Short Selling A Stock

short selling

Short selling refers to instances where investors plan to make a profit from a decline in a particular sector. When an investor speculates that a specific stock is headed for a substantial drop which will be corrected later, he or she may plan to benefit from that stock. Short selling, when used effectively, helps investors to sell what they don’t own to gain profits when the prices fall. Short selling heavily relies on the principle of buying an item at a low price and then selling it at a later date at a higher rate but the sell transaction precedes the buy transaction.

How to short sell a stock

If one wants to gain profits through short selling, he or she should borrow an item or the asset he or she wants to short sell. After a brokerage like Questrade lends them the shares at the current market prices, the borrower then sells it at the same price. In cases where the cost of that asset or item drops, the investor buys the item back and then returns it to the lender. The difference between the price at which he or she repurchases the thing and that which he had sold it is the profit made from the short sale.

Steps in short selling stock

To sell a stock short, the person must speculate the stock he or she thinks will have a decline in its prices shortly. After careful speculation, he or she borrows the stock so that it can be in his possession. Prediction should be made carefully by consulting the broker so that you can be provided with a list of the stock expected to decline in the market. The broker then looks for another investor who has some shares to lend. He borrows them will by signing a deal on when to return them at a given interest rate.

The second step after borrowing the stock is to sell them immediately so that you can pocket the cash from their sale. The price at which you sell the stock is the prevailing or the current price in the market and therefore will be higher once the prices decline.

The third stage is to hold on to the money ready to buy back the stock once the new prices after a decline. One needs to wait with a keen eye so that he or she can buy the stock at a time where the prices are lowest possible.

The last stage in the sale of stock short is to return the Stock to the broker whom you had borrowed it from and then pocket the profits gained.

Making money short selling stocks

If you want to earn profits through short selling stock as an investor efficiently; it is essential to learn Canadian economics accurately.

Accurate speculation ensures that the stocks borrowed drops in prices within a specified period. It’s also necessary to select the best broker to ensure that he or she acquires the best stock for you and at the most appropriate interest rate because you will have to pay him or her for the service.

Stocks vs Bonds – Which Is Better?

Many questions arise from those just beginning to invest, one of which is should I invest in stocks or bonds? The answer to this question, in two parts is yes you should invest to make your money work for you and grow. Then to truly answer the question of where your hard earned money should flourish, stocks vs bonds, requires first a basic understanding of what the two are and how they differ.

We will first cover bonds in our look into stocks vs bonds when considering investment. A bond is considered a debt instrument issued by Governments and corporations. You purchase a bond for a fixed amount of money and the issuer agrees to pay you the price of the bond and the interest rate stated at the time of purchase. For example if you purchase a bond yielding 5 percent interest and bought it for a thousand dollars, for the term of 1 year you would end up with 1050 dollars upon maturity the following year.

Essentially what you are doing is lending the corporation or Government money so they can continue operations or expand, for this loan the issuer pays you interest or ‘the coupon’. Bonds aren’t that simple though, Canada Savings Bonds are fully guaranteed by the Government and have virtually zero risk, corporate bonds on the other hand are issued by publicly traded corporations and are not necessarily done so by stable companies. That being said corporate bonds are rated from AAA to D or worse, AAA being the best and D or lower being the worst. AAA bonds are instruments generally issued by large stable corporations and yield far lower rates than the more risky bonds issued by smaller corporations. Risky bonds normally receive a poor rating and are more speculative investments; in other words you might not see the money you invest ever again, but who knows for certain?

For the other end of the review of stocks vs bonds, we have the stocks

They are pieces of a company. It’s that simple, but the variables affecting the price and the return on your investment are exponentially greater when dealing with stocks. Additionally, different corporations can issue different types of stock, the most generic being common and preferred shares. Moreover common shares can be further split into different classes and provide different voting privileges to the owners of the respective shares. The important information about voting rights and bankruptcy implications are fully disclosed to anyone who wants to research or purchase shares in a publicly traded company.

