Bar Chart and Candlestick Charts

Line Chart

The most basic chart is the line chart because it represents only the closing prices over a set period of time. The line is formed by connecting the closing prices over the time frame. Line charts do not provide visual information of the trading range for the individual points such as the high, low and opening prices. However, the closing price is often considered to be the most important price data compared to the high and low for the day and this is why it is the only value used in line charts.

Bar Chart

The most popular charting method is the bar chart. The high, low and close are required to form the price bar for each period of a bar chart. The high and low are represented by the top and bottom of the vertical bar and The opening price on a bar chart is illustrated by a horizontal line located on the left side of the vertical bar while the close is represented by a horizontal line on the right side of the vertical bar. This is typical with commodities, futures and other financial instruments.

If the left horizontal bar is lower than the right horizontal line then the market has opened lower and closed higher, conversely if the left horizontal bar is higher than the right horizontal line then the market has opened higher and closed lower than the opening price.

On an intraday chart, each bar can represent anywhere from 1 minute to hourly time frame, usually 5 minute bar are utilized on intraday bar charts. On a daily chart, each bar represents the high, low and close for a particular day. Weekly commodity charts would have a bar for each week based on Friday’s close and the high and low for that week for all futures and commodity markets

Candle Stick Charts

Candlestick charts originated in Japan over 300 years ago, substantially long before bar charts were ever invented. Similarly to bar charts the candlestick line contains the market’s open, high, low and close of a specific day.

The candlestick has a wide part, which is called the real body. This real body represents the range between the open and close of that day’s trading. When the real body is filled in with color, it means the close was lower than the open. If the real body is empty, it means the opposite; the close was higher than the open.

Above and below the real body are the shadows, and it is the shadows that show the high and low prices 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. A short upper shadow on a white or unfilled body dictates that the close was near the high. The relationship between the days’s open, high, low and close determines the look of the daily candlestick. Real bodies can be either long or short and either black or white. Shadows can also be either long or short.

Some traders swear by Candle stick charts while others prefer bar charts. I personally always preferred bar charts due to their simplicity and partly because I’m so used to using them. If you prefer to use Candlestick charts, you shouldn’t have any problems applying any indicators to either bar charts or candlestick charts. Line charts, are rather limited by the fact that they do not provide opening and closing data.

This data is often utilized by traders for entry and exit signals as well as for several other technical indicators. Therefore, I would discourage you from using line charts while you are learning basic trading methods and techniques. After you have a good grasp of basic trading principles and methods, you can then begin using line charts if you still wish to do so.

How to Deal With Trading Stress

Effects of chronic stress

The body doesn’t distinguish between physical and psychological threats. When you’re stressed over a busy schedule, an argument with a friend, a traffic jam, or a mountain of bills, your body reacts just as strongly as if you were facing a life-or-death situation.

If you have a lot of responsibilities and worries, your emergency stress response may be “on” most of the time. The more your body’s stress system is activated, the easier it is to trip and the harder it is to shut off.

Long-term exposure to stress can lead to serious health problems. Chronic stress disrupts nearly every system in your body. It can raise blood pressure, suppress the immune system, increase the risk of heart attack and stroke, contribute to infertility, and speed up the aging process. Long-term stress can even rewire the brain, leaving you more vulnerable to anxiety and depression.

Many health problems are caused or exacerbated by stress, including: Pain of any kind, Heart disease, Digestive problems, Sleep problems, Depression , Obesity , Autoimmune diseases, Skin conditions, such as eczema.

Learn how to manage stress

While unchecked stress is undeniably damaging, there are many things you can do to reduce its impact and cope with symptoms You may feel like the stress in your life is out of your control, but you can always control the way you respond. Managing stress is all about taking charge: taking charge of your thoughts, your emotions, your schedule, your environment, and the way you deal with problems. Stress management involves changing the stressful situation when you can, changing your reaction when you can’t, taking care of yourself, and making time for rest and relaxation.

Learn how to relax

You can’t completely eliminate stress from your life, but you can control how much it affects you. Relaxation techniques such as yoga, meditation, and deep breathing activate the body’s relaxation response, a state of restfulness that is the opposite of the stress response. When practiced regularly, these activities lead to a reduction in your everyday stress levels and a boost in your feelings of joy and serenity. They also increase your ability to stay calm and collected under pressure. I personally control my stress by taking a 1 hour walk after every trading session and try to go hiking at least once per week. I find this very helpful in reducing stress levels on a regular basis.

Learn quick stress relief

Everybody has the power to reduce the impact of stress as it’s happening in that moment. With practice, you can learn to spot stressors and stay in control when the pressure builds. Sensory stress-busting techniques give you a powerful tool for staying clear-headed and in control in the middle of stressful situations. They give you the confidence to face challenges, knowing that you have the ability to rapidly bring yourself back into balance

Trendlines and How to Draw Trendlines

Trendslines and Stock Market Timing

One of the most important concepts in technical analysis for commodities and futures is that of trend. Technical analysis is built on the assumption that prices trend.

