Candlestick Trading Blog

---

The options trader may well ask what is the point of buying calls or buying puts or selling calls or selling puts via an American option versus, for example, a European style option. The advantage of the American option is its flexibility. Because American style options can be executed on any day during the contract period allow traders to take advantage of market inefficiency that may only persist for a brief period of time during a volatile market whether this is because of a market rally or market reversal. Because it is often market volatility that leads to profits in trading stocks or trading options the American option style can be a distinct advantage.

An American option can be either “vanilla” or “exotic.” The American style only refers to the ability to execute the option and not how complicated the contract is. A barrier option may or may not be American style in that the barrier aspect of the option may preclude its execution. In the case of the more exotic options the American option aspect may be a minor consideration if the list of terms and conditions associated with the option is excessive. For the options trader interested in using tools like Candlestick analysis to follows the stock market and profit from predicting changes in stock prices an exotic option will be of little interest. These options are typically written for very specific situations and are commonly tailor made for the parties involved in the options transaction. Fundamental analysis and technical analysis may be less of an issue in exotic options as the terms may be so specific that other market considerations don’t really matter.

The point of trading buying options is to purchase the opportunity to buy (calls) or sell (puts) stock as movement in stock price dictates. Buying puts or calls on a stock does not confer an obligation to the buyer but requires the seller (options writer) to sell (calls) or buy (puts) if the buyer executes the contract. In the case of an American option this means that the options writer may be called upon to come up with the cash to satisfy the contract at any time during the contract period. On the other hand a writer of a European style options contract will only need to buy or sell stock to satisfy a contact upon the expiration date. In either case the savvy trader will track stock price movement with Candlestick charts in order to optimize profits.

Online Stock Market Reviews presented live via the internet by Stephen Bigalow

There are certainly stocks whose prices move counter to market trends. A company that brings a brand new anti cancer drug to the market will often see substantial profits even if the country is going into a recession. Companies in the movie industry may also remain profitable during tough economic times as consumers forego more expensive forms of entertainment to go to the movies or stay home to watch a DVD. However, the majority of stocks are directly affected by market risk. There are specific as well as general factors to follow in anticipating market risk. As always, technical analysis takes into account the fact that virtually all fundamental factors are known and assimilated into the market. Technical analysis tools such as Candlestick pattern formations use the fact that price patterns repeat themselves to allow traders and investors to profit from market risk factors.

Commodity risk obviously affects those who trade commodities. However, the prices of commodities can be felt throughout the markets. When oil futures and the price of oil go up so does the cost of doing business in many market sectors as well as for the consumer.

Currency risk directly affects Forex traders. It also affects the cost of imported goods and the profits to be realized from exports. As the dollar drops in value exporters may gain more customers and make more money as valued in dollars. Companies that rely upon foreign labor and materials will see their profits diminish. These factors will operate across many different market sectors and will affect the prices of stocks in the investor’s portfolio.

Equity risk has to do with market fluctuations caused by any and all factors. Traders can profit from this market risk factor by sticking with Candlestick chart analysis to anticipate price movements of individual stocks. Those engaged in long term investing can use Candlestick chart patterns to buy stocks at historically low prices.

An investor can buy calls or buy puts to gain stock options profits with the only risk being the cost of the premium paid for the stock option. This is because when buying options the investor purchases the right to buy (calls) or sell (puts) stock at the contract price, also known as the strike price. He does not take on any obligation in this contract agreement. The seller of a call or put receives the premium and accepts the market risk inherent in the situation. When an options investor executes an options contract they will pay the strike price for 100 shares of stock per stock option if it is a call contact. They will receive the strike price for 100 shares of stock per contract if it is a put option. The seller of the option will receive the strike price for a call contract and pay the strike price for a put option. However, when the market price, the spot price, of the stock has moved substantially the stock price could now be substantially different. Stock options profits on call options will be the spot price minus the strike price multiplied by 100, minus cost of the premium to buy the option. In buying put options the profit will be the strike price minus the new spot price minus the premium.

It is part of the psychology of investing that investors are tempted to buy a “hot” stock. The stock is in the news and its price is going up. There is the sense that the stock will just keep going up so it will virtually always be a good investment to buy it. That, unfortunately, is not true. Stocks level off in price and stocks go down in price. There are well run companies that always seem to make a profit and whose stock price has steadily risen over the years. However, buying these stocks when the market is hot virtually guarantees “flat” performance for a number of years. A way to avoid overpriced stock is to use an investment strategy that requires an anticipated forward looking income stream based upon the company’s fundamentals. This is the stock’s intrinsic value. To avoid overpriced stock the investor, or especially the day trader, will use market and stock price evaluation tools. Because stock prices fall into patterns and these patterns repeat themselves it is possible to predict the outcome of an emerging pattern. Thus the investor can search out a stock with strong fundamentals and a stock price that has not yet risen to the overpriced range. By applying Candlestick charting techniques to stock prices it is possible to anticipate a price rise instead of reading about it in the news. It is possible with the skilled reading of Candlestick patterns to avoid overpriced stock and build a stock portfolio based upon stocks that are due to rise in price.

In a Candlestick Forum Bootcamp the trader will learn effective money management methods for trading without letting emotions get in the way. By learning to read Candlestick patterns correctly the trader will not only learn when to enter a trade but will learn how to stay out of unprofitable trades. By learning how to effectively set stop loss targets the trader will learn to preserve capital in situations of high investment risk. By learning to analyze trends using Candlestick pattern formations the trader can be able to profitably anticipate trend continuation or trend reversal. And, the trader will learn how to use Candlestick trading tactics combined with profitable signal recognition to enhance trading opportunity and profits. By learning to trade a breakout gap or trading bad news gaps a trader can profit from the sort of market jumps that result from good or bad overnight news. Learn these techniques and skills in online trading classes and profit from the experience!

One can learn stock trading, options trading, commodities trading, and futures trading by reading, by practicing in simulation trading, by listening to instructors talk about trading, and by profiting and losing from live trades. Because trading is a business and not a game the wise trader will want to be prepared before starting to trade. He will want to limit his capital investment at the beginning as he learns the ropes, to use a nautical term for learning the tools of the trade. By listening to and interacting with other traders in online trading classes the trader will be able to put it all together. By learning from the success and mistakes of others a trader can learn to avoid the twin pitfalls of greed and fear that trip up beginning traders. Learning from online trading classes and then developing and following a sound trading strategy will help the trader from falling prey to the psychology of trading. Rather it will help the trader take profitable advantage of the group psychology of the market.

An important aspect of successfully trading stocks is trend analysis. In an interactive stock trading class the trader will learn simple techniques that will predict extension of market trends, market reversal, and when a market rally is about to end. Learning effective stock trend analysis in an interactive stock trading class will help an investor decide when to get out before a trend reverses or sit through a small market correction on the way to more profits.

Besides being able to trade the ups and downs of a stock during the day, week, month or year it is also very useful to know how to trade gaps. By gaps we mean the fact that a stock price may close one day and open the next at substantially different levels, without any transition. This is commonly due to overnight news that can either affect the stock market in general or individual market sectors or stocks. Candlestick pattern formations, Candlestick charting techniques, and Candlestick trading tactics are all useful in predicting where stock prices are going to go and in how to trade them. Being ready and knowing how to trade a breakout gap or skill in trading bad news gaps can lead to extremely handsome profits as the market adjusts itself to bad, or good, stock news.

So, we are saying the trader should learn technical trading. Just what is technical trading? There are two essential types of analysis that investors and traders carry out in order to understand stock investing, stock trading, commodity trading, options trading, and futures trading. The first is fundamental analysis and the second is technical analysis. Fundamental analysis helps the investor in picking stocks for the very long term. Long term investing looks for intrinsic stock value which comes down to the anticipated forward looking income stream of a stock. Technical analysis has to do with the month to month, week to week, day to day, and minute to minute reading of stock price movement.

