A means to survive, an avenue to progress and vista to exchange thoughts, ideas and feelings… ‘Trading’ is perhaps as old as human existence on earth. It all began when the primeval man began swapping small useful items with each other in order to live and fulfill many of his needs. The time that followed saw a persistence and enhancement of this tradition. The current world runs on trading. It is a means to fetch bread and butter to many while for a large number of people trading business serves as toppings on a well-made cake. Trading therefore preserves an unparalleled significance across the globe.
This article will educate you about the various types and means of day trading, key terms and issues associated with it along with their benefits and shortcomings.

Types of Day Trading- depending on the time period for which the day trader retains the stocks with him or under his custody, different types of trading are classified.

• Basic Day Trading- Day trader commences the day by collecting stocks keeps them for sometime and endeavors his best to sell all of them at the end of the day. His primary work constitutes the sale and purchase of stocks. These transactions enable him to bag good short-term profits and mitigate the risk of sale of stocks in a fluster due to fluctuating price.

• Swing Day Trading- the day trader preserves the stocks for relatively longer period of time such as for few hours and few days to accrue big profits. But swing trading runs the risk of unstable market prices of the stocks.

• Position Trading- as the name suggests, the trader purchases the stocks and arrange the sales keeping in mind the position or the market value of the stocks. This may entail keeping the stocks for few weeks and even months, but good returns usually follow.

• Online trading- can be of any of the three aforementioned types but the sale and purchase of stocks is done via the Internet. Since this trading is through the medium of computer, an efficient computer with a 24-hour Internet connection is an essential requirement.

Issues behind S & P- When it comes to day trading, it is found that some particular stocks are good or beneficial than others. Primarily there are three factors that govern the sale and purchase of stocks-

1. Liquidity of the stock- Liquidity designates the amount of buyers and sellers for the stocks concerned. Liquidity of the stock is deemed to be directly proportional to profits ensued by it. Greater the liquidity of the stocks, higher is the comfort in vending them. But the liquidity value is never stagnant. It too depends on certain factors such number of share holders, outstanding shares, volume of transactions made and the number of market makers.

2. Volume- contributes to the liquidity factor. It can be conveniently evaluated. For instance a day trader’s stock should trade a minimum of 500000 shares each day.

3. Volatility- stands for the ups and downs the stock experiences everyday. If the volatility is less or negligible then the stock does not undergo any fluctuations and is thus rendered bad for day trading. It is believed that stocks that are considered good go through at least a $2.00 variation per day of normal trading.

4. Price Transparency- is the term coined for the market depth and the potential of the trader to acquire knowledge about the order of the stock.

General Tips for successful day trading

• Study the market carefully before proceeding with purchase of stocks. The market indicators displayed on television and announced on radio are the best means to know about the market trend for the day.

• Do not be motivated by profits always. Every transaction may not translate into profits. Adopt a strategy and stick to it. Don’t flip your technique of working frequently.

• Be resolute and patient. If you are unable to incur spontaneous gains, profits may occur eventually.

• Never forget that day trading is a risky business and where there are profits there are losses too.

Mansi aggarwal writes about day trading. Learn more at http://www.improvedaytrading.com

1 Introduction

In this article we cover the few important rules that should never be broken in trading. If you can apply these rules consistently, and with discipline, you will be well on the way to being a profitable trader.

The rules we cover are:

• Have specific goals and objectives
• Be consistent and disciplined
• Let profits run
• Cut losses short
• Never add to a losing trade
• Don’t take too much risk
• Only trade positive expectancy systems
• Minimize all trading business costs
• Be well educated
• Don’t trade scared money

Each of the rules will now be discussed.

2 The Golden Rules of Trading

The following sections outline a set of rules that can significantly improve your chances of success if they are understood, practiced, and implemented consistently in your trading. These rules have been learned the hard way, by study, research, trial-and-error, and the inevitable mistakes that everyone makes when they start a trading business.

