Candlestick Trading Blog

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Successful trading commonly comes from successful trading practices. There is a difference between what traders know about stocks, investing, and trading and the profitable application of what they know. To profit from trading the trader needs to develop a trading strategy and a routine that includes learning, practicing in simulation, trading stocks online, and reviewing stock trading results. To develop successful trading practices the trader will learn fundamental analysis of stocks, just as will someone whose only interest is long term investing. He will learn how to analyze stock from the technical side as the trader seeks to earn a profit from market volatility as much as from spotting a stock’s margin of safety or intrinsic stock value. The trader will devote time routinely to updating his skills and practicing what he has learned. This typically means trading online in simulation, using real market history to test new trading strategies. Successful trading practices include what time of day to trade, what days to trade, picking stocks to trade, and developing strategies to contain investment risk along the way. Successful trading practices include the use of Candlestick stock charts in order to let the market tell the trader what the market is about to do.

There are trading practices that tend to work and trading practices that tend to lead to defeat. We all learn from experience but it is typically better to learn the lessons of trading stocks without excessive monetary loss. It is by the disciplined application of a well learned and rehearsed skill that traders earn profits in trading, not only stocks, but options, commodities, Forex, and futures as well. Organizing ones workspace and ones trading day are important. Budgeting time to read the news, doing Candlestick analysis of promising stocks, and reviewing results at the end of the day are all typically successful trading practices. Non successful trading practices include acting on stock tips without consulting relevant Candlestick pattern formations, not doing fundamental analysis on a promising stock, and not trading the stock in line with a well thought out trading strategy.

One does not need to do endless stock market research but traders should devote a portion of their time each week to maintaining a broad view of factors that will affect long and short term stock price patterns. Investing in startups can be quite profitable, for example. To do so a trader needs to gain perspective on what the company in question does and how it makes money. The trader needs to look at book value and debt to asset ratio as well as market price. Buying at the bottom with a brand new stock or by identifying stock price reversals in a recovering stock can be very profitable if the trader engages in proven and successful trading practices such as routinely consulting what Candlestick patterns tell him about the prospects of the stock in question. Be a profitable trader by developing and maintaining successful trading practices. Let Japanese Candlestick chart analysis be a guide to price activity and take the time to approach trading in an organized and disciplined manner.

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

A simple example of how to reduce currency risk follows. A US company buys machine parts from a company in Germany. The contract for the parts stipulates that the US company will pay for the parts in Euros. A price is agreed upon. If the Euro does down in value compared to the dollar the US company is happy because the cost of the parts, in dollars will be less than anticipated. However, if the price of the Euro goes up versus the dollar the US company will have to pay more than anticipated. In this case the US company will not be buying puts on the Euro with dollars as they stand to benefit if the Euro falls. However, they will be buying calls on the Euro with their dollars. By doing so the company locks in a price of Euros in dollars. If the Euro goes up the trader executes his options contracts in order to buy a sufficient number of Euros to satisfy the business contract.

Forex markets came into being in order to reduce currency risk in international transactions. Central banks, international companies, and others need to exchange one currency for another in order to make payments and transfer money. Many engage in hedging, another term for using the market to reduce currency risk. Others simply enter the Forex market as speculators looking for profit in the continual movement of currency exchange prices. Both those hedging for reduce currency risk and speculators rely heavily on technical analysis with tools such as Candlestick patterns. Because market price patterns repeat themselves traders use Candlestick pattern formations to read the beginning of a pattern in order to predict the end. A Doji Candlestick, for example, indicates market indecision in Forex trading just as it does in stock trading, commodity trading, options trading, and futures trading.

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

A trader working for a large international corporation will typically trade currency to reduce investment risk or currency risk. Payment for products and services received in one country will commonly need to be paid for in the currency of another country. The value of one currency versus the other will commonly change between the writing of a contract and payment for final products. Buying options in Forex is a common means of hedging or reducing investment risk. Using both fundamental and technical analysis the trader seeks to anticipate currency rates.