It’s natural to wonder about what affects the price of a stock and there is no simple answer. Many investors strongly believe that the stock market outperforms the fixed income market in the long term, and although this is true as a long term average there is no way to be one hundred percent sure whether or not you are going to pick a winning stock; there are just too many variables to compute to be absolutely certain. Additionally the stock market is frequently influenced by bullish and bearish emotions that do not necessarily reflect the true value of stocks. To understand the true method of financial analysis to value a company’s stock there are a series of tutorials on stocktrades.ca but they are beyond the scope of this article.

At this point of consideration in the argument of stocks vs bonds

it is necessary to evaluate your own tolerance for risk. One of the first questions a financial adviser will, or should ask you is about your willingness to ride out a market dip. A question asked by your adviser might be, would you rather be 95 percent certain to make a 5 percent gain or 5 percent certain to make a 95 percent gain? These questions are designed to measure your investing psychology, of course the questions are usually a little more refined than this, and help the adviser to create the basic framework of your portfolio. Based upon your answers your adviser will recommend a split in your portfolio between fixed income investments and stocks. Often I have seen the 35-65 split example used to describe how investments should be allocated. That example maintains that at 35 years of age a person should be invested in 65 percent stock and 35 percent fixed income investments, and at 65 years old a person should be invested in 35 percent stock and 65 percent fixed income investments. The reasoning behind this is quite obvious, and is to decrease the risk and volatility in your portfolio as you get older.

In conclusion there are a vast array of investments in both the categories of stocks vs bonds. You can purchase index funds in your stock portfolio and many people believe that this in itself mitigates management costs and market volatility. Conversely there are bonds available that have the potential to yield considerable gains, greater than many stocks even. In closing, the investment industry is one in which the investor must research thoroughly before making their decisions, and follow the old saying, caveat emptor ‘buyer beware’.

Stock Exchange – The Index’s Explained

Every day, serious and curious investors are bombarded with thousands of newsletters, analytical market reports, radio and television investor programs and segments, newspaper articles, and friendly tips, all based upon the same thing. That thing is the study of the supply and demand in a market or stock exchange in an attempt to predict what direction or trend will continue into the future.

In this section the practical investor will come to a better understanding of the emotions working in various markets. The investor will realize why watching the stock exchange minute by minute is not necessary for long-term investors, that different world markets do not operate in unison with the market one is usually active in, and what the most commonly quoted stock exchange indexes really tell us and how to use them.

Stock Exchange Indexes Explained

A stock market index is a listing of selected stocks, statistically expressed to reflect the composite value of its component stocks. As an investment tool, it is a representation of its component stocks, all of which share a mutual characteristic such as trading on the same stock exchange, belonging to the same industrial sector, or being in the same capitalization range or economic size. There are different ways to calculate index numbers but all represent a change from an original or base value.

What does that mean for the individual investor? Indexes do give investors a feel for the direction of the particular market the index represents. That does not mean an individual stock the investor happens to be carrying in his portfolio is going to move in the same direction or at the same rate, but it does add another useful tool to work in tandem with the share price valuation process. It is important to note that most indexes only represent a sampling of the total market and infer an attachment to the market and economy in general. Even with their limitations, indexes show trends and changes in investing patterns. Indexes provide a yardstick of comparison in a way.

Important North American Indexes

In Canada, most investors are primarily concerned only with what is happening within the Toronto Stock Exchange, and the New York Stock Exchange. This is where most of the money goes and it is easier to keep a pulse on what is happening in these centers. Of the myriad of charts, indexes and trend analysis put before investors, only a few are of any real value to the vast majority of practical investors and these are the ones we are focused on here. There are a number of other indexes that measure larger or smaller sections of the market. However, the major three US indexes and well known Toronto index which follow will serve most investors well.

S&P / TSX 300 Composite Index

The TSE 300 Composite Index is a benchmark used to measure the price performance of the broad Canadian equity market. Introduced in 1977, the TSE 300 Composite Index is maintained by Standard & Poor’s. It includes 300 of the largest publicly traded companies on the Toronto Stock Exchange and is regarded as a barometer of activity in the Canadian markets. Standard & Poor’s reviews and follows strict criteria for a company’s inclusion in the TSE 300 and makes changes accordingly.