At the root of things it is fundamentals that drive the prices of stocks, options, commodities, and futures. However, the fundamentals of an equity such as a stock are generally known by all who are interested and do their homework. Thus, it is how investors and traders buy stocks and sell stocks that determines the every varying price of stocks. Tuning in to the picture of movement of stock prices is the basis of technical trading. Technical trading works because stock price patterns repeat themselves. This tendency of market price patterns to repeat was first noticed in Japan in the days of the Samurai by rice traders. That is where Candlestick basics emerged. Today traders can learn Candlestick charting techniques and profitably follow price movement of a stock or a whole index. What is necessary to profit from Candlestick signals and Candlestick trading tactics is to learn the signals and how to use them. That is where taking an online class to learn the 12 Candlestick signals comes in.

An online webinar is like sitting in the same room as an experienced trader. The novice as well as the seasoned professional can ask questions and get accurate and useful answers to the dilemmas of trading. An online class will help one be a profitable trader by learning money management techniques as well as by picking the best stocks to trade. To learn technical trading it takes basic information, practice, and the kind of follow up and interaction that an online class offers. For both beginning investing in the stock market and fine tuning the more sophisticated trading strategies an online stock investing seminar will help the trader or investor reach his goal. It is important to note, by the way, that not just day traders benefit from using Candlesticks. A long term investor may be interested in holding his stocks for a long time but will also want to buy and sell stock at optimal prices. Thus even the most dedicated long term investor will want to learn technical trading to optimize his profits.

Learn to invest successfully by learning from the experience of others. By taking online training webinars traders can pick up both the basics and the details of successful stock investing, commodities trading, options trading, and trading futures. Learn to invest successfully by doing thorough fundamental analysis of equities. Learn to invest successfully by using Candlestick charting techniques for the technical analysis of stocks, options, futures, and commodities. Taking the online Candlestick Forum Boot Camp will allow the new investor to learn both the basics of this easily to understand system and be able to learn the tricks of the trade that come with years of experience. With an options webinar or a commodity trading webinar it is possible to gain from the experience of experts and interact on a person to person basis. Learn to invest successfully by starting with Candlestick basics in order to more fully understand and profitably anticipate market trends and market reversal whether in stocks, options, commodities, or futures.

It does need to take a lifetime of stock trading to learn to invest successfully. An old saying is that one year of well focused education equals twenty years of untutored experience. Obviously an investor will learn from his own experience but there is no good reason to lose money while learning the ropes of stock market investing. When taking online seminars or classes an investor can typically take in the same sort and quantity of material that he might learn from reading a book or an online summary of stock trading principles but learn quicker. This is because the investor will have the advantage of learning visually, by hearing, and by practicing with immediate feedback. Partly it is the multifaceted approach of an online webinar that helps the investor learn to invest successfully. The other most important aspect of an online webinar is that the investor new to the world of investing and trading will “rub shoulders” with a teacher with years of experience in investing, in trading and in teaching.

It takes time to learn effective investment techniques when investing and trading on your own. We all learn from stock trading experience and, experience in trading stocks is, often, the best teacher. But, most traders would just as soon not lose a bundle of cash in order to learn a lesson in stock market investing. With this thought in mind we will look at how to learn effective investment techniques by way of the experience of others in long term investing as well as day trading. Taking online training webinars from experienced investors will expose you to the wisdom of years of trading. It will also let you learn from the costly mistakes of others while avoiding your own costly mistakes in trading stocks, trading options, trading futures, or trading commodities. Going to the online Candlestick Forum Boot Camp will help both beginning and experienced traders learn and integrate the use of Candlestick signals into their technical analysis routines. Go to school online to learn effective investment techniques and effective ways to manage investment risk when investing in the stock market. Learn from the experience of others so that your own experiences in investing will be all the more profitable.

Learn effective stock market investing from experts. Making money in the stock market is not a matter of luck, “tips” from others, and, most certainly, not a matter of reading outdated investment advice. In this fast moving world the fundamentals of a stock are known by virtually every investor and trader who pays any attention. That is not to say investors should not gain stock investment perspective by doing routine fundamental analysis of the stocks in their investment portfolio. Knowing stock fundamentals gives the investor and trader each a valuable perspective. Fundamental analysis is necessary in order to find stocks with a margin of safety and the forward looking earnings potential often sought in value stock investing. The fundamentals will determine the general vicinity in which a stock price lies. It will not, necessarily, determine the exact price and, most decidedly, will not determine where market sentiment will take the stock price next.

Online Stock Market Reviews presented live via the internet by Stephen Bigalow

For many years a reliable way to make money investing in stock was with stock cycle investing. Long term investing profited by buying at the bottom of an economic cycle after which the point was to sell stock at the top of the cycle. Stock cycle investing worked for years as the US and world economy went through predictable ups and downs. Stock prices typically fell and rose as much based upon the psychology of investing and the psychology of trading as upon fundamental analysis and technical analysis of stocks.

It seems that every time there is an economic downturn the doomsayers take over and everyone starts to believe that the market will never recover. Thus a smart investor using tools like Candlestick chart formations can profit by anticipating a market reversal and turnaround in stock price. Likewise, when the market is going up the Pollyanna optimists take over and everyone starts to believe that upward market trends will never stop. That is also when the smart trader uses Candlestick analysis to predict the top of the curve in stock cycle investing.

In stock cycle investing traders as well as long term investors will look for convergence zones where the market is coming to a consensus as to a stock price. Very commonly such a pattern will be a prelude to an upside breakout. Then the trader will be well advised to be ready to trade a breakout gap when a stock price opens substantially higher one morning after a flat period. One reliable way to be a profitable trader is to keep firmly in mind the fact that markets go up and markets go down. He who knows this and trades accordingly can profit from stock cycle investing. Because everyone typically knows the important fundamentals of a stock it is technical analysis with tools like Candlestick pattern formations that will be the clue leading smart traders and investors to execute profitable trades at market turnaround points.

Online Stock Market Reviews presented live via the internet by Stephen Bigalow

Successful long term investing based upon anticipating full scale stock price reversal can be very profitable over the years. An investor will look for a stock with a low price to earnings ratio or price to sales ratio. He will look for intrinsic stock value such as a promising line of products not yet brought to market or a margin or safety such as property and ownership of other companies. A success long term investor seeks out these stocks before they turn around and buys them at a price which is heavily discounted as relates to forward looking earnings. The long term investor succeeds by picking stocks with the potential for continued growth. The trader will look for the same things in a stock but will work with a shorter time horizon. The trader may engage in options trading instead of waiting to buy the stock directly. By doing so, the trader will only pay a fraction of the cost of the stock in question for the right to buy or sell. If necessary, he will keep rolling over the stock option to keep the option active. The trader will be able to profit from either upward or a downward movement of the stock by either buying calls or buying puts on the stock. The trader may also simply sell the option for a profit when the full scale stock price reversal occurs, never really owning the stock.

Traders use technical analysis to help pinpoint when a full scale stock price reversal is about to occur. Technical chart analysis using Candlestick pattern formations will help show the trader when a price pattern indicative of a pending price turnaround arrives. By using the fact that price pattern history repeats itself a trader will profit by timely purchase of or short selling of a stock about to dramatically change direction.

Online Stock Market Reviews presented live via the internet by Stephen Bigalow

Fundamental analysis is essential in trading bad news gaps as there are some basic factors that will drive a stock price up or down very drastically. Knowing the fundamentals of just how far the stock price might go is extremely useful. However, the simple fact of the matter is that when trading bad news gaps everyone knows the same bad news and is taking it into account. Thus the use of technical analysis tools like Candlestick signals is more useful in helping anticipate just how far a market rally will go or how quickly a market crash will correct when trading bad news gaps. This is because markets move in patterns and the patterns repeat themselves. Rice traders in ancient Japan saw this fact and labeled the various market price patterns. This was the start of Candlestick basics. Today the same signals that worked to predict commodity price movement are used for trading options and futures and helping predict the movement of stock prices after bad news gaps.

