Sell Stock on the NewsAn old piece of investment advice is to buy stock on the rumor and sell stock on the news. A simple explanation of this might be as follows. There is a rumor that ABC Corp. is going to make a stock offering to buy out XYZ Inc. The rumor continues that the conglomerate DEF is interested in little XYZ Inc. as well. Anticipating a bidding war, traders starting buying XYZ Inc. They may buy stock, buy options, or buy futures. Buying pressure drives up the stock price of XYZ Inc. Then both ABC Corp. and the DEF conglomerate make announcements. DEF is not interested but ABC Corp. and XYZ Inc. jointly announce a merger and specify the terms. At that point everyone realizes that XYZ has become overpriced and some believe that ABC is going to lose value as well in an ill conceived acquisition. Both stock prices fall. Those who are alert will immediately sell stock on the news, before prices plummet. An alternative is to sell stock and then sell short as well in expectation of a large drop in stock price. The wise trader will consult his Candlestick analysis in making his decisions in buying stock, selling stock or trading options on stocks.
The adage that we should buy on the rumor and sell stock on the news works in the opposite direction as well. Sometimes the rumor or early news will tend to drive a stock price down. Short selling at the very onset of downward market trends and then buying back at market reversal can be profitable. In this case traders will look for a Doji candlestick in a downward trending market. This Candlestick analysis signal indicates market indecision. When it occurs in a market that is going either up or down, it tends to indicate that traders are having second thoughts. What the market is flat there is often indecision as to price direction and we will often see Doji signals there as well. However, in a flat market the Doji does not tell us which way the trend will go next.Sometimes to profitably sell stock on the news requires that we have done a little fundamental analysis first and are keeping up with technical analysis of the stock in question as well. A case in point is the current situation in Libya. This is an oil rich country that has been governed by a dictator Colonel Muammar el-Qaddafi, for forty-two years. His response to recent non violent protests was violent and lethal. The result has been an escalation to armed conflict between his central government and the various ethnic groups in his nation. Oil companies are said to be shutting down operations and to be quickly evacuating their employees. To deal with this combination of rumor and news effectively the trader needs to find out who is drilling for oil, who owns leases, and who is refining in Libya. He needs to understand how the price of oil and oil futures will go up if Libya quits exporting oil. He needs to understand how events in Libya well affect oil companies who do, or who do not, work there. When he has done his basic fundamental and technical analysis of various stocks he will follow Candlestick stock charts of the stocks in which he is interested. As the news is quickly incorporated into pricing the best bet is typically to use Candlestick patterns to guide trading decisions when you want to sell stock on the news.
Market Direction: Let the market tell you what the market is doing! This is the advice that comes from the Japanese Rice traders. It has very significant meaning. It allows investors to take a slight step back and ask themselves, "What is this market doing right now?" Most investors do not even take the time to try to analyze what the current conditions of a market trend is doing. The majority of investors rely on the talking heads to provide that information. The information built into candlestick graphics makes it very easy to analyze what the market indexes are revealing. This analysis becomes fairly accurate once an investor understands the results of specific signals and patterns.
There are times when a trend reversal is easily identified through the use of candlestick signals and patterns. Conversely, there will be times when the market reveals no definable direction. That is clearly the prognosis of the current market trend. After the break of the steady uptrend two weeks ago, both the Dow and the NASDAQ have moved sideways. Unfortunately the indecisive sideways movement has been executed with very decisive individual trading days. Obviously this has created extensive whipsaw action. This negates the primary benefit for investing.
The primary benefit that candlestick analysis creates for an investor is the visual assessment of what is occurring in investor sentiment. The signals and patterns provide a clear visual graphic of price movements. This information creates a trading format that puts the probabilities of correct trades in the investors favor. Analyzing the indexes can also provide valuable information for when not to be in the markets. If the purpose of having an investment program is to have the probabilities in your favor and there is nothing that can be analyzed to put those probabilities in your favor, that should be an indication to have most of your funds sitting in cash. Having those funds exposed to market conditions when there is nothing to provide favorable probabilities, those funds are now exposed to market conditions that provide no positive benefit.
Due to the simplicity of scanning for high profit trades using candlestick signals and patterns, there will always be a handful of high probability trades no matter what the general market conditions will be. As seen in the OCZ chart, on a day when the markets were relatively bearish, there was positive bullish sentiment being demonstrated in this chart. The completion of a J hook pattern potential was derived from a small bull kicker signal. The stochastics coming from the oversold area reveal more upside potential. Although the general market conditions may be very soggy, the analysis of this chart provides three or four positive indicators to make this a buy.
Entering a trade or exiting a trade is based upon the visual parameters. Will every trade be a successful trade? Obviously not! The purpose of candlestick analysis is to allow an investor to make decisions based upon what the probabilities are indicating. A decision to get into a trade or to get out of a trade may involve a number of indicators.
Private training sessions -April 30 and May 1, 2011 - If you are interested in a private training session on the West Coast, please e-mail Steve@candlestickforum.com. These private training sessions allow investors to concentrate on the areas that seem to be holding them back from making profits. The step-by-step analysis of the signals and patterns include the psychology that was behind the creation of those signals and patterns. From that point, an investor can analyze the trading strategies they feel are most comfortable for their trading nature. These private training sessions also help delve into the psychological aspects of investing. Please take the opportunity to use the knowledge that is correctly conveyed after hundreds of years of refining. Candlestick analysis works very effectively. Your success in investing is directly correlated to how well you learn and then execute a profitable trading program. Click here for private training details.
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