Economic comment and media hype direct and create commonly held views. Once a market believes in a commonly held view, it will eventually break sharply against that view. The size of the move in the opposite direction is a function of the level of disappointment in the coming reality. In other words, a gap forms between what public consensus expected to happen and what actually happens in reality.

By observing events, savvy futures traders can make money on the developing gap in two ways:

1. by patiently waiting as consensus builds, then acting as the break in consensus occurs, or
2. by aggressively searching for the contrary scenario that will precipitate the break.

As the public grows disenchanted with the inability of the consensus view to live up to expectations in reality, it will try to protect its investment by moving in an opposite direction. By acting at the point of greatest confusion — the point at which the market starts to turn but before it is in full retreat — can profit, often significantly. The stampede against the formerly held consensus creates a new trend which grows, building a new consensus about the correctness of this new path. Despite the stunned pronouncements of television commentators, who seem to be perpetually caught off guard, the cycle endlessly repeats, creating price points on which savvy futures traders can make money.

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There are other charting techniques that provide futures traders with more information than candlesticks. Their allure lies in their ability to visually show traders which way the market is trending — bull or bear — and which way it is about to trend. Knowing which group controls the market — and, more importantly, which group is about to control the market — gives futures traders a significant trading advantage. Successful futures traders consistently trade with the market trend. Basically, in a bull market, you want to buy. You sell in a bear market. Knowing which way the market is going to trend allows you to enter and exit the market at the front of the pack where the profits are greatest.

The strictly vertical Japanese candlestick is simply easier to interpret at a glance than the armed column of the Western bar chart. Candlesticks emphasize the relationship between the opening and closing prices with a cylindrical body, called the real body. The top and bottom of the cylinder represent the open and close with the two wicks –one extending from the top, one from the bottom of the cylinder — indicating the extreme high and low prices of the period. It is the range between the opening and closing prices more than the prices themselves that tells a trader whether the bears or bulls are in control of the market. Candlestick charts make this instantly obvious.

The color of the cylinder also provides futures traders with immediate information about market movement. When the bulls are leading the market, the real body (cylinder) will be white. White is a light color, so think of it as also being light in weight, of rising upward. Therefore, any white or light-colored candlestick represents an uptrending, or bull, market that favors buyers. Conversely, when the bears lead the market, the real body will be black. Think of black as a dark, heavy, sinking color. Black or dark colored candlesticks represent a downtrending, or bear, market that favors sellers. A candlestick that looks like a Western bar with no real body, indicates a market that opened and closed at the same price. In other words, the bulls and bears fought to a tie.

The media is quick to focus on the emotional volatility of the populace, and in doing so, often fans the flames of public opinion, increasing emotional panic simply by reporting it. An excellent example is the subprime mortgage disaster in the home loan industry. When first reported with big, black headlines and dire warnings, the reality was that only a small percentage of the total number of mortgages had been made to subprime lenders, and only a tiny percentage of those were actually moving into foreclosure. Initially, most realtors and loan industry officials were not particularly worried and saw what was happening as an uncomfortable but necessary real estate market correction after several years of wildly inflated housing prices.

Widespread media coverage frightened many homeowners, realtors and lenders, leading to all out panic in a fairly short time. The media started issuing dire predictions that the disaster would affect the economy and the market responded. As a broad group, the “people” have always demonstrated a herd mentality. It’s what drives trends. One person acts uniquely, others think he must be on to something important and are quick to follow suit. A trickle turns into a stampede and pretty soon the herd is on the move!

That’s what happened in our subprime example. By constantly increasing its focus on the subprime problem, by continually predicting negative economic repercussions, media attention actually increased public panic, which affected the markets, which impacted the economy, which increased public panic … and so on in a vicious cycle. By dint of its overzealous attention, the media helped the disaster it had forecast become reality.

Futures traders need to look beyond the media hype and dispassionately observe the movement of the market. Don’t allow yourself to get caught up in the emotions of the herd. Trust yourself, trust your system and stick with it.

• There are some days when the demands and pressures of daily life — a fight with the spouse, that fender bender last night, a problem with one of the kids, a leaky roof, a meeting with your banker, etc. — will take up so much of your mental and emotional energy that you simply can’t concentrate. Don’t fight it. If you can’t concentrate fully, don’t trade.

• You may just feel uneasy for no explainable reason. The day may just feel “off” to you. If things don’t feel right mentally, no matter what your logic tells you, sit the day out on the sidelines. Lost opportunity is better than lost money. Don’t take a chance. If it doesn’t feel right, don’t trade.

• Successful traders practice good money management. If you’re trading with money you can’t afford to lose — mortgage money, retirement funds, life savings, money borrowed from a friend or relative, etc. — you’ll be trading scared. The pressure of what will happen if you lose the money will negatively affect your ability to trade successfully. You need a clear head — and a clear conscience — to trade at your best. Don’t trade scared. If you can’t afford to lose the money, don’t trade.

It takes more than knowledge to be a successful futures trader. You must have the self-confidence and courage to trade. Trading takes total concentration. If you can’t keep your head in the game, pack it in until tomorrow.

“Each specified period (that is, day, hour, 15 minutes, 5 minutes, 1 minute) is nothing more than a battle or mini skirmish between the only two groups of players in existence: the buyers and the sellers, better known as the Bulls and the Bears,” Velez explains.

Daily charts chronicle the battles in an ongoing war as first one side wins, then the other, until one side finally emerges victorious. Each bar on a chart represents a single battle in the never-ending war that is the market. Successful futures traders develop the ability to determine which side is winning. By aligning their actions with those of the winning side, they make money.

However, Velez cautions, “While one group can be winning the current battle (period), the other group can be dominating the war (the trend).”

The art of chart reading and the hallmark of a master trader is the ability to “consistently spot the moment just before one group takes control of the other,” Velez says. It is at that moment that fortunes can be made.

There are reliable indicators and chart patterns that can help you pinpoint the precise moment when the balance of power will shift. In my Futures Trading Secrets Study Course I teach you how to spot and trade high profit chart patterns, how to interpret price action and predict the next bar. In a series of video tutorials on two CD ROMs, I show you everything you need to know to trade with actual trade signals explained in real time and with signal-by-signal analysis! Of the people who buy my system, 87% report dramatic increases in profitability (click the link to read what our students have to say).