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Analyzing Stocks

Both those engaged in long term investing and in day trading succeed in making profits by analyzing stocks. Analyzing stocks for a long term diversified stock portfolio will differ in many regards from analyzing stocks for day trading. There are, however, a number of common themes. In each case the individual will succeed through intelligent stock picking, fundamental analysis, and technical analysis. Whereas long term investors may look for large cap stocks with a high degree of stability, traders may be looking for instability in order to profit by trading stock price volatility. Contrary to what some believe, traders are not necessarily contrarians who relish the idea a big market reversal. A trader who uses Candlestick pattern formations to successfully anticipate a rapid rise in a stock price and buy stock early is just as happy with his trading profits as he would have been if he had profited by selling short. The point is that the trader will profit from trading volatility, both up and down. The long term investor is typically looking for the kind of margin of safety and intrinsic stock value that indicates a long term and consistent rise in stock price.

Both investors and trader use, or should use, both fundamental and technical analysis. However, they will use these basic tools for analyzing stocks somewhat differently. The long term investor is always looking to discover stocks with strong fundamentals and stocks which the rest of the market has not yet identified. With a fair degree of insight into market sectors and individual stocks it is possible to find stocks with a low price to earnings ratio and the promise of continued strong growth. This sort of stock picking is typically more successful in comeback stocks and in small cap stocks or in picking penny stocks. This is because there are many analysts watching the big and attractive stocks and few or none watching many small cap stocks or engaged in penny stocks investing. Unlike the long term investor, the day trader is not so concerned about long term fundamentals as short term price instability. That instability might be seen by Candlestick patterns as pending market trends, either up or down. The trader will be buying calls on stocks that Candlestick chart formations indicate will rise and buying puts on stocks that Candlestick signals indicate will fall in price. The goal of the day trader is to use technical analysis more so than fundamental analysis in order to predict short term and profitable stock price movement.

That technical trader knows that, in general, all fundamental information pertinent to stock prices is already taken into account in stock prices. It is in reading the sum of intention of many stock investors and traders through technical stock analysis that traders anticipate price movement and trade accordingly. In analyzing stock, the trader and investor both look at the same information. Because each has his own area of interest and time frame, each focuses on the information in a different manner. Long term investors analyzing stocks look to fundamentals to make money. They use Candlestick chart patterns to optimize the prices at which they buy and sell. Traders use the fundamentals as a guideline as to where the market will end up, the boundaries of just how high or low a stock price might go. They use the short term fluctuations of stocks to profit from market volatility and market inefficiency.

Market Direction: The slow steady uptrend of this market allows some big profit strategies could be put into place. For the less aggressive, there are numerous positions that could have been added to a portfolio on candlestick buy signals that have remained above the T-line for the past two months. Although the daily returns have been very small, the overall return for holding numerous positions has been 30%, 60%, 100% and greater. Is the buy and hold investment strategy a viable strategy? It is when the candlestick signals indicate a continuous slow uptrend. The indexes themselves have remained above the T-line.



The study uptrend also creates some very fast-moving big profit moves. These are generated from pattern breakouts or resistance level breakouts. Playing the breakouts becomes relatively easy when using the visual aspects of candlestick analysis. It allows investors to time a big price move to be in exactly at the right time. Do all candlestick buy signals represent a strong 'day' trade? Not normally. Candlestick by signals usually illustrate when a price move/trend is about ready to start. This is different than the analysis of when a one-day breakout move will occur.


Candlestick signals provide a huge advantage for establishing trading strategies for any time frame. The signals represent investor sentiment whether that sentiment is portrayed on a 1 min. chart or a monthly chart. It can be profitably a simulated into daytrading, "day" trading, swing trading or long-term investing. Each investor can utilize the information built into the time frame they want to trade. In every case, the probabilities of be any in a correct trade at the correct time is highly probable. What most investors do not realize is that prices move based upon the general sentiment of all investors. This does not always correlate with the pluses and minuses of fundamental events. Learn how to recognize the signals and learn what each signal represents. This allows you to accurately analyze price movements in any markets during any time frames.

Chat session tonight for Members analyzing the strong sectors 8 pm ET

Good Investing,

The Candlestick Forum Team

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