Traders use Candlestick analysis to follow currency rates just as they use Candlestick stock charts to follow stock prices. Although the Forex markets were developed to facilitate foreign trade they provide an arena for day trading to profit from price movement in various currency pairs. The focus of a trader hedging currency risk will be determined by the nature of his business. However, a speculator can trade any major currency pair, trade a major currency with a minor, or, at times, trade two minor currencies.

A trader will commonly trade a major currency pair because it trades in higher volume and higher liquidity than trading a major and minor. Often times it is difficult if not impossible to find a market in which to trade two minor currencies no matter how profitable such trading could be. Thus many times a trader will need to trade a major such as the US dollar versus one minor currency and then trade the US dollar versus the other minor currency. For the trader interested in using Candlestick patterns to profit from currency trading this is a very roundabout way to make a profit. A much more efficient means of profiting in trading Forex with the technical analysis of Candlestick charts is to stick with a major currency pair.

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

Trading options is a means of managing investment risk. Buying puts and buying calls on stocks gives traders the opportunity to buy with calls and sell with puts if the stock price moves as he anticipates through the use of Candlestick patterns. Because the trader is not obligated to exercise options contracts he insures himself against a large loss by buying options. He also is able to leverage his investment capital in that he only pays the premium for the options contract. He need never buy or sell stock, in fact, because he only needs to make the opposite trade to exit the contract with his profits in hand. It is still through the use of Candlestick chart analysis, however, that the trader is able to anticipate price changes and not simply gamble his money as though he were buying a lottery ticket.

Another well respected means of managing investment risk is to diversity a stock portfolio. The rationale is that when the economy falters some stocks such as those of auto makers, appliance manufacturers and steel makers fall in price. Investors and traders holding stocks such as banks and consumer product manufacturers see their stock prices go up. Furthermore, the rationale goes, by investing in a number of market sectors the investor is more likely to happen upon a very strong stock or two that will perform well over the years and make him rich. To the extent that not keeping your eggs all in one basket is a good idea so is a balanced stock portfolio. However, this can end up being a passive means of managing investment risk that diverts our attention away from picking the best stocks and constantly evaluating their performance. A poorly performing stock does not belong in anyone’s portfolio. A better choice is to use Candlestick pattern formations to guide the trader’s decision about buying and selling stocks. This use of technical analysis along with a firm command of the basics of each stock in which one invests is typically a better choice for managing investment risk than blindly picking stocks from different market sectors to populate a stock portfolio.

Candlestick pattern formations help us predict stock price changes. They are useful for directly trading stocks as well as for trading stock options and futures. The more precise our insight into stock prices is the more likely we are to profit from trading stocks and the less likely we are to lose money. A common means of dealing with stock market risk versus reward is to trade options. In buying puts or buying calls on a stock the trader limits his risk to the price of the premium paid for the options contract. The buyer of an options contract never has to execute the contract unless doing so is in his best interest. Thus, when a trader buys calls on a stock and it goes up sufficiently in price he can do one of two things. He can execute the contract and buy the stock, at the contract or strike price. He can also simply exit his contract by selling a call. Because, in this example, the stock price has risen and so has the price of the options contract. The trader will have spent substantially less money to buy a call option than to buy the stock. He is not at risk of loss if the price falls. When the stock price goes up his percentage return on investment will be substantially more if he simply exits the contract than if he had purchased the stock in the first place.

In safe haven Forex trading one seeks to anticipate upheaval in the Forex markets and buy Swiss francs, Yen, or US dollars. This drives the price of these currencies up a bit. Then, with the anticipation of market trends and market reversal that Candlestick analysis provides, a day trader or investor in foreign currency can buy into weak currencies as they bottom out and profit as they recover. Our point here is that safe haven Forex trading is not simply limited to putting one’s money into safe haven foreign currencies when times are tough.

Candlestick basics have come a long way from predicting prices in the rice market in Japan hundreds of years ago. Although this was the start of the Candlestick system it turned out that the same technical analysis that Candlestick patterns provided in trading rice so long ago also works just as well in trading stocks, trading options, trading commodities in general, and trading Forex. Candlestick charting works because Candlesticks give clear signals of the activity of stock prices, currency rates, and the rest. No matter what the fundamentals are that are driving Forex rates the easy to read signals of Japanese Candlesticks can help traders in foreign currencies appreciate market sentiment and profitably trade the Forex market.

