Candlestick Trading Blog

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When investing stock there are five types of assets that you may own. In today's article we will discuss five assets that provide great investment opportunities.

Common Stocks – Common stocks see the biggest ups and downs in the stock market and they are the typically investment asset for ownership in a company. With this type of stock, stock holders don't have voting privileges or dividend rights, but they have a large profit potential.

Preferred Stocks – Preferred stocks offer limited benefits to shareholders and they tend to be slow, stable investments that don't bring huge sums of money but are steady performers for an investment portfolio. When investing stock, these stock holders, will typically receive dividends that are pretty high yet again they have a limited upside.

Bonds – Bonds can include municipal bonds, savings bonds, U.S. government treasuries, corporate bonds, and more. Bonds are a debt security where the issuer loans money to the borrower and the lender decides how much will be lent as well as what the agreed upon interest rate and the term of the loan will be. The return on investment for the issuer is the interest accrued throughout the term of the loan.

Money Markets – These funds are highly liquid and are designed to protect your purchasing power. Money markets are similar to mutual funds and these fund managers will take your cash, invest it in conservative short term commercial paper and they pay you your portion of the interest earned on these investments. See also money market mutual funds.

Real Estate Investment Trusts – Real Estate Investment Trusts, also known as REITs, are real estate companies that offer common shares to the public and it is similar to investing stock in that REIT stocks are similar to any other stock that represents ownership in a business. There are three different forms that REITs can take including mortgage, equity, or a hybrid of both.

Mutual Funds – Mutual fund investing provides the ability for investors to purchase stocks and bonds with much lower trading costs that if they tried to go it alone. Mutual funds are companies that pool their money from many investors and invest the money in stocks, bonds, short term money market instruments and into other assets or securities. They can include exchange traded funds, index funds, and actively managed funds. When you invest in mutual funds you are actually buying shares in a company and you become a shareholder.

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When trying to determine a stock's value before you invest, it is important to understand that a stock's value is ultimately determined by what investors are willing to pay for it. Of course there are other factors as well that determine stock prices that investors must understand before investing in stocks. We will discuss these factors in today's article.  

The main factors that affect the price of stock in the stock market include the following:

Of course supply and demand plays a major role when investing in the stock market. When you price stock you must look at supply and demand knowing that prices will fluctuation continuously. When investing money in stock it is important to know that if there are only a fixed number of shares available for a particular stock, then the price of that stock will rise. The stock is more valuable because the demand is higher and the supply is limited. On the other hand, if a stock a certain stock fails to live up to its expectations then the demand for that stock will drop and the price of that stock will drop as well. This drop in price causes shareholders to sell their shares, which increases the supply and again drives the price back down.

Another important factor to take into consideration when you price stock is market capitalization. Market capitalization is calculated by taking the current price per share and multiplying it by the number of shares a company has outstanding on the stock market. The market cap also refers to the size of the company. There are three categories when looking at market capitalization. These include large caps, mid caps, and small caps. Company's that are large caps are very big companies with a market cap of over 10.9 billion dollars. They are most likely to pay out dividends and they typically have more financial assets to help them in the event of down turn in the market place. Small caps companies have a market cap of less than 2.3 billion dollars and they carry a higher investment risk than mid and large cap companies. Their shares tend to increase rapidly in price however they have fewer financial resources in the event of a down turn in the market. Mid cap companies may or may not pay dividends and they are medium sized companies with a market cap between 2.3 billion dollars and 10.9 billion dollars.

There are many factors to take into consideration when you price stock for a particular company. Even if you are looking to practice technical analysis and aren't particularly concerned wit the fundamentals of a company's stock, it is still important to have knowledge of the stock market basics. 

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Market timing means to predict the future direction of the market and technical indicators are typically used to do this. A technical indicator is a series of data points that result from applying a formula to the price data of a security. This data includes the open, high, low or close of a security such as stocks or commodities, over a specific period of time. While some market timing indicators only use closing prices, others look at an incorporate volume and open interest into their formulas. The data point is produced by entering the price data into a formula. Technical indicators are used in technical analysis as opposed to fundamental analysis. Technical analysis is the study and prediction of price movements.

There are many different types of technical indicators available to investors who practice market timing when investing. In today's article we will discuss two. First we will take a look at Candlestick patterns. There are 12 major candlestick patterns that must be memorized by the investors however there are about 40 candlestick signals that consist of continuation and reversal patterns. The major signals occur in price movements often enough that that they warrant actually placing trades. The other signals while they rarely occur are still effective in producing profit when trading stock.

The moving average (MA) is another technical indicator that shows the average value of a security's price over a specific period of time. There are different types of moving averages such as the simple moving average (SMA), the exponential moving average (EMA), and the weighted moving average (WMA). The purpose of using the moving average is to track the trends of a security by smoothing out the stock price fluctuations of daily price data, also known as market noise. Market timing uses moving averages by plotting data onto a stock chart that stock traders can then use to identify trends.