For example, an uptrend is classified as a series of higher highs and higher lows, with each successive peak and trough getting higher. The lows are called reaction lows because they run counter to the general trend.

A downtrend is a trend with lower lows and lower highs, the peaks and troughs keep getting lower and lower. In downtrends the peaks are called reaction highs.

While there’s another trend called sideways or horizontal trend, it really is more of a lack of a trend than a trend. In a sideways or horizontal trend, highs and lows neither ascent nor descent, but mostly rise and fall within a fairly constant band called the trading range. Historically, most financial markets spend the great majority of the time in a sideways trading range.

Trend lines

Trend Lines are an important tool in technical analysis for both trend identification and confirmation. Trend lines are utilized in chart analysis to determine the slope or degree of the market trend and assist in ascertaining when the trend is changing.

A trend line is a straight line that connects two or more price points and then extends into the future. Put another way, trend line is a charting technique that adds a line to a chart to represent the trend in the market. These lines are used to clearly show the trend and are also used in the identification of trend reversals in futures and commodities trading. The more points used to draw the trend line, the more validity attached to the existence of a trend

Up trend lines are drawn under the rising markets chart lows. To draw an uptrend the line drawn must connect the two lowest price dip in a series. The third dip will confirm the uptrend.

Down trend lines are drawn above the declining market chart peaks. Downward moving trend lines are drawn on top of the highs, connecting the peaks as they get lower. The downtrend line must connect at least two peaks in a series with the third peak being a confirmation of a down trend.

A horizontal trend or a trading range requires two trend lines. One trend line is drawn above the trading range and must connect at least two successive peaks in price to create a trend line. The second trend line is similarly drawn below the trading range and must also connect at least 2 lowest price dips in succession to create a trend line.

When trend lines are drawn above and below the trading price or trading range, it is sometimes referred to as a trading channel.

A trading channel can also occur when the market is an uptrend or a down trend. To draw an up trading channel you begin by drawing a regular trend line connecting each dip in price as it gets higher. After a trend line is established a channel line is drawn by connecting the peaks in price parallel to the trend line.

To create a down channel a trend line is drawn connecting each peak in price and a channel line is drawn connecting each dip in price parallel to the trend line.

Different Chart Types

Different Chart Types

The price scale is located on the right-hand side of the chart. It shows the index’s current price and past price data points. The price scale goes from the lowest prices to highest price as you move from the bottom to the top of the price scale.

The major confusion appears not with the price scale itself but with the 2 different ratios that’s used to measure the distance from bottom to top of the price scale. A scale can either be constructed in a linear or logarithmic way, and both of these options are available on virtually every charting program available online.

If a price scale is constructed using a linear scale, a given distance always represents the same absolute change in price. In other words, the space between each price point is separated by an equal amount. A price move from 10 to 20 on a linear scale is the same distance on the chart as a move from 40 to 50.

With a linear chart, moving up four spaces on the vertical axis might represent a change in market price from $120 to $124. Moving up another four spaces further up on the axis might represent a change in price from $145 to $149. Four spaces equal a change of dollars, each and every time.

A logarithm chart or a semi log as it is commonly called is substantially different than a linear chart, the price scale is skewed so that a given distance always represent the same percentage change in price, rather than the same absolute change in price as is the case for a linear chart. In other words, the distance from 1 to 10 on a linear chart is the same as the distance from 10 to 100 on a logarithmic chart.

With a semi log chart, the Y axis is structured in such a way that an equal distance along it represents an equal percentage change. So if you move up 4 spaces on the vertical axis, it may represent an increase of 20% in the index price perhaps from $200 to $240. Moving up another four spaces further up on the axis will represent another 20% change in the index price.

Linear scales are useful when the price range is confined within a relatively tight range. Price movements are shown in absolute dollar terms and reflect movements dollar for dollar. Semi-log scales are useful when the price has moved significantly, either over a short or extended time frame. Semi-log scales are useful for long-term futures traders charts to gauge the percentage movements over a long period of time. Considering that day trading and short term trading involve small price fluctuations, linear charts work well. Traders looking for large price swings over an extended period of time may benefit from semi log charts. Most charting services and software programs give you the option to choose either type of chart. I encourage you to try both types to see which one you prefer more.

Types of charts

Charts are the backbone of technical analysis. It is important to clearly understand what is being shown on a chart and the information that it provides. There are three common chart types that traders and investors utilize to analyze market prices or price data.

These are line charts, bar charts and candlestick charts. Some commodities and futures traders utilize a forth type of chart called point and figure chart, this chart is unique because it doesn’t take passage of time into account unlike the other charts. The point and figure chart has become less and less popular over the last several decades and I won’t go into it here. If you are interested in learning about point and figure charts, there are books written by Thomas Dorsey about the topic that are very informative.