We hope that you can learn from the work we have done, and benefit from our experience. The rules will now be discussed.

2.1 Have specific goals and objectives

Few things are more important to your trading success than having set (i.e. written) goals and objective for what you are aiming to achieve. It is amazing to me how often we hit our targets, meet our objectives, and reach our goals only when we articulate them and write them down.

For any business to be successful it must have measurable objectives that are actually achievable. In trading (obviously) the primary objective is to make money, but it is important to have other objectives that are not purely cash-related. We must always remember that reward and risk go hand-in-hand in trading and that we cannot expect to achieve high returns without planning for high risk (i.e. draw-downs).

Your objectives and goals will be very specific to you, but they must have the following characteristics to be useful:

• Be measurable (in completion and timeframe)
• Be achievable
• Be worthwhile
• Be positive

As an example, here are some of our current objectives (this is only a partial list):

• Develop 2 new positive-expectancy trading systems each year
• Make fewer errors implementing our trading systems each year
• Achieve a return to maximum draw-down ratio of 1.5:1
• Take 2 weeks vacation each year

Note that only one of them is about making money, and that has a measurable objective that is relative to draw-down, not absolute (i.e. make 100% per year). If you know what you are trying to achieve, and when you are trying to achieve it, the whole business will be focused on meeting
your objectives and help guide you to only pay attention to things you really want to achieve with your limited time and resources. This will also give you a way to measure the success and progress of your trading. Generally traders with well-defined objectives will be much more successful than those that do not have pre-defined goals.

2.2 Be consistent and disciplined

In order to realize the full potential of your trading systems it is critical that you take every trading entry, adjust every stop, and close out every trade as and when your system says you should do. This takes extreme confidence in your trading systems, good robust reliable technology, and the mental discipline to stick to your trading plan whatever happens (assuming it is complete).
An underlying assumption about being consistent and disciplined is that you have a pre-defined plan for every situation you may face in your trading, so that you know how you are defining what being consistent is. Your plan needs to include at least the following items:

• All your trading rules for entering, adding to, and exiting positions
• What you will do if your trading computer, internet connection, broker, power, telephone
etc. fails
• What you will do if you are unable to trade
• What you will do if you lose X% of your account
• What you will do if all the markets are closed and you can’t exit your positions

Unless you write the answers down to all these issues, you cannot be consistent and disciplined in your approach to trading and if you lose money you will not know whether it is because you didn’t follow your plan, because your plan is incomplete, because your systems do not work, or simply because you are going through a losing period.

2.3 Let profits run

This simple rule is the key to being a successful trader. It is three simple words that are very hard to actually implement. When we get a profitable trade our natural fear of losing the unrealized cash kicks in and we truly want to close it out now and take the money. Most trading consists of long periods of small winners and losers followed by a few huge winners that make the difference between overall profitability and simply breaking even or losing due to trading costs(commissions, spread, and slippage).

It is our ability to let the huge winners become just that – huge – that determines how we will perform overall during the year. The key to letting winners run is to have trailing stops that are outside the daily noise of the market so that they are not tight enough to get stopped out during ‘normal’ trading. This means being prepared to give up a significant portion of a winning trade’s open profit and is the thing that makes this so hard to implement. In fact, we should be adding to a winner and widening stops rather than working out how tight our stops can be to capture maximum profit. The trade has already shown you that it intends to be a winner, and the chances are it is a low-risk idea to add to the position now rather than ‘strangle it’ with stops that are too tight.

It is very important that your position management rules allow for large winning trades, and that the rules are pre-defined and understood before you place the trade. This will allow you (if you have confidence in your method and discipline) to stick to your rules when you do get the big
winner.

