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Investment and Trading Potential

Investment and trading potential usually do not arise from the same factors. Traders typically are looking for stocks, futures, commodities, and other equities that show some measure of fluctuation in stock price, commodity price, or futures price. The trader may be interested in trend trading or be looking for an abrupt and profitable market reversal. In long term investing one looks for strength and stability in investments. However, some of the best bets in value investing are stocks that are currently underpriced and due for a substantial and lasting upward correction. In this case the stock has both investment and trading potential. Long term investing depends upon fundamental analysis of the company or commodity involved. Shorter term trading relies heavily on technical analysis such as used in Candlestick chart analysis. However, both fundamental and technical analysis have their places in determining investment and trading potential of equities.

Investment potential of equities has to do with the equities, the market in general, market sectors involved and strategy. The ideal equity for long term investing is a sound company with a strong brand, competent management and dominant products. In todayfs fast moving world it is possible to have the best computer, software, medicine, or gadget for a year and to be replaced the next. No matter how good a stock choice is the stock may not survive a severe economic downturn. Choosing a stock with strength during down markets can be a major factor in long term investing. Choice of market sectors will help dictate whether the investor is looking for long term potential or medium term profits. Depending upon these factors the investor will devise an investment strategy and engage in investment timing. Even the best of investments can be made better by wisely using Candlestick pattern formations to decide when the best time might be to buy or to sell a medium term investment.

Trading potential often has more to do with overall market conditions than with intrinsic value of the equity. Traders prefer to see market movement or the potential for movement. Staying current with stock market news, especially news of specific market sectors can give the trader the insight necessary for buying calls, buying puts, or selling short for short term profits. Traders look for market volatility before intrinsic stock value and market inefficiency ahead of the promise of a dominant product. When investment and trading potential come together is typically when some factor promises to start a strong upward trend in a stock or commodity. The investor will hope to purchase early and then enjoy the dividends of a well chosen stock. The trader will attempt to buy early and then sell just before a correction. Both investor and trader will often take advantage of the investment and trading potential of trading options. Because in buying options the investor or trader is purchasing the option to buy or sell he or she is practicing good investment risk management while preserving the chance to capitalize on a substantial move in equity price.

Market Direction: The Japanese Rice traders developed candlestick analysis with common sense being the basic premise.This made the analysis very simple. The visual aspects of candlestick analysis clearly demonstrate when there has been a change of investor sentiment. Applying very simple rules to the analysis created extremely high probability entry and exit strategies. This was demonstrated in our recent recommendation of DCTH.


DCTH exhibited a Bearish Left/Right combination. This is a very powerful candlestick reversal signal, a Doji followed by a Bearish Engulfing signal. Note where the signal occurred. A Bearish Left/Right combination occurred at the end of April at the same level. This would have been the first piece of evidence that it was time to take profits. If the position wasn't closed at the end of the Bearish Engulfing Signal day, it should have been closed immediately the following day. A gap down in the overbought area after a candlestick sell signal is powerful evidence the bears have taken control. Even more evidence, but it closed below the tee line. Disregarding this information can put you in a bad profit situation as seen in the trading today.

The probabilities of a selloff after a bearish left/right combo is extremely high. To fight against those odds will greatly reduce the value of a portfolio very quickly. When prices are trading below the tee line the probabilities are extremely great that a downtrend is in progress. Whether analyzing an individual stock or a market index, the rationale is the same.

The Dow formed an Evening Star signal On friday, revealing that the 200 day moving average was going to act as resistance. Today's trading continued the selling. The NASDAQ formed a kicker type signal on Friday. Today's selling was the continuation of that strong bearish signal. Both indexes are trading below the tee line after strong sell signals. Continue to hold short positions or short funds until a buy signal and a close above the tee line occurs. These simple rules will keep you in the right direction and in the right frame of mind.



Chat session tonight at 8 PM ET for members. Thursday nights open chat session will have Tina Logan presenting ' Identifying the Change in Trend Direction '

Good Investing,

The Candlestick Forum Team

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