Profitable Technical Analysis With Candlestick Chart Formations
Candlestick signals present an easy and profitable visual technical analysis process. Chart formations allow an investor to evaluate when it is time to buy, time to hold, and time to sell. Most technical analysis programs provide areas of possible reversals. Candlestick chart formations produce immediate information. It allows a Candlestick investor to interpret the results of investor sentiment at crucial potential reversal levels.
The purpose of technical analysis is to provide scenarios for an investor to anticipate a high probability trade situation. The information incorporated into Candlestick signals makes evaluating chart formations a highly informational process. That information can be applied to identifying when to hold through pullbacks in a trend.
Netease Inc. is an excellent example of how to use Candlestick technical analysis effectively. The use of Candlestick chart formations produced the analysis that provided high profit trade. The Morning Star signal created the initial buy. The chart formation was additionally confirmed with the signal forming right on the 50 day moving average. The obvious resistance level, at the $60 area, becomes the next point of analysis. The analysis becomes simplified with Candlestick signals. Had the price showed a confirmed Candlestick sell signal at that resistance level, it would have been obvious that the sellers were once again at that level. It was time to take profits.
A breach of that resistance level would have indicated that a new dynamic had come into the price of the stock. If and when that occurred, technical analysis would have projected that the price would move to the past high level. The chart formations indicated that a peak had occurred in October of 2003 at the $71 area. That becomes a new target.
The fact that the price gapped up through the $71 area now requires new Candlestick technical analysis. As illustrated in the Candlestick Forum's “Gaps at the Bottom” and “Gaps at the Top” training CDs, the information provided by the gap up in price becomes a valuable analytical tool. The gap-up demonstrates a dramatically strong element in investor sentiment. Being able to evaluate how the gap will affect future trading allows for extracting additional profits out of the markets.
Trading above a gap level, a gap level that breached one or more major technical levels, has new implications. This high profit pattern can be exploited profitably. Notice after some initial profit-taking after the gap up, the Candlestick signals, a Spinning Top and a Doji, illustrated that investor sentiment was indecisive when prices came back to the level of the price when it gapped up. This information becomes relevant for projecting whether the price is going to come back and fill part of the gap or support at the top of the gap.
The evaluation can be made correctly after the appearance of Candlestick signals. Having the knowledge of what is likely to occur after a Spinning Top and/or a Doji chart formation makes for an easy analysis for the Candlestick investor.