Archive for November, 2009

If a picture is worth a thousand words, the same can be said for a stock chart. Knowing how to read a candle chart can tell you a lot about how a stock trades.

Strip out all the indicators and moving average lines, relative strength lines and volume bars and you’re left with price action. That’s the most basic , and probably most important feature. On a stock’s price candle, which gives the daily or weekly price range, locate the hash mark or top and bottom of the candle’s body.

This short horizontal lines shows where the stock closed for the day or the week. In the case of the candle body, the top shadow shows the high of the day and the lower shadow line shows the low of the day.

Why should you pay attention to where the stock closes for the day?

It can help you guage whether higher volume buyers are lending support to the stock. It’s a good sign if a stock keeps closing in the upper half of its daily or weekly price range. That means the big boys are likely snapping up shares, prompting the stock to rise or at least hold firm.

But a stock that often closes near its session lows signals weak demand for shares. Could mean the big boys are heading for the exits.

Hash marks or high candle body closes become even more important while a stock forms a base pattern. You’d want to see a stock close in the upper half of its weekly range at the bottom of a base or as it is building a support level.

A bullish reversal at the bottom of a base or support level is also a postive sign. This occurs when a stock declines sharply but ends up recouping most, if not all, of it loss. The hash mark should for a “T”. Big Players may thionk the stock has sunk enough, and may be ready to pick up shares.

You can’t seem to find enough time to spend in front of the computer every day, keeping a close eye on your options, is a common problem. Life always gets in the way.

Don’t fret. By using a sound set of investing rules, you can still succeed at investing, even if you can’t follow stocks throughout the day.

Consider using buy-stop and sell-stop orders. These trades allow you to set a certain price at which you can buy or sell a certain number of options on any stock or ETF.

For instance, you’ve researched and done your DD on a hot bio company. It owns strong sales and earnings and tops a leading sector and industry. The broad market is in a clear uptrend.

You evaluate the stocks technical action now that it has passed your required fundamentals, and sure enough, the stock has formed a solid support area on light volume and now you see volume coming into the stock over the past few days as it begins to give signals of turning up.

You want to grab an at the money option as it breaks out. You can set a buy-stop limit order at the point that you would like to buy. If the break out point is, 50.75 stock price you could set the buy order for the option at its premium of 3.90 That way, if the stock hits that point, your broker will automatically execute an order for you at that price.

The same can be done on the sell side. A sell-stop market order will prompt your broker to sell your shares at that price once the market hits a certain point. As sell- limit order (rather than market-sell order) will ensure it doesn’t get sold beyond a certain price level.

There is one notable disadvantage to this strategy. It doesn’t account for volume changes. If a stock crosses it optimal buy point (the point and price you set) but volume comes in below average, that’s not a strong breakout. On a break out buy strategy, volume should swell to 50% or more above normal levels during a bullish breakout.

If your buy-stop order gets triggered and you later see that volume was weak, you should sell at least a portion of your options. If volume picks up later, you can buy back in.

A number of women have asked me to establish a forum, so that they might communicate with each other on various topics and carry that thread of conversation forward. This forum is being established as a place to discuss stocks, strategies, market conditions or any other subject of interest.

Hopefully, this particular format will serve our purpose, if it does not, we will move on to something else.