On another note, there is also mutual fund timing that is the switching of mutual fund asset classes in attempts to profit from the changes in their market outlook. This is different from market timing and it is frowned upon my long term investors because it has a negative effect on a fund's long term investors because they are subject to higher fees due to the transaction costs of the short term trading. Due to this, most mutual funds impose a short term trading penalty for traders who do this.

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Stock trend lines may show an uptrend or a downtrend, but are basically lines that connect a series of highs or lows. These lines confirm a trend and when they are drawn they are drawn along at least two relative highs or lows. These trend lines can either be slanted or horizontal as they rise. The study of these trend lines is known as trend analysis and trend analysis is an important technical analysis tool used by many stock traders.

As trend lines first begin to form, they sometimes require redrawing in order to ensure that that important lows and highs are connected. Trend lines that are mature rarely need to be adjusted or redrawn and the steeper the line's angle, the less reliable the stock trend is. Trend lines, used in stock technical analysis, are typically good places to initiate trading positions with low-risk entry when stock trading. This is due to the fact that when the trend line is breached it results in a break in the trend and therefore an exit signal is provided.

When trend stock trading, there are two types of trend lines used. The first that we will discuss include the uptrend lines. Uptrend lines are seen when a stock makes repeated higher highs and repeated higher lows. This results in a price advance which trends higher and this trend ends when a series of higher highs and higher lows ends. This uptrend formation ends with the formation of a lower high or a lower low. When analyzing the repeated higher highs and higher lows as you trade stock, traders must be sure that each relative high is above the former high, and conversely that each low is higher than the former low. When identifying the stock trend, the uptrend gains more validity each time the price touches but does not breach the uptrend line.

The other type of trend line used when trading stock online is the downtrend line. Downtrend lines are seen when a stock makes repeated lower lows and lower highs. This results in a price decline and the trend ends when a series of lower lows and lower highs ends. This downtrend formation ends with the formation of a higher low or higher high. When analyzing the repeated lower lows and lower highs, traders must be sure that each relative low is below the former low, and that each relative high is below the former high. When identifying the stock trend, the downtrend gains more validity each time the stock price touches but does not breach the trend line.

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Spread trading is the sale of one or more futures contracts and the purchase of one or more offsetting futures contracts. When doing this type of trading you are tracking the difference between the simultaneous values of these futures contracts, or in other words, the spread. The assumed risk is the difference between these contracts rather than the price fluctuations.

Two types of spreads are possible if both futures are traded on the same exchange but spreads can also be constructed with futures traded on different exchanges. Spread trading is the trading of futures spreads and for speculators it provides reduced risk when compared to simply trading futures. Futures spreads also typically have less strict margin requirements because the long and short futures that make up the spread are usually correlated and tend to hedge one another.

The calendar spread, also known as the intra-commodity spread is long one future and short another. Both have the same underlier but they have different maturities.  The inter-commodity spread on the other hand, is a long-short position in futures on different underliers and both typically have the same maturity.

Spread traders positions themselves between the speculator and the hedger and assume risks other than excessive price fluctuations. The spread trader assumes the risk of the difference between two related futures contracts in different markets, or between two different trading months of the same futures, or between equity and an index, or between two equities.

There are many advantages according to investors who practice spread trading. Some of which include the following: First, spreads are considered less risky when compared with straight futures trading because every spread is a hedge. Additionally, spreads on futures typically require lower margin than other forms of trading. This results in greater efficiency in the use of capital when compared to buying stocks on margin and margin requirements are even lower than with options trading. Many feel as well that spreads create a more level playing field because there are no stops possible. Another advantage to this type of futures trading is that spread trades are less volatile than other types of trading. This volatility is the reason that margins for spreads are so low and this type of trading is less volatile than trading options, regular futures trading and share trading. The last advantage of spread trading that we will discuss in this article is that spreads avoid problems that are associated with a lack of liquidity. There are more trading opportunities due to this and you can trade is less liquid markets.

There are more advantages to spread trading however investors must make sure they are aware of drawbacks and disadvantages as well. Continue to research this type of trading so that you can determine if it is the right trading strategy for you.

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This type of trading is the buying and selling of securities within one single trading day. Day traders use short term trading strategies to capitalize on small stock price movements in highly liquid markets and they use high amounts of leverage. This type of trading also provides much of the market's liquidity. In today's article we will discuss what day traders require as well as the characteristics of a day trader.

Daytrading requires many things but we will focus on three in this article. First day traders need analytical software. This software typically has many features and traders rely on technical indicators instead of fundamentals. This software can be pretty expensive to day traders must be sure to do thorough research before choosing one. Next, the day trader must have access to multiple news sources. The news provides opportunities to day traders and typical trading rooms contain multiple monitors displaying different news sources as well as additional analytical software. Lastly, these traders must have access to a trading desk. This should perhaps be first on the list, but is only necessary for those traders who work for larger institutions. Obviously when day trading stocks from home it is not a requirement.