2.4 Cut losses short

This is the sister rule to the previous one, and is usually just as difficult to implement (although it
is very easy to define). In the same way that profitability comes from a few large winning trades, capital preservation comes from avoiding the few large losers that the market will toss your way each year. Setting a maximum loss point before you enter the trade so you know before-hand approximately how much you are risking on this particular position is relatively straightforward. You simply need to have a exit price that says to you ‘this trade is a loser and I will exit before it gets any bigger’. Due to gaps at the open, or limit moves in futures we can never be 100%
certain that we can get out with our maximum loss, but simply having the rules, and always sticking to it will save us from the nasty trades that just keep on going and going against our position until we have lost more than many winning trades can make back.

If you have a losing position that is at you maximum loss point, just get out. Do not hope that it will turn around. Given that trades are either winners or losers, and this one is shouting ‘Loser’ at you, the chances that it will turn around and become a large winner is tiny. Why risk any more money on this losing trade, when you could simply close it out (accept the loss) and move on. This will leave you in a much better place financially and mentally, than holding the position and hoping it will go back your way. Even if it did do this, the mental energy and negative feelings from holding the losing position are not worth it. Always stick to your rules and exit a position if it hits your stop point.

2.5 Never add to a losing trade

One of the few trade management rules that we can state we never break is ‘Never add to a losing trade’. Trades are split into winners and losers, and if a trade is a loser, the chances of it turning right around and becoming a winner are too small to risk more money on. If indeed it is a winner disguised as a loser, why not wait until it shows it’s true colors (and becomes a winner)before you add to it.
If you do this you will notice that nearly always the trade ends up hitting your stop loss and does not look back. Sometimes the trade turns around before it hits your stop and becomes a winner and you can count yourself very fortunate. Sometimes the trade hits your stop loss and then
turns around and becomes a winner and you can count yourself unlucky. Whatever the result, it is never worth adding to a loser, hoping that it will become a winner. The odds of success are just too low to risk more capital in addition to the initial risk.

2.6 Don’t take too much risk

One of the most devastating mistakes any trader can make is risking too much of their capital on a single trade. One thing is certain in trading and that is if you lose all your capital you are out of the game. Why risk so much you could be prevented from continuing? There is a saying in
poker than going all-in (risking all your chips) works every time but once. This is true of trading.

If you risk all your account on every trade it only takes one loser to wipe you out (and no trading method is 100% accurate), so you will be out of the game at some point – it is only a question of time.

In general, we only risk 1-3% of the available capital allocated to a system on any individual trade. This is calculated using the size and, the difference between our entry price and our maximum stop price, and the amount of capital allocated to the system. With the win probability
and ratio of size of winning trades to losing trades we are almost certain never to lose all of our trading capital. In fact, the chance of us hitting our maximum drawdown for the year is tiny.

All trades should be of a size that almost seems insignificant. If you are worried about the size of a trade then it is too big and you should reduce the size immediately. Remember that longevity is the key to making money by trading – slowly over a long time with minimal risk, is always preferable to rapidly with too much risk.

2.7 Only trade positive expectancy systems

If you have a positive expectancy trading system, the only factors that determine how much money you will make per year are the number of trades the system generates, how much capital you allocate to the system, and how accurately you implement the trading signals. If you do not know whether your trading system is positive expectancy then why are you trading it? Expectancy is calculated using the profit or loss on each trade (net of trading implementation
costs) divided by the initial risk (using your stop loss) and then taking the average of this number of a series of trades. Systems that have positive expectancy will make money on average and those with negative expectancy will lose money.

Successful traders only trade systems where the odds of success are in their favor (i.e. the system is positive expectancy) so they know that making money is the result of accurately implementing the system and not just pure luck.

2.8 Minimize all trading business costs

Some trading systems have only marginal profitability, and trading implementation costs (commission, spread, and slippage) can be the difference between profitability and making a loss. With the easy availability of modern electronic brokers, and fully-automated trade processing and
execution, it is definitely worthwhile looking for a very low cost way to implement your trading system. High commission, wide spreads, and large amount of slippage can be reduced considerably simply by carefully choosing a broker. This can be the difference between a system
(especially a high frequency one) being useable or not. Paying too much for trade implementation is an avoidable way to lose money.

