• Not developing a stock trading plan – A stock trading plan is your map leading to investment success. This investing error is like traveling to a new location without knowing where you are going or what means of travel you are taking. You simply cannot be successful in the stock market if you don’t define your goals and plans.
  
  
• Not following your stock trading plan – Really, if you took the time to map out your future and define your goals and plans for investing in the stock market, how big of a mistake do you think it is not to follow your plan? This is worse than not having a plan because it usually involves a staggering “in and out” approach where you follow for a while, then stray, the return. This is so inconsistent that you cannot build any real success with your investing.
  
  
• Not performing technical analysis - Technical analysis provides the proof an investor needs to be sure a company is worthy of his or her investment dollars. Without doing stock technical analysis, an investor’s investing error has just reduced trading to the level of buying a lottery ticket and hoping for a win.
  
  
• Doing too much technical analysis – This is opposite of the previous investing error. An investor who never holds on to a stock too long or doesn’t buy at the best price because he or she is consumed with excessive research is not going to be a successful trader. Follow your trading plan, use a stock trading system like Japanese Candlesticks and perform enough analysis to confirm your purchase and then move on it. Waiting too long can cause you to lose profit or pay too much because of your delay.
  
  
• Not diversifying your portfolio – Portfolio diversification is important because a portfolio that it too heavy in one or two holdings or a single stock sector is vulnerable if a catastrophic failure hits in one area. Who would have thought that Enron or WorldCom would have come crashing down like they did? If you had all of your holdings in these two companies, your investment error probably left you with nothing to show for your troubles. Spreading out your portfolio helps you avoid that trap.
  
• Falling prey to unrealistic expectations – Investing only in companies that promise triple digit returns is an investment error that is a recipe for disaster. Fortunes are made by having a strong portfolio that allows you to take chances when you find a potentially dynamic stock. Investing only in the next hot stock will probably leave you on the outside looking in some day.

Conclusion
Investing in the stock market isn’t rocket science but it does require an investor to be diligent, prepared and wise. You will get plenty of “how to” advice but this “now not to” advice can help you build a solid footing while you learn to invest in the stock market and avoid investing errors.

Candlestick signals eliminate the emotional evaluation. A perfect example is in the DNDN chart. Candlestick signals created a perfect buy situation. A Doji followed by a bullish candle in the oversold conditions! The next few days demonstrated strong bullish sentiment, making for a good profitable trade. But note the long legged Doji after prices gapped up. A Doji by itself would not have warranted any profit-taking when the stochastics were still in an uptrend. However, the Japanese Rice traders say that a Doji always needs to be heeded. It represents indecision. Another simple rule is they will usually move the trend in the direction of how they open the price the next day. The operative word is "usually".

DNDN

A candlestick signal demonstrates a potential change of investor sentiment. One signal creates the opportunity for a trend change to occur. A second reversal signal provides that much more evidence the trend has changed. As seen in the chart, a gap up Doji followed by a Bearish Engulfing signal, despite the fact that stochastics were not in the overbought condition, was more than enough visual confirmation the sellers were taking control. This is a simple signal combination that is produced by common sense investment practices. Take profits. At worst, the signals can also illustrate if and when the sellers have lost control. Another bullish signal would reveal when to be back into the trade on the long side. You can always buy back into a trade when the signals reveal that the profit taking is over. The point of investing is placing your funds where the probabilities are constantly in your favor. Witnessing candlestick sell signals in any condition of a trend should take precedence.

Candlestick signal combinations create a higher degree of credibility when witnessed in the correct conditions of a trend. Note in the PGIC chart how the common sense analysis of candlestick signals creates a proper time to take profits. The buy signal is initially established with a gap down Doji in the oversold condition. When do most investors sell? They panic sell at the bottom. Where did most investors buy? They buy exuberantly at the top!

PGIC

When the buy signal appeared at the bottom, the long legged Doji, what becomes a viable target? The 50 day moving average. Do we sell when it reaches that level? The 50 day moving average is merely a potential target. The candlestick signals will demonstrate when it is time to buy and when it is time to sell. As seen in the PGIC chart, but gap up Shooting Star/Doji was a clear possibility of exuberant buying as stochastics near the overbought condition. A Bearish Engulfing signal following the gap up Doji was strong evidence the 50 day moving average was not going to be reached on that price move.

Candlestick reversal signals are statistical analysis put into a graphic depiction. Go with what the signals tell you. You will be when correct in your investment decisions going with the signals than going against them. This is not rocket science. This is merely implementing investment observations that have worked an inordinately high percentage of the time through the centuries.

The hard selling of today has breached some obvious support levels. The Dow closed just above the trading line. However, the NASDAQ breached the trading line and closed right on the 20 day moving average, which had been acting as support in the early part of this uptrend. Further weakness on the open tomorrow was stimulate taking more profits.

NAs

Chat session tonight at 8 p.m. ET. Tonight's discussion will concentrate on putting more than one signal into an evaluation. Click here for instructions. 

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