Gap Analysis - Big profits with candlestick signals

The correct gap analysis for price movements can produce extremely large profits. One of the major advantages of candlestick signals is that it allows in investor to interpret the investor sentiment after a gap up in price. Being able to recognize strong buy patterns through gap analysis produces a very powerful trading format. Gap analysis includes gaps up in price after a major candlestick signal as well as evaluating a breakout candle. Being able to utilize the information conveyed from the candlestick formations allows an investor to exploit entry positions with maximum benefits.  Candlestick charts reveal these opportunities

Candlestick signals provide two major functions for extracting profits from trading markets. The most common use is having the ability to identify trend reversals. Reversals can be witnessed in index trends, sector trends, and individual stock prices. They can also be used for analyzing other markets or trading entities that can affect the trading markets an investor is directly participating in.

Another highly profitable function of candlestick signals is using gap analysis for strong trend reversal situations or breakout situations. The analysis of a gap is very simple. It is a graphic illustration of the investors wanting to get in or out of a trading entity with such enthusiasm that it gaps the price away from the previous trading range of the prior time frame/day. In the case of a gap up from a candlestick signal at the bottom of a trend, the buying enthusiasm is apparent. This is the exact type of trend in which an investor wants to participate. A price in an oversold condition, demonstrating a candlestick reversal, followed by massive buying. Does a candlestick buy signal in an oversold condition, followed by a bullish candle illustrate a high probability reversal situation? Certainly! But what would be better? Witnessing a candlestick buy signal in an oversold condition followed by extremely strong buying, a gap up in price. Extremely large profits can be made in a portfolio when successfully utilizing gap analysis.

Breakouts - Breakouts illustrate a very strong change of investor sentiment towards a trading entity/stock. A specific announcement or a world event can create a dramatic change for a company's future. Unless an investor has the time or the immediate accessibility to a very large research staff, most investors will shy away from a price move that may be up 20%, 50%, 100%, or greater. However, utilizing candlestick signals, an investor can successfully evaluate whether to, and when to, get into a stock position after the price has broken out. The information incorporated into candlestick signals makes the analysis of when to get in to a large price move very easy.

Breakouts for specific stocks are usually induced by an announcement directly related to the company's future. The announcement usually pertains to things such as breakthroughs in technology or huge contract situations that should affect the cash flow of the company for a long time to come. The study of breakouts can be put into very simple steps. How does the announcement affect the future of the company? What did the candle formation on the day of the announcement indicate as far as investor sentiment? Will the results of the announcement be a short-term or long-term benefit to the company? All these questions can be very easily answered. The first function of the candlestick signals is to illustrate what investor sentiment conveyed at the end of that first day.

The Candlestick Forum provides an information filled CD training investors how to interpret what the signals represent on a breakout day. The step-by-step process for analyzing breakout situations is not a difficult procedure. Once an investor learns how to interpret what should be done after witnessing a breakout, they put themselves in a position to take advantage of huge price moves when other investors are skittish. Investing in the stock market requires knowing what will produce high probability returns for the portfolio.Employ the knowledge found on the Candlestick Forum "Breakout Pattern" training CD and take advantage of huge gains that can be produced in the investment markets. Click here for more information on the Breakout Pattern special

A good illustration of a breakout can be seen in the Align Technology Inc. chart. What happens after a very strong price move? Somebody is going to take profits. The best news in the world can move a stock price but at some point, a certain number of investors will want to take their money off the table. When do the stock price goes straight up? When will stock price show profit-taking? That is what the candlestick signals illustrate with great clarity. Notice in the ALGN chart, that after an extensive price move, a bearish Harami indicated that the buying was temporarily over. When would that profit taking be finished? That is what the Doji, followed by a Bullish Engulfing signal, illustrated with a high degree of probability. Having the visual knowledge of what investors are doing allows for entering a trade without feeling like one is just shooting in the dark.

 When the profit  taking stops, the optimal time for entering a trade can be identified using candlestick signals. Being familiar  with other candlestick patterns  allows an investor to anticipate where the next price move can go to. When learning the stock market, an investor should take advantage of all the indicators that will put the probabilities in their favor.

Market Direction - The big downdraft day of last Friday was the result of fear of the Iranian situation. Whether the rumors were justified or not does not make any difference. The rumors were that the Iranians were calling in assets from the worldwide markets in case there were sanctions put on that country. Also there were rumors that they wanted to cut back production of oil to let the world get a taste a $100 a barrel oil. Whether any of that is true or not, the bullish investor sentiment that was witnessed in the first couple weeks of this year was negated. The Dow closed below the open of the big bullish day of the first trading day of the year. What will this do to the market direction?

The appearance of a bullish Harami the following trading day illustrated that the selling had stopped. But what needs to be seen from this point? For the past three trading days, although slightly positive, investor sentiment has not shown any great bullish signs after the downdraft. This makes the analysis of potential market moves relatively easy. Stochastics are getting toward the oversold area. However they aren't quite there yet. The DJI is trading midway between the 50 day moving average and the 200 day moving average. Unless the Bulls can take control of the market, closing prices more than halfway up the large dark candle of last Friday, the 200 day moving average could become the next target. In situations such as this, it is not unusual to see the market try to bottom out after a big down move. However, after three or four days of trading, if the Bulls can not take control, a next wave of selling will come into the markets. This becomes more evident when able to recognize candlestick patterns.

Another wave of selling in the NASDAQ may not take prices down to the 200 day moving average but they may test the 2200 area, the low at the first of the year. The stochastics in the NASDAQ still have a ways to go to reach the oversold conditions. If buying stocks in this area, be prepared to close them out immediately upon seeing the markets come back down through recent lows.

Speaking sessions - Mr. Bigalow will be speaking at the Tampa cornerstone club on Saturday, January 28 from 9 a.m. to noon. It will be webcast to all those that would like to participate. Instructions on how to get into the webcast will be available on the Candlestick Forum home page.

Sunday morning, January 29, he will be speaking at the Fort Lauderdale investment club at 9 a.m. to noon. These will be free sessions ( except for the fees for the rooms at the door ) please come and join us.

Chat sessions- We will do an open chat session Thursday night January 26, open to everybody. The Monday night chat session January 30, for members will be canceled due to traveling conflict.

Good investing,

The Candlestick Forum Staff

Newsletter - Gap Analysis with candlestick signals - January 25, 2006

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