Day traders also possess certain characteristics that make them good at trading stock. For starters they must obviously have sufficient knowledge of the marketplace as well as experience trading. This is true for all types of investing, however, more so with daytrading.Those that attempt day trading without the proper knowledge and training risk losing large amounts of money very quickly. Additionally, day trader must have sufficient capital to invest into the stock market. These traders only trade with money that they can afford to lose and large amounts of capital is necessary to make money on intra-day price movements. Perhaps on the most important traits necessary for a successful day trader is that he or she must be disciplined in their approach. They must develop a trading plan, and follow their set-ups. They cannot let emotion control their trading and they must act fast. Another important characteristic of day traders is that they must have a trading strategy. Again, they must develop a strategy that works, implement this strategy as part of their trading plan, and follow it strictly. There are many strategies available to day traders so they must do their homework and find proven strategies that work for them.

Daytrading is a great way to make money in the stock market as well as trading currencies, commodities, and other securities. Investors who are considering day trading must be sure that they have a complete understanding of the markets, that they receive training, and that they are disciplined in their approach. Read more about day trading stock online as well as the different technical analysis tools used by day traders. This should help you to expand your knowledge of day trading and of the different approaches used by many top traders.

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Short selling stocks is done for a couple of reasons. For starters investors aim to profit from a stock's decline in value and secondly investors are able to increase the value of their portfolios during a bear market. Typically investors will buy stock believing that the price will rise in the future, or in other word, go-long. Conversely, when an investor goes short, that means that he or she anticipates that the value of a stock or share is going to decrease. When selling short the trader actually sells a stock that he or she doesn't even own! Rather than buying the stock, the investor instead promises to deliver the security.

There are two main reasons that stock traders look to begin selling short. The first reason is to hedge. In fact, the majority of short sellers use shorts to hedge. Basically they use short sales to protect other long positions. This is an investing strategy that is very sophisticated and it takes real dedication and focus to pull it off, however it can be done. The second reason that traders practice short selling is to speculate. Traders will speculate in attempts to profit from an overpriced stock or an overpriced market.

There are many additional reasons that sophisticated traders choose to sell short. For instance, it can provide you with an investment portfolio that is low in volatility since it includes both long and short positions that tend to move together. Also, a lot of institutions won't participate in shorting stocks which leaves opportunities for others to benefit from. There are also investors who are better at identifying companies that are bad and overpriced instead of companies that are good and undervalued. Additionally, keep in mind that good news is more available to investors than bad news. This means that the bad news may not yet be completely factored into the price current stock price. This provides a great opportunity to those investors that understand the entire basis of short selling. Investors however must keep in mind that if a stock is overpriced, it has the potential to become more overpriced! This means that you at some point would have to buy it to cover your position. Also, when you are selling short, you are not just making an educated guess on what the stock is worth, you are also making an educated guess as to what the stock market will be willing to pay for the stock in the future.

Keep in mind that there are some restrictions involved with short selling. Investors cannot short sell penny stocks for starters and most short sales have to be done in round lots. Investors must be sure to follow the rules and regulations set by the "Regulation SHO." If you are unsure of what these rules are and you wish to begin shorting stocks, be sure to continue to do your research.

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When trading currencies, there are many factors that every investor should consider. The forex market is a great place to make money and in today's article we discuss some important tips that will help investors to invest money wisely in currencies.

The most obvious helpful tip is that before you invest in a market, you need to understand it. The currency market is driven by many factors such as a country's economy, politics, interest rates, equity markets and more. It is important to understand all factors that could potentially affect the currency of a country and what that impact means for the investor.

When trading currencies or any asset such as stocks and bonds, every investor must understand their risk tolerance. You must know how must you are prepared to lose on any one trade and you should never go above this limit. Additionally, currency trading requires that investors incorporate strategies into their trading such as stop loss orders and/or limit orders. Investors must learn to manage risk as they trade currency.

Decide on a trading strategy that works for you. There are so many strategies available that it is important to find one that you understand, that you have studied, and one that has proven potential to bring you success. Develop a trading plan for success and follow it. One of the key's to successful trading is having set strategies and a trading plan that you follow every day no matter what.

When trading currencies or any other asset, you must keep your emotions in check. While you will experience emotion, you must learn to control it so that it does control your trading decisions. Greed and fear are very common emotions felt by traders and can cause investors to lose a lot of money due to poor decision making. Follow your trading plan, set your stop loss orders, and follow your entry and exit strategies. Don not let your emotions control your investment decisions.

The last tip in this article is that investors should not expect to win every trade when they trade currency. That is an impossible task, even for the most successful of traders so please do not put unrealistic expectations on yourself. Learn from your mistakes and move on. The idea is to be ahead overall and not to win every trade. If you are however losing your money overall then you most likely need to rethink your trading plan and your stop loss strategies and techniques.

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