The Dow Jones Industrial Average


The Dow Jones Industrial Average is the oldest and most widely known index. It is also the most widely quoted index and believed to mistakenly be considered the market barometer. The Dow has roughly only 30 stocks. The industrial portion of the name is historical and these days the index has little to do with heavy industry. However, each of these stocks represents one of the most influential companies in the U.S. and all have annual revenues in excess of $7 billion. The Dow stocks represent about one quarter of the value of the total market, so in that sense it is a factor and big changes indicate investor confidence in stocks, however it does not represent small or mid-size companies at all.

The Dow is the only major index that is price weighted, which means if a stock’s price changes by $1, it has the same effect on the index regardless of the percent change for the stock. In other words, a $1 change for a $30 stock has the same effect as a $1 change for a $60 stock. The Dow is widely criticized because this gives relatively higher-priced stocks more influence over the average than their lower-priced counterparts, even though the first stock in the above example experienced a larger percentage change.

The S&P 500

The S&P 500 is the most frequently used index by financial professionals as a representative of the market. It includes 500, or almost 10% of the entire market, the most widely traded stocks and leans towards the larger companies. It covers about 70% of the market’s total value, so in those terms it is much closer to representing the true market than the Dow.

The S&P 500 is a market capitalization or market cap weighted index, as are almost all of the major indexes. Weighting by market cap gives more importance to larger companies, so changes in the corporate giants will have a greater impact than almost any other stock in the index. Despite being weighted toward larger companies, it is a more accurate gauge of the broader market than the Dow is. Even though so much of the media attention may emphasize the Dow, investors will get a clearer picture of the market by focusing attention on the S&P 500.

The NASDAQ

Stock Market Composite is composed of all the 5000 or more stocks on the NASDAQ market. Although broad in coverage, the NASDAQ is heavily weighted to technology stocks. This is because it is a market cap weighted index and stocks of big technology companies influence the index. Their influence and the population of small, speculative companies in the NASDAQ make the index more volatile than either the Dow or the S&P 500. The NASDAQ obviously is not designed to represent the market however it does give you a good idea of where technology investors are going at the stock exchange.

Specialty Markets CNQ

CNQ is an innovative new stock exchange for trading the equity securities of emerging companies. CNQ’s unique market model matches enhanced disclosure and streamlined issuer regulation with leading edge technology and comprehensive regulatory oversight to meet the needs and characteristics of emerging companies, their investors and investment dealers. This is the description taken from the CNQ information brochure. Most shares traded on this stock exchange are centered on natural resource companies.

TSX Venture Exchange

The TSX was previously known as the Canadian Venture Exchange. The venture stock exchange was founded to restructure the Canadian Capital markets along the line of market specialization. The focus is on junior companies whose assets, business and market capitalization is too small to listed on the regular Toronto Stock Exchange.

Stock Exchange entities such as these provide companies an avenue for raising the capital they need to move forward with new products and new ideas. For some, it is just the opportunity needed to burst into the next level while for others, the market is not convinced of their viability and turns them down. For the speculative investor, small cap markets represent an exciting opportunity to find the next boom company wave to ride.

For the purposes and ideals of the practical investor, constant awareness of the volatility in these markets should be maintained while applying the same analytical tools used to evaluate blue chip securities. Like the two in Canada mentioned here, there are numerous similar stock exchanges in other parts of the world. Now, you know they thrive and exist.

TSX Venture

World Markets

On volume, the Toronto Stock Exchange is about the sixth largest stock exchange worldwide, there are hundreds that are smaller. It is not within the scope of this tutorial to examine in detail all the aspects and opportunities for investors participating in major world stock exchange markets. One of the basic rules of good investing is diversification. This strategy enables investors to reduce their level of risk by spreading their money over a selection of different types of investments or various bodies of stock exchange. Considering Canadian stock exchange markets represent only 3% of all the world stock markets, investing outside of Canada can provide a higher return with a lower level of risk.