2.9 Be educated

In order to compete at the highest level in the trading business and be one of the few truly successful participants you must be well-educated about what you are doing. This does not mean having a degree from a well-respected university – the market doesn’t care where you were educated.

Being well-educated means that you have thoroughly researched and tested your trading ideas and know why your trading system worked in the past and is continuing to work now. It means understanding all the technology and applications that your system needs to perform accurately.
It means understanding your goal and objectives and how trading will achieve these. It means understanding yourself and how your personality affects your results. It means understanding the markets and instruments you trade.
In order to succeed you really need to become an expert in your own trading business to understand how it all fits together, when it is broken, and how it can be improved. As with all worthwhile endeavors, this takes commitment, hard work, dedication, and more hard work.

2.10 Don’t trade scared money

Lastly, no one ever made any money trading when they had to do it to pay the mortgage at the end of the month. Having a requirement to make X dollars per month or you will be financially in trouble is the best way I know to completely mess up all trading discipline, rules, objectives, and
leads quickly to disaster.

Trading is about taking a reasonable risk in order to achieve a good reward. The markets and how and when they give up their profits is not under your control. Do not trade if you need the money to pay bills. Do not trade if your business and personal expenses are not covered by
another income stream or cash reserve. This will only lead to additional unmanageable stress and be very detrimental to your trading performance.

3 Summary

In this article we have covered the rules that we believe should never be broken in trading. If you work on never breaking them, your trading should improve dramatically.

We sincerely hope this information has helped you to improve your trading performance.

Good luck in your trading.

Paul King is owner and head trader of PMKing Trading LLC, a Vermont-based proprietary trading company founded in May 2002. Paul has published a series of eBooks and articles about what he considers to be the important aspects of trading.

Visit http://www.pmkingtrading.com for more details.

One of the most commonly asked questions that I receive is this, How much do I need to actually start my online trading business and make a full-time income from it?

This is a good question, but there are more costs to starting trading than simply setting your online trading float. (By an online trading float, I mean the amount of capital that you have to trade with.) When you first begin your online trading business, you’re going to have to pay a sort of tuition.

You’ll encounter a learning curve when you start your new online trading career. Don’t try and skip this, just make sure you prepare for it in advance. The best way to do this is to treat your online trading as if you would any other business. Any business, including online trading, requires start-up capital.

First, look carefully at where you’re getting your money from. Maybe you’ve been considering online trading for a while and built up some savings. That’s good planning. Maybe you’re considering borrowing money. This is generally a bad idea. Maxing out your credit cards is a quick and easy way to get cash, but the effects can be devastating. It’s hard enough to worry about making online trading profits without worrying about the debt servicing on your credit cards as well. You will be too concerned with making payments to be concerned about good trading.

Don Miller talks about this in Trading Markets World Meet the Traders, when he tells new traders to worry about making money in your new online trading business. One of the best ways to learn about online trading is to begin on a part-time basis. This allows you to hone your skills while you still have an income stream.

Unless you’re doing your online trading from an office, computers, data-feeds and software are all a part of start-up costs. Of course, the costs for a trader don’t end there. You also have drawdowns, which are a part of your new online trading business. There are going to be times when you lose money for long periods, count on it and make sure you plan for it.

In terms of growth, would you expect to purchase a business for five thousand dollars, and see it turn over one million dollars in the next financial year? Yes, this is achievable. But, it’s not very likely. The same can be said with online trading, particularly when you are starting out. Don’t come to the online trading market with five thousand dollars and expect to turn it over to one million dollars by the end of the year. Don’t base your financial decisions on this idea.

However, the return you achieve does depend on what products you decide to trade. If you are trading leverage products, you’ll have a greater chance for reward, but there is more risk involved with trading these types of instruments. Though there is no perfect amount of capital to start trading with, generally the bigger the online trading float you begin with, the easier it is to trade.