Trading the E-mini Russell Futures

E mini Russell – Specifications – tick value

The Russell Investment Group designed the Russell 2000 Index to be a comprehensive representation of the U.S. small-capitalization equity market.

Since its inception, the Russell 2000 Index has become the premier measure of small-capitalization stocks and is widely followed by professional traders and fund managers around the world.

The Chicago Mercantile Exchange’s 1993 introduction of Russell 2000 futures gave investors the opportunity to manage small-cap portfolio risk, as well as to gain exposure to this market segment.

For example: if the nasdaq 100 index is values at 2500 and goes up 5 points to 2505 the difference is 5 points which equals $100, $20 x 5 = $100 profit or loss per contract.

If you purchase 1 contract at 2220.00 and the next day it moves to 2250.00, you have a profit of $600. Inversely, if the price dropped to 2190.00 the next day, you would have a loss of $600.
f. The minimum tick fluctuation on the nasdaq 100 E mini contract is .25 points index points or $5 dollars. If the index moves from 2250.00 to 2250.50, the index would have gained .50 points which is $10.00 per contract.

The initial margin on the large Nasdaq 100 futures contract is $17,500.00 while the maintenance margin is $14,000.00 per contract. The Margin requirements for the E mini nasdaq futures contract is $3,500 initial margin and $2,800 for maintenance margin per contract.

The E mini nasdaq tends to be more volatile than the E mini sp because of the composition of stocks that makes up the index. The nasdaq index includes a large number of technology related companies, these stocks tend to be more volatile than the broad range of companies that make up the SP 500 index.

As a result of the high volatility and price fluctuation, the nasdaq 100 and the E mini nasdaq 100 futures index margin requirements are changed quite often, especially during earnings season when volatility is very high.

Since September of 2008 the E mini Russell has traded on the Intercontinental exchange and apart from all the other E mini contracts that trade on the Globex system at the Chicago Mercantile exchange. The ticker symbol for the E mini Russell 2000 futures contract is TF

The value of each contract is US$100 times the value of the Russell 2000 stock index, which means that an investor holding one of these contract will profit (or lose) $100 for every 1 point change on the Russell 2000 index. When the Russell 2000 is at 750.00, each contract is worth $100*750.00 = $75,000.

If you purchase 1 contract of E mini Russell 2000 at 765.00 and the next day it moves to 775.00, you have a profit of $1,000. Inversely, if the price dropped to 755.00 the next day, you would have a loss of $1,000.

The minimum price fluctuation for the E mini Russell 2000 index contract is .10 ticks or $10.00. If the E mini Russell 2000 trades at 750.10 and then rises to 750.50 it has a rise of .40 points or $40.00. If the contract decreases in value from 750.50 to 749.90 it would have lost .60 points or $60.00.

The initial margin and maintenance margin for the E mini Russell 2000 futures contract is $6850.00 and does not seem to vary as they do on the other E mini contracts traded on the Chicago mercantile exchange.

Emotional Triggers In Trading

Emotional triggers In Trading

Emotional Self-Awareness is being aware of “what” you’re feelings are; not “how” you are feeling.

Identifying people, things and events that trigger your emotions whether positive or negative is a first step to becoming emotionally self-awareness, especially in trading futures commodities. 

Following the simple steps below will help you identify your emotional triggers and enable you to think more clearly during emotionally charged situations.

The first step is to understand that you are responding to the primal “fight or flight” reaction when you are faced with a physical or psychological threat to your futures and commodity trading. It’s easy to see that negative emotions can result from physical threats, but there are also psychological threats that can trigger negative emotions and impact your futures trading negatively.

Thousands of years ago our emotional triggers were more likely comprised of physical threats our daily goal was to survive predators and hunt to survive. Today it’s safe to say that our hot buttons are typically psychological trading threats, these are more difficult to deal with because unlike a bear or a bore chasing you the threat is not visible.

When your brain perceives that someone has taken or plans to take one of these things away from you, then your emotions are triggered. Some of these needs will be important to you. Others will hold no emotional charge for you. Be honest with yourself. Which of these needs, when not met, will likely trigger a reaction in you? Identify the needs that you hold most personal to you.

• acceptance respect be liked
• be understood be needed be valued
• be in control be right be treated fairly
• attention comfort freedom
• peacefulness balance consistency
• order variety love
• safety predictability included
• fun new challenges autonomy

The reason you have these needs is that at some point in your life, the need served you. For example, your experiences may have taught you that success in life depends on maintaining control, establishing a safe environment in your futures commodities and other financial speculating or hedging. and having people around you who appreciate your intelligence.

However, the more you become attached to these needs, the more your brain will be on the lookout for circumstances that threaten your ability to have these needs met. Then your needs become emotional trading triggers.

At this point, you must judge the truth of the situation. Are you really losing this need or not? Is someone or something actively denying your need or are you taking the situation too personally?

If it’s true that something or someone is ignoring your need or blocking you from achieving it, can you either ask for what you need or, if it doesn’t really matter, can you let the need go?