The performance and amount of activity in markets such as Nikkei and Hang Seng in Asia have provided exciting opportunities to world investors. The FTSE stock exchange markets in the UK and DAX markets in Germany trade in tremendous volumes Canadian investors should be aware of.

There is always something happening around the world. When the economy or stock exchange markets are flat in North America there could be extended periods of gain in Europe or boom in Asia. Keeping abreast of it all is a very difficult task, but the point to make here is for investors to open their eyes to a world of opportunity. Perhaps consider a mutual fund that is invested internationally as the easiest, most secure way to take advantage of foreign stock exchange markets.

Stock Buybacks

 

Since companies that are traded in the stock market depend on their investors for capital, they are ever sensitive to their investors’ needs and expectations. When a company fails to perform in growth, share prices can stagnate and even drop somewhat. This, for obvious reasons, raises investor concerns. The investor, depending on their commitment and financial safety nets, may decide to dump (sell) the company’s shares, thus creating a situation where stock prices could plummet. This, of course, isn’t in the company’s best interest, so they may intervene by implementing stock buybacks. But what does this mean to the Canadian investor?

First off, the idea of stock buybacks should be explained

If a company finds itself in this situation, the executive may take a portion of their profits and buy their own shares on the market. As an example, if the company had 200,000 shares on the market at $50 per share, they would be considered to have a capitalization of $10,000,000. The investor’s per share ownership of the company would be .0005%. For argument’s sake, let’s say that the company made $2 million dollars in profit for that year. The company executives could take that $2 million and buy 10,000 shares of their own stock. These regained shares are then taken to the board of directors. Through the use of a vote, these shares are destroyed. Therefore the total available shares in the market decreases to 190,000. This absence of shares causes the remaining per share ownership of the company to increase to .000526%. This results in a 26% increase in per share ownership.

This increase has a positive effect on the investment, by giving the investor a greater share in the company in lieu of share price increase. Depending on the company and its future prospects, this can hold off stock dump and keep the investors happy until the next quarterly report.

An example of stock buybacks and how it affects the Canadian investor occurred in the past with CN Rail, and is an excellent example

Canadian National Railway Company, otherwise known as CN Rail to the general public and CNR to traders on the TSX (Toronto Stock Exchange), was reported to have implemented a buy back program of approximately 33 million of their outstanding common shares. CN Rail hoped to have 6.6% of their total shares back by July 2008. Their first phase of the stock buybacks was already in progress as they attempt to secure 5 million shares or a modest 1% of total outstanding common stock shares. CN Rail also planned to compliment this act by using their excess profit to increase common stock dividends.

As you can see, stock buybacks are usually a positive experience for the investor. However, if the company shows little or no indications that it will perform in the future, dividends and increased ownership in the company may not be as attractive. It is in this situation that a good grasp of the market and economic indicators come into play, allowing the investor to make an informed decision as to whether they unload stock to save losses, or hang on for future payoffs.

Learn How To Make the Most Money By Investing

investing

Instructions to make the most money through investments – This is an inquiry by numerous individuals previously they even plant their money some place. What’s more, as a rule, this is one of the more judicious inquiries asked by individuals!

Making money with investments is, obviously, a great deal less demanding than it sounds, and it isn’t without its own particular arrangement of dangers that it is laden with.

If you don’t know what you’re doing, investing can cost you money

Obviously, on the off chance that you don’t recognize what you are doing, at that point as opposed to making money with your investments, you may end up losing a great deal of money.

So what does it take to end up great at making money with your investments? Is it a gained aptitude or is it something that you simply need to have the talent for?

