Stock Trading Methods, Do They Work?
Over the past 10 years, the number of stock trading methods that have been revealed on the Internet has exploded. Everybody promotes their stock trading methods that are reported to have been working. It seems surprising that these stock trading methods didn’t seem to be around before the internet showed up.
There are always the fantastic claims about the returns that these stock trading methods are producing. Yet you never find anybody that has been participating in these fantastic returns. That becomes another learning process in most investor’s investment education. The one basic rule, in regards to investing, is that when you find something that works consistently, continue to use it and try to improve upon it.
Candlestick analysis investing is most tested and proven investment methodology. It has been in existence for hundreds the years. The one predominant point that is demonstrated on the Candlestick Forum site is that the candlestick patterns put the probabilities of being in a correct trade highly in your favor. Are you going to get rich quick with candlestick signals? Are you going to make money on every single trade you do with candlesticks? Probably not! But you will have the opportunity to use a stock trading method as a framework for producing consistent profits. The common-sense rationale that is used for forming the signals allows you to develop investment strategies that can implement new computer-technology processes and/or establish optimal timing strategies for fundamental research recommendations.
When you learn how to utilize the candlestick signals correctly, you now have the knowledge that will improve your trading techniques for whatever trading entities you want to trade. You do not have to depend on canned programs that sometimes work and sometimes don’t work. You do not have to buy or sell stock recommendations blindly when a research analyst recommends a stock. The candlestick signals give you guidance as to what investors are actually doing at that point in time. There is something in the dynamics of Candlesticks. Learn them and your investments perceptions will be improved for the rest of your life. Utilizing candlestick charts will greatly improve your analytical abilities
Market Direction – The NASDAQ had a hard time getting through the 50 day moving average. At the same time, Thursday, the DOW did a bearish engulfing signal. Thursday confirmed the selling after they’d tried to push it up through the 50 day moving average one more time in the Nasdaq. The lower open on Friday confirmed the selling, or the lack of buying at the 50 day moving average area. The stochastics also were starting to turnover in the overbought area.
Note how the Doji just touched the 200 day moving average, showing weakness at an important level. Also notice how the Doji/Harami revealed the buying starting five days earlier. Again, this is to illustrate that when you see a Candlestick signal at an important technical level, this acts as an additional confirmation that something important has occurred at those levels when combined with a Candlestick signal.
As you have seen in the “morning comments” and more specifically in the member “market comments”, it has been recommended for the past few days to be taking profits in the weak “long” positions and start adding to the short positions. This was nothing more than witnessing potential candlesticks sell signals occurring at important resistance levels. Over the past few days, a portfolio would have been shifting from being predominantly long, equally balanced, and then predominantly short. This makes moving with the trends an easy process.
Where does the market go from here? The next logical target for the NASDAQ is to come back down and touch the 50 day moving average. The first logical target for the Dow would be the trend line coming up through the recent bottoms. Does this mean the markets are going to go there? Who knows? However, it is what everybody else that is following technical trading would logically deduce. We have the advantage of knowing what the candlestick signals tell us is happening when they get to these levels, we can identify what the investor sentiment will be at those points. For now, the probabilities tell us that we probably want to be out of a long positions and adding a few short positions for the next few days.
This past week, FRED produced a Dark Cloud signal. This occurred as the market was getting toppy. The Dark Cloud is one of the major signals. It reveals that the uptrend now has some selling pressure. Thursday, FRED announced very strong sales growth. This becomes a clear visual lesson that the anticipation of expected results is what moves stock prices. When you look at the FRED chart, it can be safely said that the expected strong sales growth was built into the stock price beginning on September 1. But as can be seen, the good news did not overpower the effects of a Dark Cloud signal. The signals tell you do what investor sentiment is actually doing. The Dark Cloud, as described in the “Profitable Candlestick Trading” book, represents a trend coming to an end.
DARK CLOUD COVER
(Kabuse)
Description
The Dark Cloud Cover is the bearish counterpart to the Piercing pattern. The first day of the pattern is a long white candle at the top end of a trend. The second day’s open is higher that the high of the previous day. It closes at least one-half way down the previous day candle, the further down the white candle, the more convincing the reversal. Remember that a close at or below the previous day’s open turns this pattern into a Bearish Engulfing pattern. Kabuse means to get covered or to hang over.
Criteria
- The body of the first candle is white, the body of the second candle is black.
- The up-trend has been evident for a good period. A long white candle occurs at
the top of the trend.
- The second day opens higher than the trading of the prior day.
- The black candle closes more than half-way down the white candle.
Signal Enhancements
- The longer the white candle and the black candle, the more forceful the reversal.
- A higher the gap up from the previous days close, the more pronounced the reversal.
- The lower the black candle closes into the white candle, the stronger the
reversal.
- Large volume during these two trading days is a significant confirmation.
Pattern Psychology
After a strong up-trend has been in effect, the atmosphere is bullish. Exuberance sets in. They gap the price up. The bears start to show up and push the price back down. It finally closes at or near the lows for the day. The close has negated most of the previous days gains. The bulls are now concerned. They obviously see that the uptrend may have stopped. This signal makes for a good short, with a stop being the high of the black candle day. Notice that if the Dark Cloud Cover were to close lower, below the open of the previous day, it becomes a Bearish Engulfing pattern. The Bearish Engulfing pattern has slightly stronger bearish implications.
To better learn what the 10 major signals in candlestick analysis are, and where the best places to use them effectively, the 55 minute video “ Major Candlestick Signals” is available on the site. This video gives you a comprehensive overview of how to use those signals effectively. It provides an excellent visual lesson on how to evaluate where the signals work for maximizing profitable returns. For more information on the Candlestick Forum’s "Major Candlestick Signals" video and our other educational CDs and DVDs, please visit the "Products and Services" section of our site.