Category: Trading Winner

A Simple Candlestick Chart Guide

I have made a simple tutorial for people unfamiliar with candlestick charts and candlestick trading techniques. I primarily use candlestick charts whenever I view stock charts. The benefits of candlesticks are numerous.

What are candlesticks?

Candlesticks are a gift from Japanese rice traders. The traders developed them to predict future rice demand, in order to take full advantage of the fluctuation of rice prices. The rice traders wanted to buy low and sell high, which is our same goal.

The picture below outlines the major characteristics of candlesticks.

A Simple Candlestick Guide

Each candlestick represents 4 pieces of data:

  • The opening price at the start of the trading session.
  • The closing price at the end of the trading day.
  • The day’s high price.
  • The day’s low price.

Candlesticks also show if the price went up (white candlestick body) or down (black candlestick body).

Some candlesticks have long bodies and others have very short bodies and look like a cross. The size of the body means a lot in candlestick trading. Candlestick patterns and various candlestick trading strategies use the size of candlestick bodies to determine when you should buy and when you should sell. Those topics are for a later date.

My belief is that using candlesticks, with 4 pieces of stock price information and many useful patterns and strategies, gives me a trading advatange.

Stock Market Business News Research

Stock market research can be a daunting task for many people, especially beginning traders and people new to stock market and mutual funds. As beginners, we haven’t learned the kind of information and news stories we need to filter, and to spot the news that will positively or negatively affect a stock’s price. Constantly staying informed and having good business news sources allows us to maintain a competitive advantage over other traders and investors.

There are many great business news websites. Here are 3 of my favorites:

Yahoo! Finance – I use Yahoo! Finance pages daily to get news about the stocks I’m watching. I also get stock prices, charts, news – easily. I can research stocks based on their sector such as gas, technology, financials. I also research upcoming IPOs (Initial Public Offerings) of companies that will begin trading on the markets. Yahoo! Finance makes it easy to check out a company’s financial situation by reading their Balance Sheet, Cash Flow Statement, and Income Statement.

Google Business News – I enjoy reading Google Business News because of the comfortable, user-friendly interface. Google Business News also displays a thumbnail picture related to the news story. This allows me to quickly scan pages for news stories I am interested based on the picture and headline alone. I cut down the chatter and efficiently filter through vast amounts of new business articles and reports.

Newsvine – This is a new news site I have been using recently which I find very nice and clean like Google Business News, with a twist. Newsvine is partly a community driven news site and partly a traditional wire news site. You can read AP and other wire articles, or you can read articles and news stories by everyday business people in a blog-like way. Currently, you have to be invited to Newsvine or sign-up at their page and wait weeks to be added. I have 10 Newsvine invitations available to give out to friends and readers, which allow you to setup a Newsvine account immediately. The first 10 commentors will receive Newsvine invitations.

What’s your favorite business news website?

Stock Trading Software I Use

I use a variety of stock trading software to assist my research, chart viewing, and trading. I have programmed and developed some of the software myself. I also use open source and other freely available software packages. Some of the tools I use are included with my broker, Ameritrade.

Software a trader must have:

  • charting software with technical analysis charts
  • a stock market screener – set your search parameters and find stocks that fit your criteria, such as price ranges, volume scans, and technical analysis indicator signals
  • watchlist generation software – list of stocks that fit my criteria
  • that I want to watch carefully
  • real time news feed – real time news is a must have for a serious stock trader
  • execution of orders – a good interface for buying and selling quickly and efficiently

Software I use:

Charting software:

Screener:

  • I wrote my own screener to find analysis criteria I am interested in. My screener was designed for my personal tastes and features some trader friends have asked for. Check out my Enhanced Stock Screener.
  • Another free stock screener is the Yahoo! Finance Stock Screener

Watchlists:

  • I also generate my own watchlists from my screens. These watchlists contain the results of my screener narrowed down further by specific things I look for in trades and stocks. One thing I look for his the previous 5 day charts and price history. Sometimes I look for certain patterns in the ticker’s 5 day history.
  • You can use the results from your screener to form your watchlist. Some screener results will return many stocks that fit loose criteria, but you can refine your searches to keep narrowing down the list. Then, during trading you can watch this list real time, looking for good trading action.

