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Stock Market Volatility

 

Stock market volatility is what makes trading work. Market inefficiency occurs when traders and investors do not have time to do fundamental analysis or complete technical analysis with tools such as Candlestick charting. This can lead to wide swings in stock prices before technical analysis catches up and the sort of stock pricing predicted by stock fundamental analysis reasserts itself. During the time of volatility and market inefficiency traders can often effectively scalp on the upswings and downswings of stock price.

Long term investing hates volatility and day trading likes it. Having a stock trading strategy in place before unexpected news of a takeover bid or product recall sends a stock into a tailspin will help the day trader take advantage of swings in stock price. Stocks that usually trade within support and resistance zones can break out to the upside or downside. If the day trader is in a profitable trade as the breakout occurs he or she can ride it to a nice profit. If he or she is caught in losing trade in these situations, stop loss strategies are necessary to reduce investment risk.

Even over the longer term, taking advantage of stock market volatility and stock volatility are what can enrich the savvy investor. An investor can place a limit order which is to buy at or below a given price or sell at or above a given price. If he or she expects market movement but does have to time to watch the stock price all day long, a limit order good for the day or forever can be placed to buy stock or sell stock taking advantage of stock market volatility.

Market volatility and fluctuations in price can be helpful to the long term investor too. Long term investing takes advantage of even longer term swings in stock value, watching the price to earnings ratio of a stock and analyzing fundamentals. In value stock investing an investor will see a discrepancy between a stockís fundamental value and the stockís predicted worth going forward. Often times a wise investor will pick up on a stock before stock market volatility hits, have stock picks and purchases in place with limit orders, before prices start to fluctuate.

Technical analysis software, programmed with data from past market experience will pick up patterns imbedded in market volatility and help the trader use technical analysis indicators to profit from swings in the market with large trading volume. Knowing and using Candlestick charting techniques to be able to see Candlestick pattern formations is a time honored and effective means of letting the marketís movements in periods of volatility predict its future actions. Candlestick trading tactics can be very effective, leading to profits in high market volume and price volatility. As with all stock market trading tools the trader needs to learn Candlestick basics in order to most effectively use these tools when the opportunity presented by stock market volatility presents itself. Staying current with the action in various market sectors and having a trading strategy firmly in place can lead to substantial profits. It just takes being there at the right time, well practiced, with the right tools. Now, go back and review your Candlestick basics.


Market Direction: One of the most powerful elements of candlestick analysis is the ease of analysing a price trend. This is step one for pulling consistent profits out of any market. Utilizing the information built into each candlestick formation allows an investor to get much more accurate readings on what a trend is doing. This is not a difficult process, but it is an important process for putting the probabilities greatly in your favor. Have you ever noticed how many fundamental research analysts recommend a stock but do not take into consideration its current direction. This can greatly diminish a portfolio's results. Just because a company has been analyzed to have very strong fundamentals, that does not necessarily mean the timing is right to buy.

The stock market provides that extra layer of probabilities. The indexes are a measure of what the overall investor sentiment is doing. It becomes a very simple process. If it can be analyzed the markets are moving up, it can be just as easily analyzed which sectors are moving up with the most strength. From there, simple candlestick scans will  indicate the strongest individual charts of that sector. This is how to put all the probabilities in your favor. There are very easy confirming indicators to use along with candlesticks signals. To evaluate the direction of a market move is merely taking the common sense information built into each signal and piecing that information together. When applying logic to a trend analysis, evaluating the correct trend direction becomes a simple process.

Dow

NAS

Candlestick analysis is not merely identifying trend reversals. It also is a valuable tool for identifying the continuation of a trend and/or a profitable trade. Have you ever taken profits too soon? Candlestick analysis greatly alleviates that problem. How do you know when a trend is merely experiencing profit-taking versus a full-scale reversal? Simple trading techniques allows an investor to take advantage of the information found in candlestick signals. You will be amazed how simple some of the profit-taking techniques becomes when interpreting what the candlestick signals are revealing. Not only does this produce better profitability, but it also gives much better control for each investor to analyze what they should be doing. This is a very important aspect to investing. Many investors do not have a well-defined investment program. Candlestick analysis produces built in disciplines based upon statistical  results the signals and patterns have produced over the past few centuries.

When you have visual clarity of what investor sentiment is doing, that becomes a much more powerful form of analysis than most technical trading methods. Candlestick analysis does not indicate what 'might' happen at specific technical levels, the signals reveal what is actually happening at those levels. This information allows for much quicker trade reactions. Whereas many technical trading programs require confirmation of a possible reversal, candlestick signals is the confirmation there has been a change of investor sentiment. As illustrated in the February live cattle chart, it becomes visually obvious where the buy signals are occurring and support levels and sell signals were occurring at resistance levels. Note how the second time the price reached the 200 day moving average, a Doji formed at that level. Was this time to take profits or time to add to positions? Knowing the simple rules apply to a Doji, the positive trading the following day should have instigated buying additional positions. Why? Because the direction of a trend is usually going to move and how they open the price after the Doji. Positive trading the next day revealed the direction of the trend continuing. What was the significance? It revealed the 200 day moving average was not acting as resistance anymore. Continue to hold long positions until you saw a confirmed sell signal.

Live cattle

These basic rules of candlesticks allows an investor to establish a trading program with a high degree of discipline. This creates the second aspect of successful trading. The first is knowing what to look for making profitable trades. The second aspect is knowing how to use that information correctly.

The Candlestick Forum Online Training February 20 and 21st - This will be last call for anybody interested in learning candlestick analysis correctly, thus learning how to invest correctly. Take advantage of this inexpensive and comfortable format for learning the most proven investment technique known to man. It has not been in existence for hundred years because it 'might' work. Candlestick signals have proven themselves to work very effectively. The process now becomes learning how to use them correctly. You do not have to leave your house.

Wouldn't you like to be able to tell everybody that you learned how to use candlestick signals correctly? That you learned valuable investment insights from Mr. Bigalow while in your pajamas? How he got in your pajamas, you do not know. But you now have a completely different perspective on how to evaluate price moves. Join us this weekend. This is information that will make you think in a much different direction than you have been taught previously. The only difference will be that you will start making money from the markets. Click here for more information.

Also, If you need to use the payment plan, e-mail Abraham@candlestickforum.com,

Chat session tonight at 8 PM ET, learn which signals and price patterns are working most effectively in these market conditions. Bring the kids, teach them how to learn to invest at a young age. Not that our ages, where it is much more difficult to unlearn what we have thought was correct investment information and then re-learn the correct way to invest.

Tina Logan will be presenting next week, February 25. Mark your calendars! She presents trading information that most investors need to know. Do not miss next Thursday's chat session.

Good investing,

The Candlestick Forum Team


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