The expression, long term trading profits, sounds a bit out of place in world of day trading where stock trades can be entered and exited in seconds. The fact of the matter is, however, that many day trading strategies lead to repeated small profits. In order to make a living out of day trading the trader needs to continually make successful stock trades over an extended period of time. Doing so will require that the trader become knowledgeable about picking stocks to trade, anticipate activity in any of a number of different market sectors, and maintain his skills in fundamental and technical analysis of stocks. Learning and using Candlestick charting techniques, the trader can identify promising market trends and anticipate market reversal. Being there and buying calls on stocks before the market rally starts is familiar turf for the accomplished Candlestick trader. It is part of how he obtains his long term trading profits.

We are not talking holding on to a stock for a long time when we talk about long term trading profits. That is still the province of the long term investor. Rather we are talking about developing a trading strategy and trading routine that routinely leads to profits. No one is ever successful on every trade he makes. Simply making more successful trades than unsuccessful ones is sufficient for long term trading profits. Good money management skills will help the trader set stop losses in order to get out of bad trades and minimize his losses. A routine of reviewing trades from all angles will enable the trader to see where things went wrong. Reviewing trading results will allow the trader to continually improve his trade selection, his technical analysis with Candlestick signals, his trading tactics, and his trade execution.

Short term investment in stocks can be extremely profitable. It can be more profitable, over the years, than long term investing. This is because the rate of return on long term stock investment is typically not linear. Market volatility, market trends, and market reversal all affect stock prices, even of the most stable of stocks. Doing basic and fundamental analysis of stocks and then reading market sentiment with Candlestick analysis gives traders and short term investors the ability to buy stock and sell stock at the most opportune times. Short term investment capitalizes on buying at the bottom of a price curve or short selling just as a market correction hits. Longer term investment depends upon analysis of intrinsic stock value and a stock’s margin of safety. Short term investment thrives on the precise analysis of stock price changes that Candlestick signals provide.

Short term investment in stocks can be extremely profitable. It can be more profitable, over the years, than long term investing. This is because the rate of return on long term stock investment is typically not linear. Market volatility, market trends, and market reversal all affect stock prices, even of the most stable of stocks. Doing basic and fundamental analysis of stocks and then reading market sentiment with Candlestick analysis gives traders and short term investors the ability to buy stock and sell stock at the most opportune times. Short term investment capitalizes on buying at the bottom of a price curve or short selling just as a market correction hits. Longer term investment depends upon analysis of intrinsic stock value and a stock’s margin of safety. Short term investment thrives on the precise analysis of stock price changes that Candlestick signals provide.

Buying low priced stocks is often how to profit when buying stocks or trading stocks, providing that the stock prices go up. Simply buying low priced stocks does not necessarily lead to profits as a low priced stock may well be on the way to bankruptcy. For traders and investors to profit from buying low priced stocks the stocks must, at some point, increase in value. There are two ways to asset the prospects of a low priced stock. Fundamental and technical analysis both have their place in helping the investor decide on what stock to add to or subtract from his stock portfolio. Both types of analysis are also useful for stock traders. However, the trader will want to rely more heavily on strong technical analysis tools such as Candlestick analysis to assess upcoming market sentiment.

Fundamental analysis in stock investing is typically concerned with long term investing and not short term profits. In buy and hold investing the goal is to find a stock that will appreciate over the years and weather economic upheavals and stock market crashes.
Intrinsic stock value is what long term investor looks for. It is the discounted value of forward looking earnings. This concept goes back to the 1930’s in the aftermath of the 1929 market crash and the dark days of the Great Depression. An investor seeks to anticipate the earnings that a company will generate over the years. He will look for a strong product line and the ability to add new products through R&D, acquisitions, and an acute sense of what the consumer wants and will pay for. He will also look at the ability of the company to contain costs and to compete effectively in the various market sectors where it sells its products. In the case of the long term investor, buying low priced stocks has to do with a stock being low priced in relation to its long term prospects.

