The gap!!! Candlestick signals and the gaps are an investor's best friend. The signals themselves are the result of a potential change of investor sentiment. A Doji, a Bullish Engulfing signal, a Piercing signal, or a Bullish Harami occurring in an oversold condition is the indicator that has successfully shown a potential trend reversal. The simple logic of a gap up in price after the reversal signal is very easy to assess, especially if you understand what created the reversal signal and what creates a gap up in price.

If a candlestick reversal signal appears in the correct conditions, such as an oversold condition, what should be expected to confirm the signal? A bullish reversal signal would require seeing more buying coming into the position the next day. That provides the confirmation that a trend reversal has occurred, the Bulls are still coming into the position. When you add the factor that the prices gapped up after a reversal signal, you now have very strong confirmation the Bulls want to be in the position and they want to be in the position in a great hurry. That is exactly the type of place you want to have your funds, where the Bulls are trying to get into the position with great enthusiasm coming from an oversold condition.

If you recognize the chart patterns that demonstrate the potential of not only a reversal of a trend but a strong reversal, the candlestick investor gains an advantage of being in the right place at the right time at a very favorable entry level. As illustrated in the ITMN chart, being aware of the derivative Kicker signal allows for getting into strong price move trends at the most optimal levels. The gap up after the last dark candle was an indication new investment sentiment might be coming into the price. The gap up Doji signal demonstrated the first indication the Bulls might be coming into the trend. This set up would have at least alerted us to be ready to buy on continued bullish sentiment.

ITMN

The gap up the next day now creates the potential of one of the strongest candlestick signals. The Kicker signal! In this case a derivative of the Kicker signal; a dark candle followed by a gap up above the previous days open and forming an indecisive trading day. The next day, opening higher, now creates the potential for a Kicker signal. Will all signals create a 38% move in one day? Definitely not, but knowing the combinations of signal potentials based upon gapping prices, the candlestick investor puts themselves in situations where the probabilities are in their favor. Those probabilities now produce situations where participating in big price moves is much more feasible.

Gaps produce valuable information. They illustrate where strong buying forces are occurring. Applying that information to candlestick signals and patterns dramatically improves the probabilities of being in a profitable trade. Additionally, investment funds will be in situations that may not be affected by the general market moves. As can be seen in our recent recommendation, Novagold Resources Inc., a gap up through a perceived resistance level, and forming a Jay-hook type pattern continued to move the price positive on a day when the markets were down very heavily. Gaps represent buying or selling force. That force will likely override outside influences such as market conditions. Use this information to your advantage.

NG

Applying simple rules in combining candlestick signals and gaps makes for an extremely profitable trading format. Keep in mind, candlestick signals and gaps are your best friend. It does not take very long to learn the logic that creates very big price moves.

Chat session tonight for members 8 p.m. ET

Good investing,

The Candlestick Forum Team