The reality is that anyone can figure out how to make the most money investing. All it requires is a stringent push to teaching oneself. You have to take in the basics of how money functions, how investing functions, what are the distinctive kinds of investment vehicles, what are the diverse sorts of investment systems, when to purchase and when to pitch, the amount to purchase and the amount to pitch, how to support your investments, how to differentiate your investments, how to lead research to locate the best investments, how to investigate a specific investment for it is over a wide span of time execution, how to make extrapolations around an investment’s future execution, and substantially more.

Make sure to learn how to invest prior to investing

In fact, the better you can outfit and arm yourself with learning, the better you will unquestionably move toward becoming at making money with investments.

Now, throughout the years buying investment property has been a standout amongst the most beneficial endeavors for some families and individual investors. Moreover, in the latest years, the lodging market has played out a gigantic increment in esteem.

Finding a decent reputable bank with a lower or sensible loan cost over a more drawn out time-frame is one of the initial steps you should take, you should go for a settled term which would be helpful in the midst of an economic downturn.

You will require a reliable lawyer and accountant to deal with your financial undertakings as you may have impose necessities through any misfortunes or potentially picks up from buying an investment property and these experts will likewise exhort you through the buying procedure.

At long last, you will require a real estate specialist who knows the territory where you are considering buying an investment property, your picked operator ought to have broad information in all parts of real estate, and in this way with these focuses joined you will expand your odds of making money buying investment property.

Bringing down and raising loan costs influences the currency rates on the foreign markets quickly and fills in as an instrument impacting the values of specific currency standards.

Numerous major factors decide the free market activity for a specific currency and its incentive against the different currency. Among these components are loan costs. National banks are the establishments that set the base rates in a nation and change their levels to streamline the advancement of the neighborhood economy. Raising the loan fee will result in raising the value of the countries currency while bringing down financing costs ought to have the contrary impact.

Loan Fees Are A Factor As Well

Loan fees at first influence different government securities, particularly the bond yields, bringing about demand for the currency in which these securities are designated, bringing about valuation for the currency. The monetary economic theory assumes such conduct of the market members in spite of the fact that they frequently carry on alternately and affected by different factors. Now and then, investors specialist will search for a place of refuge paying little mind to the way that loan costs are high in their nation since they don’t put stock in the nearby economy or consider the cash rates as troublesome in the long term.

Interest Rates

Interest Rates Effect The Economy As A Whole

Interest rates affect the whole economy; deciding the cost of loaning and getting cash, making lower or higher cash free market activity, separately. A factor you ought to consider when the issue close by is high nominal interest rates is the level of inflation. A high inflation rate can balance against the high loan fee.

A fascinating phenomenon concerning interest rates is that mostly the foriegn exchange market advertise is driven by perceptions and forecasts of future interests rather than the real levels set by the national banks. In this way, when Forex merchants as a group trust that loan costs in a specific nation may fall, they could begin offering the countries cash paying little mind to the way that every single essential marker are sending positive signs.

Each of this components is important however just in the circumstance of a free-floating currency and open economy, i.e., no excessive exchange and speculation confinements and absence of prohibitive foreign exchange trade controls. On the off chance that these conditions exist, the currency rates will be affected by changing interest rates and will acknowledge and deteriorate as needs are. Then again, the nations offering most noteworthy yields on their securities are not extremely unsurprising ones, and their securities more often than not hold up under higher hazard for speculators. Subsequently, the main disturbing sign in respect to this nation will encourage the financial specialists to strip their speculation, and the currency esteem will fall instantly, bringing about less worthwhile cash rates against the major world currencies.

Making choices to cut or increment the base rates is a complicated procedure including numerous high positioning authorities. The national bank’s activities are examined by different governments and market players since loan cost changes impact the exchange rates directly and indirectly. When in doubt, the market responds instantly to redress the real cash rate of the individual money. By and by, the market overall will react surprisingly on numerous events since the Forex showcase is difficult to anticipate. It’s not possible for anyone to push the cash rates lower or higher if the market state of mind urges financial specialists to head the other way.