Because market price patterns repeat themselves a trader using Candlestick chart analysis can identify signals, Candlestick signals, that will help him sell stock at the top when the market is about to turn around. These same signals can alert to trader to a likely continuance of a stock trend as well. Learning Candlestick signals in basic stock market training with the addition of Candlestick Forum Boot Camp can give the trader an advantage in picking stocks, buying at the bottom, and knowing how to sell stock at the top.

Both the day trader and the investor interested only in long term investing would like to always sell stock at the top of a market trend of at the recurrent peaks of stock cycles. To do this successfully both fundamental and technical analysis are necessary. Analysis of stock fundamentals gives the trader and investor the broad view of a stock’s prospects. Knowing the potential limits of a company’s markets will help the long term investor know just how high the stock is able to go, ever. For example, there are companies that make replacement parts of older machines, like certain types of printing presses. Some of these machines will last fifty years or even more. However, they will eventually wear out or changes in technology will make them obsolete. The company that makes the parts is able to make a nice profit because they have no competition in that market. However, the market will shrink over the years. On the other hand a company doing research and development in genetics may have almost unlimited potential markets. Fundamental analysis will tell the trader and investor what the eventual limits of a stock might be.

Stock investing can be highly profitable over the long term. By picking stocks with intrinsic stock value and a margin of safety the investor can profit from long term, sustained growth. The intrinsic stock value is the stock’s value as reflected in anticipated earnings and the margin of safety is typically that the company has hard assets to help it weather a financial storm. By picking the right stock an investor can see his investment grow substantially over the years. However, at some point it is usually wise to take stock profits. A very successful stock market investment can become an overly large part of a stock portfolio. At that point the goal of diversifying a stock portfolio is defeated. If the stock does badly during a recession or because a competing company takes market share the stock value could drop dramatically. The time to take stock profits is when the price peaks and not just after a market downturn.

Diversifying a stock portfolio is a time honored means of both protecting capital and widening exposure to promising stocks and market sectors. As some market sectors react in opposite directions to changes in the economy a well diversified portfolio will not only protect against loss when the economy changes but may, in fact, provide the investor with substantial gains if a particular stock or two respond well. Although money management techniques for investors are typically aimed at avoiding risk the techniques used by traders may seem, at times, to fly toward risk. The trader will often wish to be trading a volatile stock either directly or by trading options. Risk management for the trader is not necessarily to avoid a given stock but to limit risk by exercising discipline in how much to risk per trade. The savvy trader can limit risk by understanding and exercising technical analysis with tools such as Candlestick pattern formations. These technical analysis tools help the trader predict stock price movement and can allow the trader to profit even in chaotic markets. Nevertheless, because there is always risk in trading even the smartest and most skillful trader will not risk all of his capital in one trade.

There are several types of gaps including runaway gaps, exhaustion gaps, and common gaps, as well as breakout gaps. In each case stock prices move quickly from a relatively continuous progression up, down, or sideways to a discontinuous jump up or down. In each case the price jumps leave gaps on stock charts. Those interested only in long term investing can really dislike gaps, unless the investor also is astute in technical analysis of stocks using Candlestick chart analysis. Although the long term investor will not buy stock and sell stock frequently he or she will be pleased to pick up a stock just before it goes up substantially in price. The trader, who routinely uses Candlestick charting techniques, will see a breakout gap and realize that he or she may just be in trader heaven and ready to make a nice profit.

Candlestick signals are effective tools for trading stocks because of two reasons. They can accurately predict future stock price movement. They are also easy to read visual signals that cut through the complexity of technical analysis and give a clear indication of what is coming next in the stock price. Because Candlestick signals read market price changes they are also useful in commodities trading, futures trading, and options trading, as well as trading the stock market directly. A trader who learns his Candlestick signals and patiently applies this knowledge will find himself to be more successful in identifying stock price reversals and profiting in stock trading.

An important factor in identifying stock price reversals is whether the reversal is short term of a basic sea change for the stock in question. A hot stock will commonly experience price corrections on its way up. Traders and short term investors will engage in profit taking. This practice is typically a healthy thing for the market in general and for the stock price in particular. An old saying is that you don’t have a profit on a stock until you take the profit on the stock. Old hands in the stock market will commonly take a little profit along the way even when they believe that a stock is going to be going up for some time. The point of differentiating between a market correction and the development of an opposite trend is that the trader will want to be out of his current position entirely if the stock is changing direction. If the stock is just experiencing a hiccup he or she may increase a long position in the stock or a short sell position if the stock’s basic direction is downward.

Buying at the bottom is how everyone wants to make money in the stock market. Knowing in advance where the bottom will be can be the tough part. Trading and stock market investing works best for who do fundamental analysis of stocks that they trade. These individuals have a better chance of buying at the bottom than someone who does not do their homework. Traders who use technical analysis tools such as Candlestick pattern formations greatly improve their chances of very precisely buying at the bottom of downward market trends just at the point of market reversal. Knowing how to effectively do both fundamental and technical analysis comes with education such as with online training webinars aimed at both beginners in the stock market and the experienced stock investor.

An experienced trader using Candlestick chart analysis will follow a downward stock price trend and patiently wait for the development of one of the Candlestick patterns that reliably signals a reversal. Buying at the bottom in the way works both for buying stock and for options trading. The point of using Candlestick analysis is to forecast price movement. The system does not care if the trader wants to use the information for trading stocks, trading futures, commodities trading, or trading options. In the case of options a trader can profit from buying calls on a stock when it is ready to make a turnaround. In the case the trader has the option of buying if the stock reverses. The trader buys at the strike price which is essentially buying at bottom, when the trade is properly executed, and then sells at the spot price to realize a profit.

For the long or even shorter term investor the point is buying at the bottom. For the trader it can also be short selling on the way down and using Candlestick chart formations to predict a turning point at which to exit the trade for a profit. The same trader will then profit again by buying at the bottom and riding the stock price back up. Candlestick signals are used to predict price reversals or continuation of price trends going both up and down. Partly it is the ease of reading Candlestick signals that makes them popular. However, it is the fact that a trader conversant with the use of Candlestick signals can make handsome profits in trading that makes them valuable.

Investing in startups can be very profitable and it can be sink hole into which you throw your money. How do you find startups? How do you get into startups? What are the barriers and what do you need to know for this kind of stock investing? How do you best avoid losing money while investing in startups and looking for the next Microsoft or Genentech? Getting into startups on the ground floor has more to do with connections and money than it has to do technical analysis or even, to a degree, fundamental analysis of the company’s prospects. Technical analysis tools such as Candlestick chart analysis are useful when the stock becomes public. Until the stock trades, traders have no formal market to trade in. Investing in startups is typically only open to so called qualified investors. This is a person with a net worth of a million dollars and at least $200,000 annual income or $300,000 if investing jointly with a spouse.

Investing in startups before they go public is the best way to make the best profit on a given company. When the company is just an idea it needs money and when the company has developed products it increases in value. When the stock goes public the stock price reflects the fact that the company has a good chance of succeeding. Investing in startups often means investing in companies that never make it to sell stock. The biggest majority of startups never make it. Thus venture capital firms expect to win very big on the occasional company while losing money on lots of others. For long term investing the idea of picking stocks in startups may sound attractive but should be coupled with a number of things for investment risk management. The first is that the investor needs to understand what the company is going to do and what the market may be. The investor needs to understand that investing in startups is like penny stock investing. There is the potential for a lot of profit and the potential to lose all of your money. The difference in investing in penny stocks versus startups is that a company being traded can be looked at with both fundamental and technical analysis with an eye towards the price to earnings ratio and Candlestick pattern formations in order to anticipate price changes. If you are interested in investing in startups one option is to call a stock broker and find out what startups are available and who is offering entry into the investment pool.