The key here is to simply define how much online trading capital you’re going to trade with and have it set up as a separate business. That way you’re not drawing on the profits all the time and losing your focus. Remember, your online trading is a business now. With your online trading float defined, and your online trading system and money management rules in place, you will be able to run a profitable online trading business.

-=-=-==-=-=-=-==-=-=-=-=-=-=-=-=-=-=-=- David Jenyns is recognized as the leading expert when it comes to designing profitable stock trading systems.

Discover the “secret formula” of trading that anyone can use to consistently generate BIG profits from the market by downloading your FREE copy of David’s new Ultimate Stock Trading Systems course.

Click Here To Download ==> Stock Trading Systems http://www.ultimate-trading-systems.com/stocks.html -=-=-==-=-=-=-==-=-=-=-=-=-=-=-=-=-=-=-

Studies have shown that you should never risk more than 2% of your float on any trade. Why 2%? Well, in fact, many day trading professionals will tell you that 2% is too much. They’ll risk 1% or even as little as a quarter of a percent on any trade. Whatever percentage you pick, the idea is to ensure that no one trade is really going to affect your day trading float, positively or negatively.

Many traders don’t appreciate how powerful this rule is. By simply changing the amount of capital you risk in your day trading, you can turn a system from returning 10% to returning a 100% per annum. Now, by increasing risk, and investing more in a trade, you do increase your chance for reward. However, you also end up increasing your draw down as well. You may want to do a bit of testing to understand the importance and the power of changing this one variable. I always recommend that you never exceed a 2% risk. Sometimes it is difficult to understand this simple fact; keeping your losses small will help you be successful in day trading.

Let’s look at an example of the 2% rule in action. If we had a day trading float that was $20,000, using the 2% rule we set our maximum loss to be $400 on any one trade. With this maximum loss, we could have a string of 50 losses in a row before we had no more capital left to trade with. In most day trading systems the chances of getting 50 losses in a row is very, very slim. However, the chances of going broke are even smaller, because when you implement the 2% rule correctly, the calculation is based on the current float size.

So, initially 2% of $20,000 is $400. However, if we experienced a loss first off, our day trading float would now be worth 19,600 dollars. We then calculate 2% of this new value, and set our maximum loss for our next position. 2% of $19,600 dollars would be $392. You can see that each time we experience a loss, our next maximum loss would shrink. As our portfolio increases in size, we’re happy to take on more risk as well.

I thought I’d play around with a few of the figures just to see what would happen if we had a string of six losses in a row. After receiving six losses in a row, our day trading float would have decreased to only $17,717. After six successive losses, we’ve only lost $2,283. Now, that’s managing your risk.

The fact that the loss is such a small component of our day trading float makes it much easier to gain back those losses. In this example, we’ve lost a little bit more than 10%. To gain back that loss and break even, we’ll need to make 11.1%. Now, imagine if we didn’t have good money management in place and we had a draw down of over 50%. If we have a draw down of 50% and we loose it, we need to make 100% return on our remaining capital to break even. You can begin to see the how a larger draw down makes it more difficult to recover from losses.

Novices often risk more than 2%. Even if you’re starting out with a small day trading float, you should practice good money management. You need to position yourself so that you can endure long strings of losses, and maintain your day trading system. When the market does turn around, you’ll be in the market positioned to capitalize on it’s moves. That’s what setting the maximum loss is all about, it keeps you in the market, allowing to you to keep your day trading system going. If you can survive some losses in your day trading, the profits will come.

David Jenyns is recognized as the leading expert when it comes to designing profitable stock trading systems.

Discover the “secret formula” of trading that anyone can use to consistently generate BIG profits from the market by downloading your FREE copy of David’s new Ultimate Stock Trading Systems course.

Click Here To Download ==> Stock Trading Systems http://www.ultimate-trading-systems.com/stocks.html

When day trading futures, you enter and exit all positions in the same day – never carrying a position overnight. Since the overnight moves of the market are difficult to predict, many traders avoid risk by day trading. Ironically, the public believes that day trading is the riskiest way to trade.

