It’s safe to say that the stock market has its share of clichés. Sayings like “run with the bulls” and “buy high, sell low” immediately come to mind as well as “buy on bad news, sell on good news”. Of the three, the last one seems to have the most pertinent information; it almost sounds right. But unless you are day trading stocks, you probably won’t get much help from it.

This particular saying does has an essence of truth; Wall Street news, both good and bad, tends to move the market. The thing to remember is that neither the market nor experienced traders listen to old sayings. Success in the stock market is the result of dedication and adherence to investment fundamentals, not oversimplified sayings. So let’s go back a look at both the saying and the concept of investment fundamentals.

Investment Fundamentals
“Buy on bad news, sell on good news” is completely rooted in the theory that market adjusts whenever there is big news. The truth is that the market does experience stock volatility based on global events; the catch is that these adjustments do not usually happen exactly when expected and they typically do not last long. For successful traders to take advantage of such movements they have to be prepared, and being prepared means working on your investment fundamentals. Investment fundamentals include charting, fundamental analysis of your target companies and technical analysis of their stock position. Sounds like we have a little work to do, so let’s get busy.

Anatomy of a Market Move
The market is going along, doing what the market does; for the sake of our example, it is on an upward trend. You have some available risk capital and you are ready to begin investing in the stock market. It’s time to put your investment fundamentals to work. You have been thinking about buying General Motors or investing in a small engineering company that is involved in the aerospace industry. Both companies look really good; GM just posted a nice quarterly profit and earnings estimates imply that they will turn the corner this year heading back to profitability. The engineering firm, MEW Industries, is still relatively small but analysts have been buzzing about their aerospace work and how it is going to pay off in the stock market.

You look over your stock portfolio and realize that you have enough long-term investing positions to stabilize your portfolio so you decide to move on MEW Industries. You have been using candlestick chart analysis for some time and the signals indicate that it is almost time to move. You are waiting and watching when “it” happens.

It’s all over the morning news; the Democrats have started a committee to look into allegations that companies are overcharging NASA. No specific company is named but every successful contractor is a suspect in the eyes of the media. Because of this, even MEW Industries is mentioned. Suspicion mounts as the rumor mill grabs a tasty piece of political news.

As you would expect, the entire stock sector tumbles, taking MEW Industries with it. But this stock movement is different because you have been diligent with your investment fundamentals. You take a look at your research again just to be sure and there’s no doubt in your mind that this is only a temporary glitch and MEW Industries is primed to explode. With this in mind, you gladly take advantage of the temporary downturn feeling that you’ve just made a good deal.

Conclusion
This example was intentionally created to parallel the cliché above; the investor bought on bad news but for the right reason. This trader (you) took the time to follow the investment fundamentals and do some research. When the opportunity came, your fundamental and technical analysis paid off and you were able to make a great purchase. Without using your investment fundamentals, you wouldn’t know for sure if MEW Industries is having problems and is tempted to commit fraud against the government. Taking time to chart and analyze your investments before you make them gives you the courage to make deals based on investment fundamentals, not some popular stock trading cliché.

Market Direction:  If you know the direction of the trend of the markets in general, what should be the next a logical step? Finding the stocks/sectors that are going to produce the biggest potential profits. Where most investors have a hard time evaluating which way the market is heading, the candlestick investor retains a huge advantage for not only knowing the direction of the market, but being able to identify which stocks will have the best potential price movement.

Candlestick signals can be incorporated into price patterns that will show the continuation of previously strong price moves. The Jay-hook pattern is a prime example. The prerequisite for identifying a Jay-hook pattern is identifying a strong price move before some profit taking sets in. If that profit taking was induced by the pullback in the markets, and that pullback in the markets can be analyzed as reversing, then the probabilities of the continued strength in individual stocks can be anticipated. That anticipation becomes easy to verify using the candlestick signals. Indecisive trading signals on the pullback, confirmed with bullish candles makes the probabilities of a strong price movement after the short term pullback, the Jay-hook pattern, very viable.

Last Thursday night's training session, which is open to everybody, concentrated on the elements of a successful Jay-hook pattern. Knowing the simple rules of what a Jay-hook pattern should produce makes the analysis of what the next price move should do much easier. What indicates a potential Jay-hook pattern, where are the confirming points, what is the break-out level, and what is the new price potential, are all built into the patterns make up. Additionally, knowing the elements of the pattern makes stop loss points very easy to establish. Click here for last Thursday nights review on Jay-hook patterns.

The Hammer signal of last week revealed the potential of a double bottom in the Dow. The target was projected to be the 50 day moving average. The lack of the Feds doing anything with interest rates made the 50 day moving average target attainable in one day.

DOW

Candlestick signals reveal important information for how and when an important technical level is reached. The Dow just touched the 50 day moving average on Wednesday. The NASDAQ went through the 50 day moving average on a strong positive candle. Thursday's trading indicated some indecision with the Dow trying to get through that level, where as the NASDAQ used the 50 day moving average as support. This should be an indication that investor sentiment has not turn negative. It has to be assumed that the uptrend is still in progress until the signals indicate otherwise.

NAS

With the uptrend in progress, the charts that are forming strong patterns can provide the strong profits. ZOLT provides all the elements of a very strong Jay-hook pattern potential. A Morning Star signal followed by a gap up was the confirmation needed for creating the evaluation of a strong price move.

ZOLT

The accumulation of factors that are built into candlestick analysis produces a format for not only finding prices that are moving in the right direction, but also finding the combination of candlestick signal indicators that will produce large percentage profits.

April training session - April 14 and 15th Houston, Texas. Learning the major candlestick signals will benefit your investment capabilities for the rest your life. Learning how to use those signals with a very simple analytical process will dramatically improve your portfolio profits. Mr. Bigalow, with his 20 years of experience with candlestick analysis, will teach you the common sense analysis that allows investors to participate in the high profit trades and immediately close out losing trades. The insights gained from two solid days of candlestick analysis will bring all your investment perceptions to a very positive focal point. Have you spent years trying to discover an investment method that you can control? Do not miss this opportunity to see commonsense investment practices put into a graphic depiction. Candlestick analysis is not a fad. Candlestick analysis is not a sophisticated, highly calculated investment process. It is merely putting commonsense analysis of what investors are doing into the clear analysis. Come join us in Houston. You will gain more information and insights than you expect. Click here for the Houston training seminar information.

Chat session - Chat session tonight will be open to everybody with a look at another high probability pattern, the cradle pattern. Click here for instructions. A special training session will be scheduled this next week for day traders. Ricky Wayne would demonstrate some of his successful techniques for extracting profits from the markets on a daily basis.

Good Investing,

The Candlestick Forum Staff