Online Stock Market Reviews presented live via the internet by Stephen Bigalow

The debt to asset ratio of a company is a strong indication of its financial health. A high debt to asset ratio indicates that a high percentage of the company’s assets are being financed by debt. Stock prices of companies that carry a high debt burden are especially sensitive to changes in the prevailing interest rate. Stocks of companies with high debt burdens may not be good risks for long term investing but may be good targets for day trading. As a company with a high debt to asset ratio may find its stock plummeting during interest rate hikes this sort of company might be good for options trading. Buying puts on a weak stock may be profitable if the stock price drops substantially. In that case traders will profit by the difference between the spot price of the stock and the strike price of the contract. A low debt to asset ratio will tend to support a higher stock price and, coupled with tangible assets, may be considered part of the margin of safety that long term investors seek in a stock.

As with all factors affecting trading and investing the debt to asset ratio of a company should be considered in regard to other factors in fundamental analysis of its stock. Successful penny stock investing has to do with finding the value in devalued stocks. A company with a promising new product may have accumulated a substantial amount of debt in order to pay for research and development of for an aggressive promotional campaign. In picking stocks an investor might be less concerned about a high debt to asset ratio if the company’s price to sales ratio is low. In other words a company just starting to realize a high level of sales may put off retiring debt in lieu of aggressively marketing their product, opening stores, etc.

Online Stock Market Reviews presented live via the internet by Stephen Bigalow

To a degree both investor and trader need to know both ways to analyze stock. The trader will be well served by knowing which stocks may be most volatile and thus most profitable to trade. Being able to predict that a stock will rise in the near future will enable the options trader to make money buying calls and buying puts. Although the trader will use Candlestick analysis to analyze price movement the trader will only find the stock and have an idea of its prospects by knowing the company’s fundamentals. Thus the trader will be interested in the stock in part due to fundamental analysis but will execute trades or trade options based upon technical indicators.

Learning how to analyze stock will start with the fundamentals. Then it builds to a thorough knowledge of technical trading. Investors especially need to learn how to identify factors used in value investing. Learning how to identify a margin of safety in a stock can lead to long term gains. Looking for a low price to sales ratio can be helpful in identifying potentially profitable stock picks. When an investor or trader understands how to analyze stock fundamentals it is time to move on to the technical aspects of analysis.

Technical analysis in a more formal form has been around for around three hundred years. It came out of commodity trading for rice in ancient Japan. The fact is that markets run in patterns and the patterns repeat themselves. Certain patterns indicate that the market price of an equity or derivative will go up next and certain patterns indicate that the price will fall. Candlestick basics allow the trader to see a visual representation of market movement. The trader will enter price data into a chart, or have the computer do the work. Then the trader will do Candlestick chart analysis looking for indications of new market trends or price reversals.

Online Stock Market Reviews presented live via the internet by Stephen Bigalow

Tactics are for short term trading but so is strategy. Stock trading tactics have to do with the mechanics of trading. Stock trading and investment strategy have to do with fundamental analysis of stocks with an eye toward either long term investment or tradability. A good long term investment may be very solid and lead to long term gains but not be especially profitable in trading. A very volatile stock, perhaps one that has been in decline and might become a target for a takeover bid, could well be an excellent stock to watch for trading opportunities. An excellent example of traders have used fundamental and technical analysis to profit is as follows. There is a takeover bid on a company that was in decline and is just putting itself back together. The company has a lot of hidden value in property, other investments, and its upcoming product line. The takeover bid runs the stock price up but those attempting the takeover are overextended and run out of money. Suddenly the stock price drops to half its value in an hour. Investors are bailing out right and left. The savvy trader who has done his homework will know that the company is solid and that its price will come back from the depths that the failed takeover has taken it to. The trader will consult fundamentals and will do his technical analysis with Candlestick pattern formations. His stock trading tactics will be to sell short on the way down and buy at the bottom. Using Candlestick patterns as a guide the trader will profit from both the rise and fall in price of the stock in question.

When a large investor recognizes hidden assets in a company’s balance sheet they may purchase the stock at a substantial discount to forward looking value. When this happens the whole stock market wakes up to the opportunity. At that time both fundamental and technical analysis are important for traders. Technical analysis, especially, is important in order to anticipate the mini market rally that will center on the stock in question. Here is where technical analysis tools such as found in Candlestick analysis come into play. Candlestick patterns are a visual representation of equity price patterns that repeat themselves over the years. Reading Candlestick pattern formations will let the trader “see the future” in that the first part of the pattern anticipates the second part. Market analysis with Candlestick basics goes back centuries to when Japanese rice traders developed this technique of representing price changes. It is adaptable today to any sort of market trading and is commonly used for technical stock analysis, analysis for options trading, and futures trading analysis.

In options trading traders intend to make money buying calls on stocks whose calculated market value is more than the current market price. The trader will pay a premium for the right but not the obligation to purchase stock at the current, strike, price at a later date. If the trader’s fundamental and technical analysis is correct the market price will rise to the anticipated market value resulting in a profit. For the technical analysis part of this endeavor traders will use technical analysis tools such as Candlestick patterns. Reading Candlestick pattern formations can help the trader anticipate market trends and market reversal leading to profitable stock trading or options trading.

Market value is what both traders and investors look at in order to anticipate the next market rally or stock market crashes. However, it is still the market price that investors pay or receive when stocks are bought or sold. Because market price can fluctuate traders can profit with the use of Candlestick analysis to predict stock price movement. Long term investors can also use Candlestick basics in order to increase their profits or decrease their losses when buying or selling stock.

A useful means of buying or selling at the most advantageous market price is to place limit orders when buying or selling stock. When placing limit order the investor or trader will specify a price. For standard limit orders it goes like this. Buy limit orders can only be executed at the limit price or lower, and sell limit orders can only be executed at the limit price or higher. There are also stop orders and stop limit orders. The point of using limit orders in any of their various forms is to optimize the price at which one buys or sells stock. Many investors and traders never buy or sell without the use of limit orders.

An investor may be picking stocks for the long term growth for a stock portfolio. He or she may also be researching which dividend stocks give the best dividend yield. Maybe his or her kids are heading off to college and he or she will need to sell stock to pay tuition. In this case the investor will want to pick the best time within a market cycle to sell in order maximize profit. This is, in fact, part of investing in the business cycle. Each of these will require a different type of stock market research. For good results over the long term both traders and investors will do well to be familiar with and skilled in the various types of stock market research.

Reading stock market updates is part and parcel of day trading as well as smart management of a stock portfolio. Likewise following quarterly and annual reports of stocks that one owns or commonly trades is essential to good stock investing and stock trading. The economic news is all over the headlines when things are either very good or very bad. It is the job of the serious investor or trader to read the economic news when it is not dramatic in order to understand the factors that will drive stock prices in the near and long term future. Sorting the wheat from the chaff is the old expression for finding what is important among lots of details. Routinely doing stock market research will help the trader and investor stay aware of the factors that drive the markets. It will help them recognize important economic and market changes before the rest of the world wakes up to the fact. This will allow the trader to be in the right market at the right time and the investor to either get in or out of a stock in time.

An options price is directly related to the price of the underlying stock. When traders buy call options and the price of the underlying stock goes up the option is “in the money.” In this case traders can sell the option and pocket a profit, minus the premium they paid to buy the call option. Since the option is based upon 100 shares the listed option price is multiplied by 100 to get the price of the premium. Likewise when the price of the stock goes up the increase in multiplied by 100 and that is the profit, minus premium. In order to profit from trading options traders can use Candlestick analysis to evaluate stock price patterns. The use of Candlestick chart analysis allows the trader to anticipate market trends and market reversal. A trader who correctly anticipates a market rally using technical analysis tools such as Candlestick pattern formations can buy calls on the underlying stock and profit handsomely when the stock price goes up.