What is Swing Trading

swing trading

The term refers to the various styles of swing trading stock, commodities or index. This trading is a kind of practice where the trader buys or sells the instrument at or close to the end of a down or up price swing in the commodity. This fluctuation is caused either due to daily price volatility or weekly price volatility. Knowledge of these styles helps will help you become a profitable trader and put you on the path of a successful trading profession. There are lots of swing trading strategies out there, but finding profitable ones is even more difficult.

How long do swing traders hold stocks for

The time limit that is usually involved in holding the instrument by the trader is 1-4 days. It is most likely less than a week in any case. The currency or the stock which the trader is dealing in swings from one price level to another. A swing trader rides on this oscillation or swing that the market makes on the stock.

The stock research you will be doing is looking back at past trends allowing you to come up with an informed decision on what to do. That way you can take a calculated risk of how long the trend will last in an uptrend or how short you need to go in a downtrend to maximize your profits.

What programs do swing traders use?

The use of end-of-the-day charts software and the information provided by your broker is also used to make your stock trading decisions. This eliminates the need for a direct-access system, being bound by your stocks and waiting for the end end of the day trading.

How many shares do swing traders trade?

Most swing traders trade in blocks of 1000 shares at a time, but this is more of a guideline than a rule. Besides, these traders will hold only around ten positions at a time. The type of stocks a swing trader will choose for their stock picks is those that can be moved quickly or at least shortly. Below is a list of criteria used by the swing trader to analyze the stocks and decide on the stock pics.

Volume and Liquidity

Wanting stocks that can move quickly, as they work with actively traded and large stocks that are easier to trade.

Trending

This is the uptrend and downtrend mentioned previously. Stocks that are following these trend patterns rather than a straight one are what swing traders are looking for.

Volatility

The volatility of stock shows that it has a lot of movement. This another criterion a swing trader uses because the traders can quickly make a profit with a volatile stock.

Sector Selection

When stocks are in the stable sector, the swing trader finds it more comfortable to trade, but in the weak sector, profits are made by weakening the price.

Tight Spreads

Tight spreads mean small spreads in the bid and the ask of a stock. Swing traders want the smaller spread because they can make more profit from it. With a broader spread, a trader looks to have lower profits. So the tighter the better.

Rounding it all up

When used correctly, swing trading is an excellent strategy used by many traders across different markets. It is not only used in the Forex market but also it is a crucial tool in futures and equity markets. Swing traders take the skills that they learn through technical analysis and can even parlay these skills into various options strategies. The short-term nature of swing trading sets it apart from that of the traditional investor. Investors tend to have a longer-term time horizon and are not traditionally affected by short-term price fluctuations.

As always, one must remember that swing trading is only one strategy and should be utilized only when appropriately understood. Like any trading strategies swing trading can be risky and conservative strategies can turn into day trading strategies quite quickly. If you plan to employ a swing trading strategy, ensure that you fully understand the risks and develop a strategy that will be able to allow you to generate maximum percentage returns on your positions.

What Is Daytrading

The basic definition of day trading is the buying and selling financial instruments in the market on the same day. Therefore, daily traders never hold it for long periods of time. Most of the day trading financial instruments include stock options, currencies futures contracts and also stocks. Many day traders are banks or financial investment firms. However, due to the increasing modern technology that has allowed the introduction of electronic and margin trading, more home traders have become popular in day trading.

So how do I start day trading?

There are a number of ways that day trading can be done, some of these styles that are used include scalping. This is a technique where the bob has to hold a certain position for a few minutes. Shaving is another method that makes it possible for the trader to jump ahead of the other by a tenth of a cent. A buy and sell order is usually completed in less than one single second. This makes the bids higher and makes the bidder to be the first one to purchase the intended stock. This usually makes it possible to earn a large amount of profit, especially when dealing with high priced shares.

You have to find stocks that are ready to pop

A day trader usually uses most of his time looking for more financial instruments that will earn him more profits. They look for stocks that are mostly in a state of tension and are ready to accelerate in price at any moment. The key factor to consider when day trading is the fact that there is no maximum number of trades to be done in a day; a trader can do as many as they want. In this regard, it is also necessary to note that there are just as many losses to be made in the trades as there are profits. Thus when executing the trade, it is much better to have an open mind since there is no guarantee of either a profit or a loss.

