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Stock traders seek to multiply their profits using investment leverage. Investment leverage takes two basic forms, borrowing and use of derivative contracts. With the use of a margin account in stock trading, traders borrow up to fifty percent of the capital used in trading stock. The other form of investment leverage consists of using derivatives such as stock options or futures. In each case traders increase their return on investment in a winning trade and in each case they multiply their losses in a losing trade. In order to profit from investment leverage a trader needs first to engage in more profitable trades than unprofitable ones. A trader who carries out diligent research, fundamental analysis, of stocks is more likely than others to profit in stock trading. Using Candlestick analysis a trader can profitably anticipate stock price movement, market trends, market reversal, and individual stock price reversal. As stock price patterns repeat themselves Candlestick traders profit by reading these signals and trading accordingly. Using a combination of fundamental and technical analysis along with investment leverage strategies can be profitable. Neglecting the use of technical tools such as Candlestick pattern formations or the fundamental analysis of stocks can only lead to magnified losses when using investment leverage.
Traders can use a margin account in order to increase their investment leverage. The typical limit is fifty percent of a trading account. The trader borrows money from the stock broker when trading. He pays interest on this borrowed money. In a quick and profitable trade he doubles his profits and pays only a small amount for the short term use of the extra money. If the trader has a series of bad trades he may use up his own money and some of the borrowed part of his margin account. Then he will receive a margin call from his broker. He will need to replenish the margin account or the broker will execute trades with his stocks in order to pay back the money borrowed. Thus, the trader needs to consider investment risk in each trade in order not to unnecessarily multiply his losses and lose his trading capital. Traders who diligently follow Candlestick chart patterns reduce their risk of making bad trades and improve their chances of successful trades.
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