An investor will pick a stock with a substantial margin of safety, excellent price to earnings ratio, and price to sales ratio. Then he or she will want to buy the stock in the most cost efficient manner. This may entail placing limit orders at a given stock price or buying call options on the stock. In either case the investor will likely not buy at market price and will likely use technical analysis tools such as Candlestick pattern formations in order to purchase stock, and eventually sell stock at the most advantageous price. For successful long term investing the first step is to learn fundamental analysis.

It is not necessary to learn fundamental analysis in all of its intricacy all at once. The investor will find that in picking stocks that he or she will develop criteria. Looking for stocks with a low price to earnings ratio is a good place to start. It is also a very good idea to start by investing in things one already knows something about. In this way the investor already has done fundamental analysis without even thinking about it. For example, a sports enthusiast who plays softball may have a preference for a certain brand of glove, bat, or ball which everyone on his team likes. Finding a good product is a good first step in fundamental analysis.

Many traders find that an efficient means of making money in the stock market is by buying options. Traders can use Candlestick analysis to anticipate movement in stock prices to improve their chances of profiting from buying options. Traders pay an option premium for buying options which gives them the option but not the obligation to buy stock or sell stock. The price at which stocks will be bought or sold is the strike price which is determined by options contracts. There are two directions to go in buying options. These are buying puts and buying calls. A put is an option to sell the stock at the strike price. A call is the right to buy the stock at the strike price. An options trader buys a put on a stock that he or she expects to fall in price. The buyer of a call option expects the stock to rise in price. In buying United States options the buyer has the right to exercise the options contract at any time before expiration. Thus, many traders do not intend to wait until expiration of the contract to profit. When the underlying stock moves sufficiently in price its option value will reflect the change in stock price.

Buying options is a means of benefitting from stock price movement with substantially less investment than by buying stocks. Paying the premium to buy a call or put option is locking in the opportunity to make money during a market rally or decline. Technical analysis of stocks helps traders in anticipating stock price movement and buying stock options at the right times. Someone who buys a stock runs the risk of losing when the price falls. Buying options is different in the trader will not exercise the options contract unless doing so will lead to a profit. The monetary risk of buying options is that if the stock does not move in price as expected the trader does not earn money. However, so long as the option has intrinsic value the trader call sell the option and regain part of the premium. In fact most traders will earn their profit in trading options by selling their contract to another trader after the stock price moves and the value of the option increases.

Every investor buys stock expecting to see stock price appreciation. Sometimes a stock price goes up because of intrinsic stock value. Long term investing is based on the concept that intrinsic value leads to stock price appreciation. Traders, especially those engaged in day trading, look for market driven stock price appreciation or a drop in stock price in order to buy stock and sell stock for short term profits. Although fundamental and technical analysis each have their place in investing and trading it is technical analysis that guides traders to profits as a stock price rises and falls over days, hours or minutes. With time honored technical analysis tools such as Candlestick analysis the old saying is that the trader lets the market tell what the market will do. Stock prices tend to move in patterns. This also applies to trading futures, trading commodities, and trading options as well as trading stocks. The front end of the pattern predicts the back end. Because price patterns repeat themselves the savvy trader can anticipate stock price appreciation and buy. He can anticipate when a stock price will fall and sell short as well.

The rationale for technical analysis of stock is that the market quickly factors in fundamentals when they are known. Stock market news is disseminated rapidly. The market corrects based on new information. However, the market may over correct. Depending upon how traders and investors interpret their stock fundamental analysis they may expect more or less stock price appreciation from the introduction of a new product, the entry into new markets, or new cost savings in production. It is through analyzing chart patterns and analyzing chart pattern reversals that the trader can anticipate further stock price appreciation or a market reversal in the short and medium term. Of course for the long term it is still an understanding of what product a company makes, how they control their costs, how well they market, and how well their R&D department converts basic research into salable products that helps the investor or trader accurately anticipate stock price appreciation.

Online Stock Market Reviews presented live via the internet by Stephen Bigalow

Long term investing is typically based upon an appraisal of stock earnings potential. Stocks that are selling at a low price to earnings ratio are usually under priced because the current earnings are considered a prediction of continued stock earnings potential. Likewise a low price to sales ratio implies a good stock earnings potential and the likelihood that the stock price will go up over time. How long a promising stock will languish with an inappropriately low price often depends upon how many analysts follow the stock and how well the analysts understand the company’s business prospects.

An example of a neglected company with good stock earnings potential would be a company that has suffered under bad management for some time. There is a change in members of the company’s board of directors. New energy is injected into management, often in the person of someone hand picked by a new board majority. Costs of operation go down, new markets are found, sales go up and so do profits. However, since the stock has languished for years analysts are not paying attention. Many won’t until the stock’s price starts to rise. By then it may be too late as those who have been paying attention, doing fundamental analysis, following technical indicators such as Candlestick pattern formations, will have bought repeatedly and driven the price up. By the time some professional analysts have caught on, traders doing Candlestick analysis will take advantage of the technical boost in the stock price and will then sell short before the stock corrects back to a reasonable price.

Stock earnings potential is part of the margin of safety that long term investors look for. It is also goes hand in hand with the intrinsic stock value. It is the forward looking earnings stream that long term investors look for when engaging in buy and hold investing. However, as with all investments, things can change. It is important to track investments as a company with good stock earnings potential may falter. In various market sectors economic factors, new and competing inventions, and loss of markets due competition can reduce stock earnings potential. When this happens, the intrinsic value of a stock is gone and a long term investor as well as a day trader will consult their Candlestick chart analysis for the best price at which to sell stock. When thinking of long term investing, it is fundamental and technical analysis that will guide the investor. When fundamentals take a turn for the worse it is technical stock analysis that guides the way to the most profitable sale.

Online Stock Market Reviews presented live via the internet by Stephen Bigalow

Those who engage in long term investing will look for a margin of safety to help protect against loss. However, they will also look for growth potential. Ideally an investment will have growth potential overlooked by the stock market in general. Thus the stock price will be lower than what the company’s earnings potential should warrant. This is an ideal example of the value of fundamental analysis in stock picking. Choosing an investment in a stock with a low price to earnings ratio, for example, will often mean that the price will catch up to the earnings and the investor will profit.

Stock portfolio diversification tends to reduce the risk of loss in stock market investing. By choosing stocks in different market sectors the investor will reduce the risk of a market disaster in one sector taking down all stock values. In addition, by investing in a larger number of promising stocks the investor will increase his or her chances of picking a really big winner. For the average investor who has a full time “day job” it makes sense to hold up to half a dozen stocks. For the full time professional a larger number is possible. This simply has to do with the ability to do at least weekly fundamental and technical analysis of the stocks that one holds.

Intrinsic stock value is what long term investors look for in a sound investment. Such stocks offer the long term investor a margin of safety over the long term. What the margin of safety does is insure that the company will have assets and value even during bad economic times. It does not always mean that the stock price will go up and provide the investor with a profit. The short term investor and especially the day trader will look for the same sort of intrinsic value in a stock but the sort of value that will shortly be reflected in the stock price. The shorter term investor or trader is less concerned, however, with the fundamentals of the stock although he or she will do both fundamental and technical analysis. The trader will follow the stock involved, looking for how the market treats it. He or she will look at stock price history and stock price volatility. When the trader sees the right trade signals that a stock trend or market reversal is imminent it is a sound investment to initiate the trade. When the stock has made its move the trader will exit the trade and pocket the trading profit.

Traders believe in trade signal reliability because it works in their hands. Economists who write papers about trade signal reliability and technical trading in general will question if these concepts work in practice. The “experts,” however, have the capacity to study any problem to death. The practical aspect of trading is to take what looks promising and try it. Keep what works and don’t use what does not work. Traders going back to the days of the Samurai in Japan recognized patterns in trading rice. Those who bought and sold after recognizing certain patterns in price prospered. If someone had asked one of these successful traders about trade signal reliability they might have indicated signs of their wealth as proof that using Candlestick basics combined with Candlestick trading tactics worked for them. As far a long term investors are concerned they typically do not use technical trading techniques for short term trading. They may be experts in what they do but they are not experts in day trading.

