One Stock Trading Tip for Beginners

How to Trade Stocks Online

Lots of beginners to stock trading and the stock market feel that there is something basic they need to know to ensure they make the right decisions. Well, apart from the obvious answers like use your common sense, don't believe snake oil salesmen, a mine owner is a liar standing next to a hole in the ground etc... there is one basic thing you can do for yourself. Learn how to understand basic stock charts signals. For example one basic signal if you intend being a swing trader not a long-term buy and hold investor is "don't buy a stock if the 5 day moving average is pointing down". If you don't understand what that means then you really need to find out. 

The moving average is just the average of a stock price over a given period of time e.g. 5 days and it moves i.e. each new day is added to the end of the sequence and the first day is taken off the front. So if the price of a stock over five days is 10 - 11 - 12 - 13 - 14 then the 5-day average is 12  so a 12 is plotted on the graph/chart. If the next day the price moves up to 15 then the 5 day  average is now 11 - 12 - 13 -14 -15 divided by 5 i.e.  13

Here is the chart for Microsoft showing the 5-day moving average (in green) and the 200-day moving average (in blue)

at the moment the 5-day moving average is pointing up (but as this chart updates itself automatically it may not be pointing up when you look at it) and the stock price is above the 200 day moving average.

So it seems a fair enough short-term trade based on the moving averages. Another basic point is never buy a stock that is below its 200-day moving average, wait until it gets back above it.

There is a lot more to charts and online stock investing than this of course, but it is important to realize that the stock market professional traders use charts and if the charts seem to them to be saying it is time to sell then it would be foolish for you to start buying, there would be too many sellers selling and this would force the price down. It is therefore doubly important as a beginner to the stock market to know when the professionals are likely to be buying and selling, which means understanding a minimum about stock market charts.

This seems to me to be the one basic point that all stock traders need to understand i.e. that it may all seem random but there may be some method to the madness and if you are serious about making a living from online stock trading then you need to get to grips with the basics of stock market charts.

See these related posts for more information on charts - Stock Charts for Dummies or Stock Charting for Beginners

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Key Candlestick Chart Patterns Reversals

The Power of Understanding Candlestick Reversal Patterns

By Mark Deaton

Traders claim that 'the trend is your friend'. That's true - until the trend reverses unexpectedly. This is why it's critical for you to understand candlestick reversal patterns. A surprise change in trend is likely to be triggered by news. There will almost always be hints or rumors before the information comes out publicly. For example, news from one company may cause speculation about what is happening to competitors in the same or related industries.
Markets will react or prepare for that anticipated news based on speculation. Buyer and Seller behavior actually becomes somewhat predictable at this point. Traders often 'buy on the rumor and sell on the news', in an attempt to beat the crowd.
Clear evidence that lots of people are "in the know" shows up as patterns within multiple trading sessions. Candlestick charts can help you be nimble enough to stay one step ahead of whatever major move is about to occur. You just have to know which candlestick reversal patterns to look for.
Stars - Trend Exhaustion Signals
The Morning Star and Evening Star are two opposite-meaning candlestick patterns. Both indicate a possible change in trend - one up and the other down. They tend to be reliable signals when the trend has been strong for an extended period. There is already a sense that it is time for a market correction.
For example you might have a long candle with very little shadow the first day followed by a Doji (a candle that is all shadow with no body) formed on the second day. A gap in trading appears between the first and second trading sessions. The Doji indicates indecision where the bulls and bears equalize or cancel each other out. The opening and closing the second day are the same price.
The third day gaps again with a long candlestick in the opposite direction from that of the first day. It provides confirmation that a new trend has begun. This single description actually fits both the Morning and Evening Star candlestick reversal patterns. Each predicts a reversal in the opposite direction - but for similar reasons.
In the case of a Morning Star, the bulls have taken control of the market and prices continue upward. In the case of an Evening Star, the bears are firmly in control and prices continue lower on the third day. The old trend is clearly broken as the price closes beyond the midpoint of the first day candle. Why does this move happen?
Value Adjustments
Price trends usually change for reasons that are based on perceived future value. Extreme price movements need to be justified by fundamentals and estimates of true worth. If an upward trending stock suddenly issues an earnings warning, perception of future worth abruptly changes. This explains the diverging pattern associated with the Kicker where trading shifts dramatically in the opposite direction of the former trend. Other, more subtle candlestick reversal patterns occur when the market needs time to evaluate news.
Breakaway Candlestick - This 5 day reversal pattern starts out similar to an Abandoned Baby, except there is slightly more indecision before the major move. In a downtrend, a long black candle forms. The 2nd day gaps down to form a black short day called a star. The next 2 days are consecutively lower candles with the 4th day closing lower than the 2nd. The 5th day opens lower still but trades up and closes within the gap of the 1st and 2nd days. The bearish form of the Breakaway Candlestick starts with the prior trend being bullish instead. The candle formation is flipped and features colors that are the opposite of those described above.
Ladder Bottom - 5 day pattern. Three Black crows form during a downtrend. On the 4th day a short black body forms as an Inverted Hammer. The 5th day is a long white candle that opens above the 4th day body and closes above the opening of the 3rd day.
Three Stars to the South - 3 consecutive black candles in downtrend (paradoxically bullish because shorts in the market have failed to create a new low). The 1st day has a long shadow on the bottom. The 2nd day is a smaller version of the 1st and trades completely within the body and shadow of it. The 3rd day is short and black with no shadows but trades within the complete trading range of the 2nd.
Tri-Stars - 3 Doji in a row indicate a reversal of the current trend because of the extended and extreme nature of the indecision. Tri-Stars can be bullish or bearish candlestick reversal patterns.
If you want to master the craft of identifying and profiting from candlestick patterns visit our site for flashcards, our FREE candlestick pattern asters kit and much more.

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