THIS IS A MYTH!

Some traders day trading futures, make 1 to 3 trades per day, trying to catch the major intraday moves. Others trade in-and-out very frequently, trying to “scalp” a small profit on each trade. (My style uses a unique blend of these two strategies.)

For those day trading futures, the Emini Stock Index Futures have become the most popular day trading vehicle because of their liquidity, leverage, and the ease of trading them online. You can go short or long with equal ease – unlike stocks where it’s easier to go long than short due to the “up tick” rule.

The time relationship of the eminis (and the “big contracts”) to the cash indices is important to understand. Let’s start from square one.

The S&P 500 stock index (the cash index, symbol SPX) is central to day trading futures. It has an Exchange Traded Fund (the “Spyders,” symbol SPY) that trades like a stock, but without the “up tick” rule. The price of the S&P 500 cash index moves up and down with the 500 stocks that make up the index. The SPYders follow the S&P 500 cash index very closely. You can trade Exchange Traded Funds such as the SPY (and QQQQ for the Nasdaq 100) online from home. But for day traders, they are not as favorable as day trading futures.

The concept of “futures” is a little confusing, but it boils down to this: the financial industry has turned the S&P 500 cash index into a “contract” that trades like a stock. The contract (or futures contract) has a price that goes up and down from one moment to the next. It has a chart that looks just like stock chart, and you can make money with it by buying low and selling high, or vice versa. That’s a complicated as it needs to be for now.

The “big contracts” or SP Maxis were invented first and they’re still around. With the big contracts, a lot of money changes hands. When the price of the SP Maxis moves one point, $250 per contract moves with it. The SP Maxi contracts trade in a literal “pit” where the traders, called “locals,” shout at each other, buying and selling for everyone who wants a piece of the action.

The locals are not public servants, of course, they make money for their own accounts. They have the advantage of being able to read each other’s body language and the tone of the other trader’s voices. They see what the strongest traders in the pit are doing. They have several other advantages too, their costs per trade are tiny compared to the public’s commissions.

The “locals” aren’t born as professional traders though, they learn to trade like everyone else, except they have a huge advantage in learning as well because they learn to scalp first! Their instant access and low commissions make this possible compared to others, but those day trading futures online can take advantage of scalping trades as well.

Scalping is basically limiting your losses to only one or two ticks while taking any profit you get as you get it. It’s easier than going for several points per trade, I’ve been using this strategy day trading futures with much success.

Locals also use the spread (the difference between the bid and ask price), to grab quick profits from orders that come in on either side of the market. This makes scalping easier for them.

In the past, all these advantages made it impossible for a “retail” day trader to be a successful scalper. It was insane to try. And to this day many traders have the idea that scalping is too difficult for the public because you have to compete against traders with an unfair advantage.

But all that has changed now. If you follow some simple, yet important guidelines then you too can be successful scalping and day trading futures online.

They took the concept of the Maxi futures contracts and came up with smaller contracts (the eminis) that move $50.00 per SP point instead of $250.00. This allows all traders, big and small, to trade the stock index futures.

But even more radically, they set it up so that the smaller contracts (the eminis) are traded only through computers. This was revolutionary, they bypassed the pit, taking away the advantage of the “locals,” and leveling the playing field in a way that has never been done before. And to level the field even more, retail commission costs fell like a rock. Today, any trader day trading futures with a small account can pay $4.80 per round turn (entering and exiting a trade).

This means that scalping is open to the day trading public for the first time in history. But most people who are day trading futures don’t even realize where the new advantage really is.

Scalping is one of the keys to making a living day trading futures as I do, because I follow a simple rule: “Every trade starts out as a scalp until proven otherwise” .

The SP emini futures became more and more popular and more liquid, breaking a lot of records along the way.

The SP Maxis futures and the SP emini futures are both derived from the S&P 500 index (symbol SPX), which, as I said, has an ETF that trades like a stock (symbol SPY).

So the question is – which of these is the leader and which are followers?