Options prices change as stock prices change. Thus stock trading signals are options trading signals too. However, there are other options trading signals not found in Candlestick chart analysis. These two pieces of information are options trading volume and options open interest. Knowing trading volume helps the trader by giving a hint as to the strength of current market trends. Open interest can reinforce other information indicating a continued trend too, but it can also indicate market reversal.

The point of learning how to do technical analysis to read options trading signals is to be able to anticipate equity price movement and trade options accordingly. Fundamental analysis of equities is important to give the trader a global picture of what a stock’s possibilities are. However, fundamental analysis belongs more in the world of long term investing and determining intrinsic stock value than in the fast paced world of day trading options contracts.

Technical analysis tools can predict price movement. There are many technical indicators. In learning technical analysis of stock the beginning trader will be wise to use technical analysis stock tutorials and to learn one pattern at a time. One of many stock trading patterns is a symmetrical triangle seen in an upward trending market. This pattern can be considered to be a signal of a breakout to the upside after a market hesitation. The stock price is going up during the day and then drops very sharply. It then proceeds to climb to a price less than its most recent high and drops sharply again but not as far as its most recent low. This pattern of rising and falling but less that the previous high or low can continue two, three, or more times. Traders can print this price pattern out on paper and draw a line along both the lower prices and the higher prices. The result will be a triangle with its base where the first price drop occurred and its point somewhere in the future of the current price.  What commonly happens before the triangle comes to a point is that the stock price breaks to the up side, often dramatically. This sort of technical analysis commonly works to predict price changes but why? Stock trading patterns work because the markets repeat themselves. Everyone trading a given stock will have access to all of the same information. However, traders trade differently and all traders cannot enter their trades at once. Thus the market changes infinitesimally with each executed trade and traders adjust.

Technical chart analysis can be done by pulling up screening on trading software and it can be done on a legal pad with a pen. The point of technical analysis is to separate vital information from the static of seemingly random price movement. A visual system such as reading Candlestick chart formations will give the trader a sense of the market at a glance. The ability to gather vital information rapidly and use it promptly in a rising or falling market can be crucial. Thus the trader who can quickly calculate a moving average for the day or for the month without the help of extensive computer backup may have the advantage in a seemingly chaotic market.

Technical chart analysis renders the most accurate predictions in a highly liquid market at high volume. That is because statistics are typically more accurate with larger numbers. Nevertheless a high volume market with lots of liquidity can still fluctuate substantially. If everyone is trading one of the large cap stocks because of a possible takeover there may be terrific volume. Trading may be very liquid because of the huge number of traders interested in the situation. However, with traders hedging their bets on one hand and jumping on trades based on news reports on the other the stock price may jump up and down a bit. The use of technical chart analysis may well help the trader understand the basic market sentiment driving the stock’s price and profit from buying stock, selling options or whatever market analysis dictates.

Prices of some stocks and commodities are cyclical and somewhat predictable. When equity price movement is predictable there are seldom any trading profits. Price volatility that leads to trading profits typically comes from uncertain situations where traders all have the same information but come to different conclusions. Different conclusions lead to different trading strategies and market volatility. Using online trading software a trader can anticipate direction of price movement and trade accordingly. Short term volatility lends itself to short term trading. Medium term volatility is more commonly, and often profitably, traded with options trading.

When a trader anticipates price volatility in a stock over a period of weeks to a month or so trading options may be profitable. Buying calls on a stock will give the buyer the option but not the obligation to buy stock at the agreed upon price, the strike price, up until the expiration date of the options contract. Buying puts on a stock will give the buyer the option but not the obligation to sell stock at the strike price up until the contract expires. In each case the trader will profit if the current market price, the spot price, moves up (for buying calls) or down (for buying puts) from the strike price. Because the trader is buying options his or her risk is the loss of the premium paid. The trader’s profit will be the difference between the strike price and the spot price minus the premium.

In periods of extreme volatility lasting weeks and months options traders often use trading strategies to optimize the opportunity for profit and minimize their investment risk. If the trader expects to see extreme price volatility in a stock but cannot predict which direction the price will go he or she may opt for a strategy called a long straddle. In this case the trader buys puts and buys calls on the same stock with the same expiration date. The price of the transactions is two premiums. The potential for reward is greater because the trader will profit from a price movement in either direction.

Learning how to trade Forex starts with a basic knowledge of foreign currencies and how they are traded. Learning how to trade Forex moves on to a deeper understanding of the factors that drive the relative currency rates in various currency pairs. The next step in learning how to trade Forex is learning how price patterns repeat themselves in Forex trading just as in other markets. A knowledge of and skill in the use of technical analysis tools such as Candlestick analysis will give traders the opportunity to understand and profit from changes in the Forex market. In the end learning how to trade Forex comes down to doing the necessary homework and practicing the online trading skills necessary to capitalize on changes in Forex markets. Technical analysis tools built into trading software help traders anticipate foreign currency price changes. The wise currency market trader will supplement these “modern” tools with the tools and techniques that have served traders for centuries, Candlestick pattern formations and Candlestick trading tactics.

Learning how to trade Forex does not have to be exceedingly difficult and it does not have to all happen in a day. Traders can easily build on previous experience in learning how to trade Forex. Familiarity with foreign currencies and previous experience trading stocks, trading options, trading commodities, and trading futures in general will give beginning Forex traders a head start. Trading tools are similar whether the job is options trading, stock trading, or Forex trading. The fact that markets repeat themselves carries over all the way from rice trading and Candlestick basics in ancient Japan to trading the Euro versus the US dollar today.

The major Forex markets are Frankfurt, London, New York, Sidney, and Tokyo. Thus foreign currency trading goes on virtually around the clock. Learning how to trade Forex includes deciding which currencies to trade, which Forex market to trade and whether to trade daytime only or engage in after hours trading. Learning how to trade Forex is learning discipline as well. Choosing a time to trade, a currency pair to trade, and limiting trading to daytime trading for starters is probably a good idea. A beginning currency trader will often engage in practice trading or simulation trading. Modern trading software will have extensive data from real market situations. Thus the new Forex trader can practice in real situations without risk of immediately wiping out his or her margin account.

The Forex market is huge with trillions of dollars in various currencies traded every year. Trading takes place in currency pairs. Thus a trader does not trade the dollar, Yen, Euro, or Pound Sterling. He or she will trade the Euro/USD pair, for example. Thus the trader will be interested in factors that change the relationship between these two currencies. If the Yen, Yuan, or Pound has a fantastic day that will not necessarily change the relative values of the Euro/USD pair. Forex trading involves buying one currency at the same time as the trader sells the other. The major traders are central banks, large international banks, and other huge institutions. The individual trader attempts to make a living reading Forex signals within the framework of currency rate changes caused by the trading of the large traders. Learning to use Forex trade signals effectively is what the trader will want to learn before starting live trading.

History repeats itself in the stock market. Stock price patterns are repetitive. This fact about markets has been known since Japanese rice traders used it during the days of the Samurai. Candlestick charting, Candlestick pattern formations, and Candlestick trading tactics all emerged as a result of traders identifying price patterns in the rice market. The use of Candlestick chart analysis has expanded in the modern age to be of use in stock trading, options trading, futures trading, and commodities trading. In the New York Stock Exchange (NYSE) and the NASDAQ stock price patterns allow traders to anticipate future stock price movement and allow stock traders to profit from subsequent stock trading.

Stock price patterns such as the Harami go back to when they were only used in rice trading in Samurai times. Depending upon the configuration this can be a bullish pattern or a bearish pattern. In each case the Harami signals a reversal of a current market trend. A “modern” market reversal pattern is the head and shoulders pattern. Like the Harami the head and shoulders pattern signals a pending price trend reversal and is bullish or bearish depending upon whether it is the standard configuration or its reverse. Both of these stock price patterns, old or new, allow the trader or investor willing to do the work the opportunity to profit from changes in any equity market. There are twelve basic stock price patterns seen in the dozen major Japanese candlestick patterns. Recognition of these stock price patterns will allow the trader to take advantage of upcoming stock price changes and trade accordingly.

