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Successful Long Term Investment

What constitutes a successful long term investment? The obvious answer is that a successful long term investment makes money. Saying this is a little like the success stories that emerge after stocks make comebacks from the brink of bankruptcy or startups become household names. It is easy to see what happened in retrospect. The trouble is that reading about how Microsoft, Genentech, or Cisco went from an idea to huge prosperity in a generation is like the army preparing for yesteryear fs war. In successful long term investment, as in most things, the devil is in the details. And, yesterdayfs details are typically misleading in dealing with current stocks and stock prices. Those who prospered by buying Microsoft on the way up and selling stock in Microsoft when it leveled off were doing fundamental analysis of the stock and technical analysis of the stock market. Looking for a margin of safety in a stock reduces investment risk. Looking for and finding intrinsic stock value leads to success in long term investing. The cheaper an investor can buy stock the more successful the investment and selling stock at high prices also maximizes profit. Thus, using technical analysis tools also helps when buying stock as well as selling stock.

Successful long term investment means more than just finding low priced stocks. Picking stocks for the long term, requires an analysis of the companyfs long term prospects. It means finding stocks that are priced low according to their price to earnings ratio and price to sales ratio. Companies that have good products, good research and development, and good penetration of their market sectors are likely to be money makers into the distant future. Successful long term investment also means continual reevaluation of a stock portfolio. If the investor buys a stock based upon a low price to earnings ratio and the market decides that the stock is a good buy the stock price may run up substantially. At that time the investor may consider selling the stock instead of holding it long term because it has become an over priced stock. The trader who is watching this stock may consider short selling in advance of a price decline. Likewise by buying puts on the stock a trader could profit when the price of the stock readjusts to a more realistic price.

Successful long term investment is not just finding the perfect stock and buying it. Successful long term investment is a lifetime occupation in which the investor constantly watches the stock market for investment opportunities. When an investment pays off the investor will typically choose to sell the stock, take the capital gains, and reinvest. By constantly searching for penny stocks, mid cap stocks and large cap stocks with the right mix of price and value an investor can make profits over the long term. In this sense successful long term investment is only buy and hold investing so long as the investments in the portfolio meet the criteria of expected long term return on investment. Successful long term investment does not disregard short term market moves. By use of technical analysis tools such as Candlestick analysis the investor can both enter and leave a stock position at the optimal prices.


Market Direction:  There is a qualifying feature found in candlestick charts that makes it much easier to utilize the other charting methods. The simplicity! Viewing a candlestick chart will have one impressive feature, it doesn't have dozens and dozens of indicators that need to be followed to make chart analysis successful. The major portion of viable information is built into the graphics itself. Each candlestick formation has an immense amount of information. That factor alone eliminates having multiple confirming indicators required somewhere else on the chart. The Japanese Rice traders incorporated the important information into simple graphics.

Additionally, not only are the signals easily identifiable, the explanation for how each signal was formed allows the candlestick investor to understand what was occurring in investor sentiment. This has very powerful implications. Being able to visually recognize what a trend is doing and understanding what is occurring in investor's minds when specific formations are formed provides the information to be thinking like the smart money thinks. When that occurs, investment emotions are greatly diminished. It makes it much easier to be buying at the bottom and selling at the top, contrary to what most investors do.

Although the Dow has been selling off indecisively for the past seven trading days, it has been selling off. Today's trading demonstrated the Bulls were still around. However, they could not bring the Dow up through the T-line. This demonstrated that although there was some bullish influence in the market today, it was not very strong.

Chart analysis should not be complicated. Candlestick charts have an immense amount of information conveyed without having to utilize large numbers of confirming indicators. Whether you are trading stocks, options, commodities, or tulip bulbs, you should be able to analyze what you're chart is revealing with minimal time and effort. The purpose of chart evaluation is to understand what is occurring in a price. Too often, investors spend most of their time and energy trying to figure out which confirming indicators should be utilized for a correct trend analysis. Candlestick charts alleviate that problem. The signal is the most important factor. An extremely small number of confirming indicators are then utilized to enhance the proper entry and exit strategies.

Chat session tonight at 8 PM ET for members, Topic = when to reenter a trade after taking profits.

Good Investing,

The Candlestick Forum Team


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