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Long Term Stock Profits

Long term stock profits depend upon picking stocks wisely. Long term stock profits, or short term ones, are also proportional to how much investors and traders buy stock for in the first place. Although an investor will wisely use fundamental analysis in choosing stocks for long term investing he will also be smart to use technical analysis tools such as Candlestick patterns in order to buy or sell stock at the optimal stock market prices. The concept in long term investments is to buy low priced stocks that have an intrinsic stock value. These stocks typically have a low price to earnings ratio. That is to say that the company is making money and the stock market in general has not yet caught on. When an investor spots a stock with a low P/E ratio and buys it he will often see a short term profit when everyone else recognizes the stock’s value and buy it too, driving up the stock price. However, the best way to obtain long term stock profits is to find stocks with the potential for substantial long term profits. It is the forward looking income stream of a stock that defines its intrinsic stock value.

An investor will not experience long term stock profits without picking the right stocks. However, the investor can earn proportionally larger long term stock profits based upon using limit orders, buying calls on stocks, and using Candlestick analysis to spot the ideal price at which to buy stock. It is the competent use of stock trading tools that an investor can buy at the bottom of a business cycle of after a brief market reversal and buy a great stock at a rock bottom price. Using limit orders an investor will never pay more to buy stock than he plans and will never sell for less that he planned. By buying calls on a stock the investor can have the option but never the obligation to purchase a stock at the contract price, the strike price, even if the price goes up substantially. Similarly the owner of a stock that is going up in price can protect his position by buying puts on the stock. In this way he will have the right but not the obligation to sell stock at the contract price even through the market price, the spot price, may drop substantially. For an investor interested in holding on to a stock for long term stock profits this strategy allows him to protect his position and repurchase at the new, lower, stock price for the long term.

Long term stock profits, when reinvested, compound, just like interest in the bank. However, long term stock profits can be substantially better than interest earned on bank deposits. An attractive option for long term stock investment is to take advantage of dividend reinvestment programs on dividend stocks. It is possible to have dividends immediately reinvested, often to the 4th decimal place, without paying brokerage fees. The investor will pay taxes on the investment but save on fees and commissions.

Market Direction:

There is a very simple indication that reveals the market trend has not reversed. The market indexes do represent different sectors of the market. Obviously the Dow represents major industrials. The S&P 500 represents the smaller industrials. The NASDAQ is more tech oriented. When the market is usually moving in a trend, these indexes will coincide a high percentage of the time. Todays trading showed the NASDAQ closing down 12 points while the Dow closed up 18 points. This does not show any major change of investor sentiment. It is when the Dow, the NASDAQ, and the S&P 500 all move in the same direction, opposite the current trend, that it can be assumed there has been a change of investor sentiment. Todays trading continued to show a good solid pattern in the Dow while the NASDAQ was taking a breather during an uptrend. Trend analysis is an extremely important element for analyzing how heavy one should be long or short. The visual aspects of candlestick analysis make it easy to identify which stocks/sectors are moving in a bullish or bearish direction. Although it has been stated quite often that the bigger money is made by going with the trend of the market, there will still be opportunities to make money in the opposite direction. However, the risk and reward factor become much more difficult when trying to trade against the overall trend of the market.

The big price moves usually occur after an extended trend movement. Their fundamentals have not gotten one iota better but investor sentiment has built up some steam. It is this enhanced enthusiasm that can be easily identified with candlestick signals. The signals themselves provide valuable information for when to be buying or selling a position. The signals work even more effectively when incorporated into a price pattern. Understanding when the price pattern is due for a breakout and being able to analyze whether the overall market trend is still continuing without a major change of investor sentiment, the probabilities of being able to identify and participate in a high profit move improves dramatically. The reintegration of a buy on MGIC today was based upon its breakout potential. Buying when a breakout should occur as very strong ramifications for when to be in a trade. Being able to visually evaluate how a price has moved to a resistance level becomes very important information as to whether it is time to buy or it is time to sell. As seen in the MGIC chart, investor sentiment had 2 to 3 weeks to rest up before pushing out past the recent highs.


A breakout into higher territory today was easy to anticipate. It had clearly been forming a J-hook pattern over the past few weeks. The T-line was acting as support. The stochastics had pulled back and has some new life available. Knowing what the candlestick patterns illustrate, it was not difficult to visually recognize the J-hook pattern set up. As MGIC opened positive today, it was also apparent the indexes were continuing to move positive. This made it easy to assume that a J-hook breakout had less probabilities of fizzling out because the trend of the market was continuing. This is not a difficult process to understand. It becomes very easy to apply when understanding what was occurring in investor psychology at the time the breakout was occurring. Positive trading after the rounding bottom of the past few weeks made the next price move potential up near the $9.20 level.

The easiest way to make money in the markets is to observe the obvious. The visual characteristics of candlestick signals make the obvious more obvious. Please join us tomorrow night for a candlestick forum Mini training on how to scan and analyze which trades have the highest potential. Learning the small nuances of what should occur with price patterns put an investors positions in situations where the probabilities are greatly in their favor.

Chat session tonight at 8 PM ET .

Good Investing,

The Candlestick Forum Team


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