The use of stock price patterns works for short and medium term trading. For long term investing the investor will need to apply fundamental analysis the stock in question. However, when buying or selling for long term purposes it is still wise to look for stock price patterns. The use of Candlestick basics to assist long term investing will allow the investor to get the best price when buying and the best price when selling even when he or she is buying stock and selling stock years apart.

Online Stock Market Reviews presented live via the internet by Stephen Bigalow

A practical matter in stock investing is understanding and using intrinsic stock value. Knowing and using intrinsic stock value comes from doing your homework. It starts with fundamental analysis of stocks looking at the price to earnings ratio, cash flow ratios, price to sales ratio, the quick ratio, and developing risk reward ratios in stock investment. The concept of an intrinsic stock value emerged during the dark days of the Great Depression. The stock market had flourished during the 1920’s and crashed in 1929 leaving many stock market investors the worse for the experience. At the time the stock market investing was considered little better than gambling. An economist and investor, Benjamin Graham, came up with the concepts of intrinsic stock value and a margin of safety. He and others demonstrated that stock investing could be done rationally and profitably so long as investors and traders heeded the results of fundamental and technical analysis of stocks.

Investors and traders buy stocks and sell stock in expectation of profit. The plain facts of the world of investing is that without the gift of seeing the future it is impossible to always know which stocks will go up or down in price. In order improve the odds of making accurate predictions investors and traders have used time honored tools such as Candlestick chart analysis in order to see and exploit Candlestick pattern formations. This use of price pattern analysis goes back to rice trading in ancient Japan and is useful to today in options trading, commodity trading, futures trading and stock trading. However, the time horizon of Candlestick charts is typically short and medium term. Using these tools the investor and trader will typically be able to pick the most advantageous price at which to enter or exit the market.

Long term investing hinges on identifying and exploiting intrinsic stock value and a margin of safety. When a promising stock is selling at substantially below its intrinsic stock value the investor will buy. When the price goes up too fast or the factors that constitute the stock’s intrinsic value go away the long term investor will sell the stock. The basic definition currently used for intrinsic stock value is the discounted value of future earnings. This means calculating expected earnings and accounting for inflation. Then the investment value is compared to other investments such as treasury bonds or dividend stocks. A company with substantial property holdings, cash holdings, and no debt my have high intrinsic value despite not having a large cash flow. When the intrinsic value of the stock is substantially above its current stock price it has a large margin of safety. This is when the investor will buy the stock; and so long as the margin of safety exists he or she will profitably hold the stock. A company with strong products, low debt, and substantial hard assets can be a value stock which an investor will hold for years. However, when the margin of safety evaporates with bad management, poor product performance, or other reasons the intrinsic stock value will sink to that of the current stock price. That is when the investor will start looking at Candlestick stock charts to decide when will be the most advantageous time to sell.

Online Stock Market Reviews presented live via the internet by Stephen Bigalow

The Commodity Channel Index uses the typical price and simple moving average of a commodity to calculate a number that falls either above or below zero. Numbers between +100 and -100 indicate that a commodity (or stock) is comfortably within its trading range. This is the case between 70 and 80 percent of the time, as a rule. Buy or sell signals occur when the CCI falls above 100 or below -100. A CCI calculation outside of the -100 to +100 range implies that a stock is over or under bought. Using technical indicators like the CCI allows traders to take advantage of over or under bought commodities (or stocks and other equities as the CCI works in all markets).

Using the CCI a number above 100 implies that a commodity is under bought given its circumstances and is entering a strong upward trend. This is a buy signal. A CCI number below -100 implies that a commodity is over bought given its circumstances and is entering a downward trend. This is a sell signal. In each case, when the CCI moves back within the normal range the buy or sell position should be closed. This calculation or something similar is typically included in commodity trading software, helping commodities traders determine if a commodity is over or under bought. The CCI index can be “fine tuned” using longer or shorter periods of time for the moving average. This index helps spot price reversals and trend strength as well as price maximums and minimum.

Knowing if a stock is over or under bought fits with Candlestick analysis. This is letting the market say what the market will do. Although the fundamental information about a commodity is typically available to all traders who care to do their homework their trading strategies will differ. Looking to see if a stock is over or under bought lets the trader into the minds of other traders, giving him or her an advantage that can exploited for financial gain. Being able to understand and predict commodity prices by doing both fundamental analysis and technical analysis is the basis of commodities trading. The use of technical tools such as Candlestick charting is integral to predicting moves in the commodities markets as well as in the stock market or in options trading. It comes down to understanding a statistical analysis of group behavior and capitalizing on it.

Many who engage in buy and hold investing are successful individuals who are busy in their profession and do not have the time to follow their investments on a daily basis. Because they do not have the time for daily stock market trading, these individuals also do not develop the skills necessary for successful stock trading. Nevertheless many long term investors have an acute sense of a good long term investment, often obtained from their work, personal, or recreation experiences. A famous fund manager once noted that it was when his wife and teenage daughters dragged him out to the mall is when he discover the Gap. Wondering who ran the store where teenage girls were buying sweaters by the armload led him to make a very profitable investment in this clothing store on its way up to becoming the United States’ largest specialty apparel retailer. Using the Gap as an example we can see how long term investing can be profitable for years but often the profits come to an end and turn to losses unless the investor diligently applies both fundamental analysis and technical analysis to his or her stock market investments.

The bid price and the ask price for an equity are typically available when trading online with the right trading software. Knowing the bid ask spread as a measure of market liquidity and market volume will help the trader convert knowledge of pricing gained through Candlestick pattern formations into profits. Typically traders find that their technical analysis tools work more efficiently and precisely when the market is very liquid with a small bid ask spread. As a rule the market for high volume equities will trade in a tight enough spread that there is no reason to intervene to create bid and ask prices. However, the role of the market maker in the NASDAQ and the specialist in the NYSE is to increase market liquidity and maintain a reasonable set of bid and ask prices, especially in a rapidly falling market. Where does the money inside of the bid ask spread go? It goes to pay the commission paid the broker or specialist as well as a number of fees. The NASDAQ broker or NYSE specialist is different from the stock broker or online brokers that one will pay commissions to for trading. That is an extra commission.

Learning How Perform on the Trading Stage

If you think of trading as a performance art then everything prior to and following a trading session is practice or review. Both practice and review should be directed toward mastery of performance in the trading arena. Traders begin with innate talents such as the ability to retain large amounts of information and to handle new information and new situations quickly and efficiently. In learning to perform on the trading stage a trader will learn healthy trading patterns. An old saying has it that “90% of life is just showing up.” No matter how well steeped a trader is in Candlestick pattern formations, Candlestick trading tactics, and Candlestick basics in general it is the application that counts in the end, not the depth of knowledge when the trading software is turned off. Trading psychology is such that traders need discipline in order to apply what they know at the right time. With preparation, practice, and review the commodity trader, stock traders, the options trader, and futures trader can develop healthy and successful trading patterns in daily, live trading.

Details and Fixes

Sometimes a little coaching is in order when personal trading patterns get off track. Although we tend to bring a lot of skill to the trading table we also tend, at time, to bring excess baggage. Having a wise head to guide you during difficult times can make the difference between wallowing in despair and redeveloping successful trading patterns. When the trader experiences a series of unsuccessful trades it is time to review the process. Back testing trading results by reviewing performance as well as data can lead to insights that will improve later performance. When the trader gets lost in the detail and is not sure where to go a little coaching or education, such as Options Training with Stephen Bigelow, may be in order.

We Repeat What Works and Avoid What Doesn’t

Trading risk management starts with choosing an effective tool for technical analysis. Traders require fast and accurate technical analysis software. They also require a visual, easy to read, intuitive system. A good tool understanding price movements in trading commodities, trading stock, trading options, and trading futures is the tool used for nearly three hundred years, Candlestick chart analysis. Picking the right equity to trade and trading it effectively leads to profits and not loss.