Today the emini futures track the Maxi contracts almost tick for tick, with the emini’s beginning to lead the Maxi’s at times, and also “overshooting” the Maxis at emotional extremes, such as the at the top of an intraday rally.

Both the SP eminis and the SP Maxis (the futures) lead the S&P 500 cash index by a variable amount of time, often in the range of a fraction of a second. Some people call this “the tail wagging the dog,” because the futures are derivatives of the stock indices, but call it what you want, the futures are leading the way.

The fact that the futures lead the markets makes their chart patterns more “pure” and reliable for support and resistance trading. This makes a huge difference to me.

I use the stock index futures (the eminis and Maxis) for calculating daily support and resistance areas, which are the basis of my own trading style – a style of trading that has paid my bills and built my financial security for about 20 years now.

Mike Reed is author of TradeStalker’s RBI Trader’s Updates. He has been trading the Market for 23 years. His support and resistance numbers have been published on the internet since 1996. Mike’s nightly support and resistance zones are specific and incredibly accurate. He offers an unlimited free trial of his nightly TradeStalker RBI Trader’s Updates. http://www.TradeStalker.com

Copyright 2005 TradeStalker.com and Mike Reed

The Japanese have used Candlestick charting for centuries.

Candlestick charting is more popular than ever today as it adds an extra dimension to trading to give any trader an edge.

If you are serious about making money, then you should consider candlestick-charting techniques.

History of Candlestick Charting

In the 1700′s, Homma, a Japanese trader in rice, noticed how the price of rice was influenced by not only supply and demand, but also how the price was strongly influenced by the psychology of traders. He understood that when emotions came into play a vast difference between the value and the price of rice occurred.

This difference between the value and price of any commodity is as applicable to markets today as it was in rice centuries ago.

The re-emergence of Japanese candlestick charting in recent years owes much to the writing of Steve Nison, whose book, “Japanese charting techniques,” is considered the definitive recent work on the subject.

Advantages of candlestick charts include:

1. They can Complement other Technical Tools

You can use Candlestick charts with a number of other common technical indicators such as stochastics, moving averages; Bollinger bands etc. and they can act as an additional filter for trades.

2. Provide Advance Warnings of Market Reversals

Because of the way candlestick charts are drawn, they can give warnings of market reversals far quicker than traditional bar charts, and are a great way to spot overbought or oversold scenarios.

This can of course improve market timing and bottom line profits.

3. They’re Easy for Everyone to Use

Because candlestick charts use, the same open, high, low and close data that traditional bar charts use, they are easy to use for both novice and experienced traders.

4. Unique Insight into Market Momentum

The way the candlestick chart is drawn not only gives the direction of price, but also the momentum behind the market move. This is down to the way the candlestick chart graphically illustrates the relationship behind the open, high, low, and close by the drawing of the candlestick chart.

Just like a bar chart, a daily candlestick line contains the market’s open, high, low and close for the days trading.

However, candlestick charting adds an extra dimension in the way that they are drawn.
The candlestick has a wide part, called the “real body.” This real body represents the range between the open and close of that day’s trading.

When filled in black, the real body means the close was lower than the open.

If the real body is empty, it means the exact opposite: the close was higher than the open.
Above and below the real body are the “shadows.” Chartists see these as the wicks of the candle, and it is the shadows that show the high and a low price of that day’s trading.

If the upper shadow on the filled-in body is short, it indicates that the open that day was closer to the high of the day. Conversely, a short upper shadow on a white or unfilled body indicates the close was near the high.

5. Candlesticks Made Easy

Candlestick charting programs such as Supercharts, Tradestation, Incredible charts and many others include candlestick charting as a standard option, making them easy to incorporate into your trading strategy.

If you are trading with Fibonacci numbers, Dow Theory or a breakout method, candlestick charts can be incorporated and give an extra dimension to your trading.

>To find out more about candlestick charting and how you can increase your trading profits, visit our site: http://www.financial-trading-success.com