Technical analysis with tools such as Candlestick stock charts is largely the province of the day trader and short term investor. Although a well chosen stock may appreciate over the years, the same stock will often be the most profitable at points of accelerated market trends or a big market reversal. For example a downward trending stock may benefit from a new product announcement or the acquisition of a competitor and reverse course. It is not uncommon that most of the capital gains that a stock experiences in a year will come in a month or even days after a turnaround. Buying low priced stocks for the day trader has to do with hourly and even minute by minute stock price valuations.

Gain stock profits with stock price anticipation. The point of both fundamental and technical analysis of stocks is, in fact, stock price anticipation. It is useful to know, in general terms, that certain stocks are likely to rise or fall in price. Using fundamental analysis an investor can indentify stocks with a margin or safety and intrinsic stock value. These stocks will be likely to hold their value during bad times and appreciate steadily over the years. Using technical analysis indicators such as Candlestick patterns, traders can more specifically engage in stock price anticipation. Knowing that a stock is likely to go up or down will be of use in long term investing where the only decision is to buy stock or sell stock. For a day trader, however, stock price anticipation must be precise enough to allow the trader to enter and exit stock positions within hours and even minutes and to do so profitably. Here is where the use of Candlestick pattern formations can allow the trader to see the future by reading the past.

There is a saying in sports that players with, what appear to be, fast reflexes are generally just well prepared. Anticipation based on prior experience allows the athlete to move the split second sooner than another with equally great reflexes but who has not done his homework. Prompt and profitable execution in stock market trading with the use of Candlestick analysis is similar. However, the experience we are talking about goes back hundreds of years. It is through the compilation of decades and centuries of data about market trends, market reversal, and stock price volatility that it is possible to read a progression of stock prices and reliably predict where the price is going next. Stock price anticipation comes from reading Candlestick charts and, with the use of Candlestick trading tactics, executing the right trade at the right time for maximum profits. The great part of trading with Candlestick chart analysis as a guide is that stock price anticipation is made so much easier because of the clarity of Candlestick signals. Candlestick stock charts do not deal in excessive detail or hard to decipher statistical analysis. All of the precise detail is incorporated in easy to read and interpret Candlestick signals.

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Trading volatile stocks can be very profitable. Trading volatile stocks can also be treacherous to those not skilled in the use of technical analysis of stock prices. Trading volatile stocks is the province of technical traders and is best engaged in by those skilled in the use of Candlestick analysis. The price of a stock is volatile when fundamental analysis is uncertain and traders are all over the board with their opinions as to where the price will go next. It is in these situations that Candlestick chart analysis excels in predicting stock price movement. This works because, even when trading volatile stocks, stock price patterns repeat themselves. Using technical analysis tools like Candlestick pattern formations allows the trader to benefit from the learned lessons of history. Using Candlestick trading tactics when the market is volatile can allow traders to profit from uncertainty of others. It allows traders to benefit from anticipating the results of when other traders fall prey to the trading psychology of fear and greed that can fell an otherwise skillful trader.

The point of trading volatile stocks is that there is potential profit in the large rises and falls in stock price during chaotic trading. A useful adjunct to reading market movement with Candlestick patterns is to engage in options trading while the market is volatile. When buying calls or buying puts on a stock the trader limits his investment risk to the premiums paid for each call or put. He, nevertheless, can profit greatly when a stock price moves in the direction that his Candlestick chart formations imply that it will. In the case of a call option the trader pays for the right to buy 100 shares of stock per options contract. He will do so if the price of the stock moves significantly above the strike price of the options contract. As he is under no obligation to buy the stock he will only lose the price paid for the contract if the stock price goes down. When the trader buys a put on a stock he pays for the right to sell 100 shares of the stock, which he will do if it goes down in price. As with a call option he is under no obligation to exercise the contract and will only lose the price of the premium if his analysis of the stock price turns out to be incorrect.

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