Managing risk starts with understanding that no matter how effective your trading strategy, no matter how effective your trading tools, and no matter how diligent your execution of trades there are always losing trades! No system is fool proof. Traders can get pulled into negative trading psychology driven by greed or fear. The market can turn on a dime based upon news that surfaces a micro second after you enter a trade. Trading risk management is not investing all of your capital on one trade. It is always having a cash reserve. It is routinely and diligently back testing trading results.

Successful long term investing typically involves diversifying a stock portfolio. Traders can diversify in a sense too. Traders can operate within a number of time horizons. Not all trading need be scalping of profits on a single big equity move. There are effective middle range option trading strategies that will allow the trader to protect against big losses and provide the opportunity for substantial gains. A strategy, that some use in today’s very volatile markets, is a long straddle. A long straddle involves buying calls and buying puts on the same equity with the same contract expiration date. Because the trader buys these options he or she has the option but not the obligation to buy (call) or sell (put) the equity in question if there is sufficient price movement in the anticipated direction. The long straddle covers both upward and downward equity price movement and costs the price of two premiums.

Margin requirements are meant to protect the stock broker or clearing house that stands as counter party to trading. In margin trading or stock investing without the services of a third party the buyer or seller always has what is called counterparty risk. This means that when a contract comes due the buyer may refuse to or be unable to pay and the seller may refuse to or be unable to delivery the option, commodity, or stock in question. Trading on a stock, options, or commodities exchange that acts as a clearing house and posting cash or securities as collateral in a margin account guarantees that a contact will be settled and there will money to buy or sell the equity as promised.

Margin requirements also protect the day trader and the investor. It is always important to protect investment capital. Investment capital is essential for both the short term trading and long term investing as it is the basic tool by which traders and investors make their money. A wise trader will not risk all of his or her investment capital at once. That means that the trader will never post all of his or her assets for margin requirements in more than one trading account simultaneously in action.

The key features or steps in using a process audit for back testing trading results are as follows: Goal, process, result, review, and improvement. The obvious goal is to make money and reduce investment risk by finding profitable trading opportunities. When the trader has found these opportunities he or she will want to attack the job of trading with a well through out strategy, keep track of results, and modify strategy or execution as needed. Back testing trading results comes down to task definition, objective definition, and a tally of results. What procedures are necessary and in what sequence? What knowledge base is needed and how much practice is necessary? In the end, effective management of trading practices leads to intended results. In the end there can be a fair amount of “homework” involved in successful trading. However, the trader who does his or her “homework” is in good company. Rice traders in ancient Japan developed Candlestick chart analysis and Candlestick trading tactics. This took years of patient observation and recording of trading results. Today’s trader has the advantage of a ready made system for technical analysis of price movement. The job of today’s trader is to learn the process of trading stocks, trading commodities, trading futures or trading options. For example, if he or she is new at trading options a course such as options training with Stephen Bigelow can be an excellent choice.

Just what does investment grade mean? The term refers to bonds. Bond rating agencies, Standard and Poor’s, Moody’s, Fitch and DBRS rate the credit worthiness of borrowers. Each has a cutoff below which an investment (corporate bond, municipal bond, country’s credit rating, etc.) is considered too risky for safe investment. In general bonds that are investment grade are OK for bond investing by banks. Investment grade to Standard and Poor’s and Fitch is BBB- and above. To Moody’s it is Baa3 and above. To DBRS it is BBB and above. Investors and traders use high grade bonds to lower investment risk. A low credit rating will require that a company or country pay a higher rate of interest than a company or country with an investment grade rating. When the investor decides to buy bonds he or she will decide whether to invest in a low risk bond at a lower rate of interest or a so called junk bond offering a higher rate of return on investment. Stocks and bonds are similar in that market volatility will affect both. Traders engaging in bond trading will often opt for higher risk bonds with more volatile interest rates. As the interest rate varies so does the bond price.

Determination whether of not the investment risk of a bond is investment grade or not is a laborious process that considers all factors that will determine if a borrower might default on payment. In long term investing it is often the case that the investor will opt for the highest grade in order to protect investment capital. Learning to invest in bonds starts with understanding credit ratings. Investment grade bonds are typically found in a conservative investment portfolio. High yield bonds with less than investment grade ratings are more typically the tool of short term trading. A bond is issued at a given interest rate determined by the market. When the prevailing interest rate goes up the value of the bond goes down. When interest rates go down the value of the bond goes up. A trading strategy for bonds might be to purchase bonds in anticipation of a fall in interest rates. The trader will not hold the bonds long term but sell for a profit based upon fundamental and technical analysis of interest rates. Although a long term investor in bonds may not buy and sell bonds as frequently as a day trader he or she will often use both fundamental analysis and technical analysis to determine when the optimal time will be to sell a set of bonds in a market of slowly dropping interest rates. This was a very profitable strategy for many during the 1980’s as rates slowly but surely dropped over the decade. The use of Candlestick chart analysis can be useful in following interest rates and bond rating prospects just as it is for trading stocks, trading options, or trading commodities. In using Candlestick charts the trader will be able to track interest rates but also the company which has issued bonds. Not only will prevailing interest rates affect the price of a bond but a recovering company that borrowed money may benefit from a movement back to investment grade and find its bonds selling at a higher price.

A margin of safety is typically a concept that goes with long term investing. It has to do not so much with picking low priced stocks as stocks that are underpriced by some set of basic criteria. Looking for a margin of safety in investing is a means of managing investment risk. The long term investor is concerned with an economic downturn wiping out years of appreciation of his stock portfolio gained by diversifying a stock portfolio with a range of wise stock choices. The margin of safety provides a cushion during a recession. When the margin, the difference between intrinsic value and price, disappears, however, it is time to find a different stock.

The concept of a margin of safety can also come in handy for traders. Although the trader will not buy and stock and hold on to it for years there is always the question of how long to let a stock ride in trend stock trading. Whether the trader is using Candlestick chart analysis or some other online trading software for technical analysis there always comes a point where the odds of a market reversal increase. It is at this point that the trader needs to decide when to exit the stock trade. There is always the possibility of gaining more profit by riding the wave to the end. There is also the risk of losing part of all of the profit if the market corrects too abruptly. Building a margin of safety into such decisions may well be wise.

The stock of a company is a representation of the first money put into a company. The value of stock in a company is dependent upon the ability of a company to make money either by selling its products, selling off assets, or being voluntarily or involuntarily bought by another company or individual. The total capitalization of a company is that of its share multiplied by share price and represents its market value. In understanding stocks it is important to differentiate between common stocks and preferred stocks.

Common stock is the usual means of stock ownership. Common stocks confer the right to vote for company directors and in other company decisions. Preferred stocks are a hybrid that gives the holder equity in the company, preferential standing for receiving dividends but, often, does not confer voting rights. Also, if a company is liquidated holders of preferred stock may have preferential rights to payment compared to common stock holders. Just like bonds that a company sells, preferred stock is rated by credit rating companies. Preferred stock often sells for more than common stock as it is deemed a more secure stock investment.

Understanding stocks also includes understanding how and why stock price varies over time. Long term investing in stocks typically means looking at the price to earnings ratio of a stock as well as cash flow ratios to determine what a stock is worth. These are fundamental analysis factors used to determine basic stock value. Technical analysis of a stock involves looking at price movements and comparing to known price patterns in order to predict future prices. Although traders in stocks and commodities have used fundamental information to guide their decisions for centuries the development of Candlestick trading tactics in the 17th century was the first real technical trading. Technical analysis tools such as Candlestick charting guide traders today in understanding stocks and their price movements. The old saying that Candlestick basics let the market tell the trader what the market will do is as true today as when Candlestick chart formations guided rice traders so long ago.