are used in technical analysis and are most often used by short term traders. They are considered by most traders to be more visually appealing and easier to use than other types of charts because you can quickly see the relationship between the open and close in addition to the high and low.

Candlestick stock charts are composed of a body and a shadow. The body is either black (or red) or white (or green), and it depicts the opening and closing of trades. The body is white or green if the stock closed higher than the open, and it is black or red if the stock closed lower than the open. The opening price is at the bottom of white bodies with the closing at the top, and vice versa for the black bodies. When analyzing candlestick chart formations, the shadows look like long thin lines that are above and below the body and they represent the high and low range. They are also referred to as wicks and tails. The top of the upper shadow represents the high and the bottom of the lower shadow represents the low. Keep in mind that you don't necessarily have to have either a body or a wick when reading candlestick stock charts! You will learn more about this when you start to study the actual candlestick chart patterns themselves. Additionally when studying candlestick charts, you will learn that you must have data that shows the open, high, and the low and close values for each time period that you want displayed.

Once you begin to learn about the different candlestick patterns utilized when reading candlestick stock charts, you will learn more about the body and the shadows. Typically the longer the body is, the more intense the buying and selling pressure. On the other hand, when the candlestick body is shorter, this indicates very little price movement and signifies consolidation. Additionally, when a candlestick has a short shadow, this means that most of the trading action was confined to the open and close whereas a long shadow means that trading expanded well past the open and the close. Basically, when candlestick trading, the upper shadows represent the high for a session and conversely, the lower shadows represent the low for a session.

Continue your candlestick analysis education and learn how to read candlestick charts in order to identify patterns such as the hammer candlestick, the doji candlestick, the dragonfly and the gravestone candlestick.  They are fairly easy to learn and will lead you to better investing in the stock market.

What are Stop Orders?

Stop orders are orders to buy stock or sell stock once the price of the stock reaches a specific price. This specific price is known as the "stop price" and when that specific stock price is reached, the order then turns into a market order. Stop orders are used more frequently for stock that trade on an exchange more than over the counter stocks. In some situation, brokers do not allow these orders to be placed for over the counter stocks.

Market orders, as mentioned above, are orders to buy or sell a stock at the current market price. There are advantages and disadvantages to markets orders. The advantage of a market order is that there is almost always a guarantee that the order will be executed. They also tend to cost less than limit orders. Your stock broker will automatically enter your requested stop orders as market orders, unless you otherwise specify. The disadvantage to market orders is due to the fast moving markets. What happens is that the price that you pay when you execute your order is not necessarily the price that you obtain from a real-time quote service. It fluctuates due to the fast moving markets. It is recommended that you speak to an investment advisor or broker to have a full understanding of these orders work.

There are two types of stop orders. The sell stop order is always placed below the current market price and its assists investors with avoiding further losses when playing the stock market. It also helps to protect a profit that exists if the price of the stock continues to drop.  A buy stop order is placed above the current market price and it is used when buying stock to limit a loss or protect a profit on short sales. What is great about these orders is that you don't have to constantly monitor how a stock is doing on a daily basis if you don't want to. It is however smart to keep an eye on it to prevent from losing out due to a short-term fluctuation in the stock's price.

Limit orders are also used when trading stocks and are placed in order to avoid buying or selling stock at a price higher or lower than you wanted. It is basically an order to buy or sell a security at a specific price. You can't control the exact price at which your order will be filled when using a limit order, but a buy limit order can only be executed at the limit price or lower. On the contrary, the sell limit order can only be executed at the limit price or higher.

It is important to learn about the stop orders and other orders necessary when trading in the stock market. Continue to educate yourself and learn about how these orders can assist you when investing in stocks.

Paper Trading Stocks

Paper trading stocks, or other types of investment vehicles, provides a great way to learn how to trade, without actually trading with real money. There are now companies online that provide simulation tools for online paper trading that allow investors to practice trading using various strategies and more importantly it allows you to learn from your mistakes without losing real money.