How long do day traders hold stocks for?

It is possible for a day trader to do a very short-term trade that can only last for minutes. This makes it feasible for traders to buy and sell the financial instruments many times in one particular trading day. In this regard, the day traders receive discounted prices from their trading brokers for having a large trading volume. Different traders focus on different things, some of them being the price momentum, technical patterns and even the many unlimited numbers of strategies that can be used to make even more profit.

Day traders never hold on to stocks overnight

Since there is an excessive number of dangers related to day trading, most of the day traders prefer selling their shares before the closing of the market. This is because they do not want to experience excessive risks that are associated with the aftermarket, which may tend to be unmanageable at times. However, other traders feel like they should let the profit run, therefore, it is acceptable to continue staying in a certain position even if the market closes.

You also need to start learning about stock trends before you begin day trading. Some people can afford to just jump into the game and risk losing everything, but not everyone can do that. If you don’t have the capital to learn from your losses, you need to do some scouting and start looking into stock trends. This will help guide your first trades, so you have a higher chance of being successful.

Day trading poses excessive risk

If you do not recognize the inherent risk that stock trading in any form presents, you are likely to come out disappointed in the end. There is no way to take the risk out of this type of business, but go about it the right way and use your brain every step of the way, you are likely to find some success. Just use some caution because every year people go into day trading with high hopes of becoming rich, and very few actually make that into their reality. Do your research and make smart decisions in the beginning and chances are you can be quite successful.

What Is A Candlestick Chart

Price changes are shown in a chart in the form of a “candle”. It is a representation for technical chart analysis. The “body” of the candle indicates the difference between the opening and closing prices. Depending on whether the prices have risen or fallen, the “candles” are displayed in different colors. The respective highs and lows are represented by the “wicks of the candle”, which are displayed at the top and bottom.

candlestick chart

These “candlesticks” diagrams, or simply called candlesticks, are the basis of almost all trading programs and software tools. The charts shown so far and the corresponding aids, such as trend lines and trend channels, are of course also valid together with the candlestick charts.

How do I read a candlestick chart?

But how do you have to read and interpret such a candle chart? For this it is important to first understand what makes a single candle and how it is constructed. There are 2 types of candles, the green candle and the red candle. In black and white diagrams the green candle is white and the red candle is black. But since we are in the age of colors, we continue with colorful pictures here.

The body of a candle is the opening price (Open) and the closing price (Close). Here, the period of time for which a candle should apply, plays a role. For example, in the chart above, the period is one hour. This means that a candle represents the opening price and closing price of one hour. Depending on the software, you can display individual minutes, 5 minutes, 15 minutes, 30 minutes, hours, weeks or months. If you then line the individual candles together, a chart is created, in the example above you can display the course of the last three days in hourly candles.

The wick of a candle reflects the high or low point within the period. That means within the hour shown, the course was briefly above or below the Open or Close! Quotes fluctuate and this is very clear on the candlestick charts. Depending on how big the body and the upper / lower wick of a candle, one can make assumptions about the further price course.
For this purpose, it will now be explained briefly by means of a section, what can be “read” in the individual candles:

candlestick chart

1. Here, the opening price was above the closing price, ie the price fell in this hour. In the meantime, there were even very heavy losses, but in the market there were enough “buyers” of the euro, which supported the currency again, so that the candle was not closed so deeply.

2. The second candle has almost no body, ie Open and Close are almost identical. Although there were short-term moves up and down, the market was still very balanced at the end.

3. The last two candles always wanted to point downwards, but were again heaved up by the “buyers”. This is a sign that it can quickly go up when there are enough buyers. In the third candle you can see this, it is a small “shopping spree” and the course closes well above the opening. The body of the candle is therefore very large.