Real Time News:

  • I use Ameritrade’s real time news application since it is included with Ameritrade Apex accounts.
  • I also watch CNBC throughout the trading day and as a recap of the top business and financial news, with updates and alerts. I highly recommend watching CNBC.
  • I constantly read RSS feeds and online news websites, such as Google Business News, Yahoo! Finance news, and Newsvine

Order Execution Efficiency:

  • I have been somewhat satisfied with Ameritrades order system. It has been good to me, but I have some trading friends that dislike it. One complaint is that it takes too long to buy or too long to sell using the interface. Ameritrade recently overhauled their website and order placing, saved order preferences, and interface have improved immensely.
  • I have been thinking about opening an InteractiveBrokers account because they have the ability for programmers to interface with their trading system directly. Then I can write my software to place orders in a way that would be most efficiently for me.

Open Source Software:

I use a variety of open source software to assist my research and enhance my trading capabilities. Here’s some of the software I like, and some projects I contribute to:

Buying Gold

I’ve heard a lot of talk about gold the past few months. Some people are predicting gold at $750 per ounce, while others are predicting some outrageous prices such as $3000 per ounce. Gold currently stands at about $545 per ounce.

US Mint Gold Coins A smart investment decision would be to keep some – not all and not a large percentage of your investments – in gold. At $545 an ounce, I think the price may be inflated a little and I personally would wait for a better entry price, under $500 and closer to $400 per ounce.

Many people I talk to would like to purchase gold bullion but do not know where or how to purchase it. Once place where you can buy gold online is Kitco, an online gold buyer and seller marketplace. The gold prices at Kitco are slightly inflated so that they can make their business profits, but the inflation is minimal. And, Kitco will send you the actual gold coins or bullion bricks you purchase. You are not purchasing gold stored in a vault somewhere, you’re purchasing gold that you can put in your own safe. Or, if you so desire, you can bury it like a pirate.

I have a friend who is in his early twenties who has been purchasing gold coins every month since the day he was born. His father purchased the gold coins for him when he was a baby and still growing, until my friend had the ability to purchase gold coins on his own. Needless to say, he now has a solid financial foundation. He has also made some good profits since he began 20 years ago, if he were to sell all his coins today.

Setting aside part of your paycheck to purchase a few gold coins each pay period has two advantages. First, you’re building a financial foundation of real assets that will grow over time. Gold’s greatest reward comes with long term investing. Secondly, you’re diversifying your investment portfolio. Investing and trading is not strictly about stocks. Investments and trades take many forms, including stocks, bonds, mutual funds, bank accounts, gold, other precious metals, real estate, and business ventures. Diversifying your investments secures your financial future.

Let me make this clear, I am NOT saying you should put all your savings and money into gold. I’m saying you should buy gold as my friend has done. Buy few coins a month, each month. As the old saying goes “slow and steady wins the race.” Sure, you can put all your money into a penny stock and hope it goes up 1000%, but that’s foolish and illogical thinking. Growing your investments takes time and a clearly defined financial strategy. Gold should be included in your investment planning and strategy.

Update:

A friend just told me the Kitco website was down. Quite unfortunate as this has been a realiable website for me in the past, mostly to get gold and precious metals prices from.

Another online gold buying and selling website you can use is A-Mark Precious Metals. You can also get free gold and precious metal price quotes from A-Mark if you’re not interested in purchasing.

Yet another website for gold price charts, gold news, and other information is TheBullionDesk.

On Saving Money

I’m always telling my family and friends they need to put part of each paycheck into trading accounts and 401k plans, or some kind of market account where they’ll earn more interest than a savings account.

They stare at me blankly.

So I tell them a joke: “The quickest way to a man’s heart is with Chuck Norris’ fist.”

Most people I know burn through their money faster than they get it. I’m sure part of the problem is lack of financial education especially on the part of the middle class. We’re taught how to be great consumers, but not how to save and plan our financial future. We also have to constantly pay off debts such as mortgages, credit cards, and that new 15mpg SUV.

It’s hard to save money when next month’s paycheck is paying off last month’s bills.

I think the rich get richer because they know how to get rich. By saving money. By investing in stocks, bonds, currencies, and real estate. By learning the financial game.

It may be easier to make money once you have money, but we all need to take the first financial step to building our empire: learning basic finance and starting to save money.

“Life is full of uncertainties. Future investment earnings and interest and inflation rates are not known to anybody. However, I can guarantee you one thing.. those who put an investment program in place will have a lot more money when they come to retire than those who never get around to it.” – Noel Whittaker, regarding long term investing.