There are many benefits to online paper trading. First of all, it allows investors to develop a trading discipline. This is a very important part of the process, because without coming up with a trading plan and adhering to that plan, the investor will lose money and quick. Discipline in your trades is the key to successful trading. Secondly, it allows the investor to test trading strategies. This is crucial to the learning process and is another great benefit. There are numerous strategies available to the investor and it is important to test those strategies to be sure that they are a good fit. Additionally, the trader is able to build confidence in the stock market, they may not have otherwise had. After practicing for a period of time, the trader is able to reach a desired comfort level before actually investing money. This level of comfort is acquired as the stock trader establishes a track record that he or she can be proud of.  Lastly, the investor is able to evaluate new markets as well as make trading career decisions. It cannot be stressed enough the importance of paper trading first before playing the stock market, or any other market of choice.

While there are many benefits there are also some issues that investors should be aware of. When investors are truly trading in the stock market, there are a range of emotions that can cause investors to do things they wouldn't normally do. This is perhaps the only area that paper trading does not adequately prepare investors for. For this reason, investors must be sure that they do not make trades or do anything that they wouldn't normally do in real life trading. This concept goes back to the issue of obtaining discipline in your trades, as previously discussed. Investors must follow strict rules that they have set for themselves to follow their stock trading plan. Through obtaining discipline in your trades, you lessen or learn how to better control the range of emotions that are inevitable when trading stock online.

Investors should also learn how to sell short when the stock market is going down. Selling short may be difficult, but now that you have the ability to practice without losing real money, why not try it? A lot of traders have a hard time with this concept, but if you can learn how to take advantage of the markets, then you can also make money when the stock market is down. If you are going to be trading stock full-time, wouldn't if behoove you to learn how to trade no matter the market condition?

There are many different types of commodities traded on the commodities exchange. There are also many different major exchanges available to investors when trading commodities. Each exchange is specific to certain commodities, and other exchanges trade in an entire different set. The commodities are grouped in a way that makes it easier to compare commodity price, research each commodity, and to make trading more convenient. In today's article we will discuss the different exchanges available for commodity investing a well as the different groups in which commodities are categorized.

The four major commodity exchanges include:

1) New York Mercantile Exchange (NYMEX) – This is exchange is one of the oldest exchanges in the United States and it specialized in metal products and petroleum. It was originally in Chicago but eventually moved to New York and it includes a large variety of commodities available to commodities traders.

2) New York Board of Trade (NYBOT) – This was the first commodities exchange to be established in the United States, and it was established in New York City. In addition to trading commodities such as cotton, coffee, cocoa and sugar, it also trades currency as well. This exchange also trades many agricultural items as well.

3) Chicago Mercantile Exchange (CME) – This exchange is unique in that the weather derivative is traded here. Weather is speculated on at different times of the year, making this exchange unique in nature. In addition, it has been in business for over 100 years with hogs, milk, lumber, fertilizer, feeder cattle, and pork bellies as the main commodities traded on this commodities exchange. This exchange located in Chicago, now trades single stock futures, includes foreign exchange trading, and also serves as a marketplace for the stock index, and interest rates.

4) Chicago Board of Trade (CBOT) – This exchange has recently added electronic trading features but initially only traded agricultural commodities. It was established in the 1840's and it now offers options contracts as well as futures on products such as gold, energy, silver, and U.S. treasury bonds.

There are other exchanges around the world including one in Japan and London in addition to the commodities exchange listed above. 

Commodities are also categorized by five different groups including energy, grains, softs, meats and financials. Energy commodities include natural gas, coal, crude oil, heating oil, petroleum and its byproducts. There are additional energy commodities that are included that are not listed here as well. Grains include products such as wheat, rice, soybeans, oats, and corn, while softs include products such as cotton, coffee, sugar and cocoa. Meat products include lean hogs, live cattle, and pork bellies in addition to others. Lastly, financials commodities are available for those investors who would rather invest in commodity futures or options instead of investing in the products themselves. Due to this, financial products are also listed on the same exchanges.  