4. But every purchase frenzy has an end and it can go downhill just as fast.

5. Sell all suddenly, then slips off the course and this is reflected in a very large red candle.

6. Now one can speculate that it goes further downhill. But it can turn as well, of course, a candle alone can never make a reliable statement here. The other elements of the technical analysis should therefore always be used in addition.

7. If you charted a downtrend line throughout the chart, the 7th candle would be a sign that the downtrend is breaking up. But beware: a candle has only a meaningfulness when it is completed. An “open” candle – the current candle in the chart – shows only a snapshot, at the beginning of a candle this is only a few minutes and not an entire hour.

8. If a candle is closed, you can see the presumption from point 7 confirmed. Here, for example, you could buy and hope for a rising price. Just as the 8th candle finally closed, this would have been a correct decision. Later in the chart, things went even further up later.

Make Money Trading Stocks

trading stocks

There is a lot of money to be made in the stock market especially when it is at a low. If you look throughout history you will see that the market always goes up over time. Knowing which stocks to pick is very important for you to make money. You need the knowledge to choose stocks that will yield you a profit over time. There is many publications available to you, and it is highly recommended that you subscribe to some of them. You can view our article on top screeners if you’d like. They will help you to understand how the stock market works and what is the best method for picking great stocks.

You need to educate yourself before jumping into something, and when it comes to the stock market, this is never truer. If you are trying to become a day trader, it is crucial that you speak with somebody who is already doing this so you understand precisely how to make money. Some people think they already know what to do and they can lose everything they have quickly. Making money trading takes time, and you need to know what you are doing so that you can make enormous profits.

Use these key day trading secrets to increase your income potential

When starting out it is important you make use of every resource possible. Many companies run free seminars, webinars and tutorials – take advantage of these and attend every one you can – no knowledge is wasted. Every broker under the sun also provides some form of virtual account which allows you to trade without the pain – and the pleasure- of a change in your real balance. Use these types of play money accounts until you have established a trading system that works for you, and more importantly you understand. In my mind you pay for learning in one of three ways – you pay in time lost, you pay in money lost, or you spend money to acquire. Often the most expensive learning now – from an expert – often proves to be the best value long-term.

Research the market before starting

Be prepared ahead of time. You should be ready to go before making your first transaction. You won’t need to drop hours and hours doing this. However, you should have a few key sites you visit, and it’s a good idea to monitor a couple of companies closely. Always having a strong overview of the stock market, including any public shares, prepares you to make sound financial decisions.

Find shares with a little bit of volatility

Don’t spend your valuable time on companies with hardly any volatility. Frequently changing share prices are crucial for day trading. You are unloading stocks every day, so you need to be involved with stocks that have daily price variations. Improve your mathematical analysis skills. You need to be capable of analyzing financial numbers at a glance. You don’t need to be a master mathematician, but you must interpret what the financial data mean to make fast, dead-on assessments.

You need to have patience, and lots of it

Learn how to have lots of patience. The people who generate the most income can maintain their emotions at any point in time. You need to keep a clear mind at all times.

If you use these insider day trading tips, you could be set to make outstanding income by day trading. You can make a lot of money in the markets and with a little work, you can be benefiting from this exciting opportunity.

Using options can be a viable strategy

Now, start making money trading stocks using options contracts. One of the more popular ways to continue making money trading stocks over the last decade has been to use call and put options to increase buying power. The leverage created by controlling (rather than owning) shares allowed smaller amounts of capital to reap more substantial and more massive rewards.

Automate your trading

Finally, make money while you sleep. Automated trading systems allow investors to trade automatically. They have long been used by large banks and investment firms to create a continuous profit without the need for trading expertise. The strategy, usually devised by an ex-trader with years of experience, is coded into a computer program which can then be just set up to run and left. This allows you to make money while you sleep. Such trading systems are usually designed to make small profits on a large number of trades.

Rounding it all out

In conclusion, there are a couple of existing plans out there that you may be able to use. The best methods however are always those that are custom created. A personal blueprint that you’ve created yourself is the best to use because it fits your personality and style as a trader. You never have to force yourself to accept the terms and perspective of some other system creator.