The commodities exchange is a great place for investors to make money. If you are interested in commodity trading, continue to do research to find out if this is an investment option that works for you.

Commodities traders can include both hedgers and speculators. Also known as futures traders (futures trading), hedgers have an interest in the underlying commodity and seek to hedge out the risk of price changes. Speculators, on the other hand, seek to make a profit by predicting market moves and they buy a commodity on paper in which they have no practical use.

Before getting into further detail regarding the types of commodities traders, let us first take a look at commodities markets. Commodity markets are markets in which raw or primary products are exchanged. Commodities are traded on regulated commodities exchanges. On these exchanges is where commodities are bought and sold in standardized contracts. An example of a standardized contract is a futures contract. The point of a futures contract is to buy or sell a certain underlying instrument at a certain date in the future, at a specified price. These contracts give the holder the obligation to buy or sell (exercise the contract) and this contract must be fulfilled on the settlement date. Examples of the types of commodities traded include, energy, meat, softs (including coffee, cotton, sugar, etc.) and financials (such as stocks, bonds). They are numerous types of commodities available for trading.

Commodities traders who practice hedging typically include producers and consumers of a commodity. A hedge is an investment that is taken out specifically to reduce or cancel out the risk in another investment. This strategy is designed to minimize exposure to an unwanted risk, while still allowing profit from an investment activity. Typically large companies operate in these futures markets and use futures contracts to lock in their selling prices for the product in advance of delivery of the product. Speculation is the opposite of hedging and its purpose is to make an investment that increases the overall risk in a portfolio. (Hedging decreases risk). This is the other side of the transaction in which the trader speculates on whether the commodity price will go up or down before the contract is due for delivery. A lot of long-term investors are classified as speculators and they buy and hold for years at a time. There are also some speculators that buy and hold for shorter time frames through the use of leverage. The concept behind leveraging is to multiply the amount of motion that you get from the energy you put into a transaction. Leveraging is a tool that requires immense focus and 8- 10 hours of dedication each day.

Commodities traders have a multitude of options to choose from when trading commodities, as well as multiple strategies that can also be used to make money in this market. For investors interested in commodities trading, continue to do your research to find those strategies that work best for you.

Stock trading online has become more and more popular with the advent and growth of the internet. Many investors that otherwise wouldn’t think of investing in stocks, are now stock trading online for a living. If you are new to the stock market and are interested in learning about trading stock online, read this article to find out the ins and outs of trading the stock market to see if it is a good fit for you.

Stock trading online provides tools supplied by various brokerage firms that can help you stay on top of the market and abreast of new trends. An online broker can provide you will tools such as streaming stock charts, live stock ticker, top ten lists, and personal quote lists. Stock screening is also a tool that can show you earnings, book value, and other helpful information.

Additionally, there are free online classes available to new investors that teach you about the different trading techniques, types of trading, technical indicators used in technical analysis, as well as how to read charts, protect your stocks, and how to pick stocks. Many classes are taught by industry professionals that knows the ins and outs of the market. They host workshops online as well as in person, and you can join their forums in order to network with other investors and to get more personal instruction from the industry leader you choose to follow and learn from.

When stock trading online, you can also take advantage of free trial periods provided by the various online brokerage firms. During this trial period you can practice using their site to trades stocks to determine usability, accuracy, and ease of use. You will also want to test their customer support level of services to be sure that if you have a problem, you will receive a timely response from a customer services representative. Not only do you want to be sure that you receive a timely response, but you also want to be sure that the information that you receive from them is useful and accurate. Additionally, you will want do some comparison shopping, and check out monthly subscription fees and other rates required by each site.

When you are ready to begin stock trading online, be sure that you only use money that you have! Decide how much you will trade each day, and do not go over that amount. Leave your retirement and your kid’s college savings alone. Use only the money that you have and eventually, if you stay focused, trade smart, and are committed you will see your money grow over time as you make money investing in stock