Identify Overpriced StocksA critical ability for both the day trader and those engaged in long term investing is to be able to accurately identify overpriced stocks. To identify overpriced stocks we need to decide by just what criteria we are calling stocks overpriced. For the stock investor a high price to earning ratio implies that the market has driven a stock price beyond the ability of the company to make enough money to justify that stock price. When, for example, interest rates are low so is the cost of doing business and getting credit. Companies may borrow with the expectation that future profits will easily pay off their debt. During such times companies may develop a substantial debt to asset ratio. This may seem trifling when the economy is humming along. However, if the economy cools off and cash flow reduces these sorts of companies may be in trouble and their stock prices will likely tumble.
One way to identify overpriced stocks is to recognize a high debt load as a warning sign. Likewise in a booming market many new investors will enter the market looking to make profits. As buying pressure increases so will stock prices. So long as there are new investors coming on board the buying pressure will continue and so will the rise in stock prices. To identify overpriced stocks in this market environment one needs to anticipate what will happen when the last new investor comes on board and traders start short selling in anticipation of a stock market correction or full scale market reversal.
In day trading the ability to identify overpriced stocks is just as important is it is for the long term investor. It is just that the time scale is shortened for traders. In day trading the ability to identify overpriced stocks hinges more on technical analysis than fundamental analysis. The trader is more interested in anticipating price changes that result from market volatility and uses technical analysis tools such as Candlestick chart formations to profitably anticipate stock price variations. Although trading all stock price fluctuation can be profitable, the ability to identify overpriced stocks can result in substantial profits.This is because a truly overpriced stock may be ready to drop substantially in price once it starts to correct. By using Candlestick analysis a trader will often be able to accurately predict a price turnaround on this kind of stock and profit by buying puts just as the stock starts to fall. Continuing to follow Candlestick patterns as the stock falls, the trader will successfully anticipate when the stock will bottom out. He will execute his options contract, sell stock at the strike price, buy stock at the now low spot price and pocket the profits. Then he will profit from buying at the bottom as the stock begins to rise again. When Candlestick signals tell the trader that the stock is about to level off in price, probably at the level it started at before its fall, he will sell stock and pocket his profits again. All of this sort of profit taking comes from the ability to identify overpriced stocks, both in the long and the short term.
Market Direction: If the trend is your friend then why does it the trend is your friend, then why is candlestick analysis useful? The answer is simple! The information built into each specific signal allows an investor to see what the characteristics are of a trend. This becomes extremely useful for analyzing what a trend might be doing at specific technical levels. For example, today the NASDAQ did a two dark crows formation, revealing weakness at the same place it topped out in early March. The S&P 500 showed a Doji today. Although the Dow continued to show strength, the market is now giving indications of investor weakness. This information allows a candlestick investor to be more prepared and ready to ship positions if further confirmation is witnessed.
Candlestick Forum education training -
April 12, 2011 -Staggered Spreads - this mini trading session will demonstrate how this option trading technique becomes greatly profitable because of the aspects contributed by candlestick analysis to a strong price move. Seats are limited, register early.
April 19, 2011 – The Dynamic Doji - The Doji provides an immense amount of information, no matter where it occurs in a price trend. The new revised training of the Dynamic Doji is going to be presented as a FREE mini trading session for members only. This special training will demonstrate how to use the Doji for profitable trading in all areas of a price trend.
April 26, 2011 - Trend Analysis - Information found in candlestick analysis allows an investor clearly recognize what a price trend is doing or going to do. This becomes a major aspect for successful investing. Take advantage of the valuable knowledge built into candlestick trend analysis.
May 7, 2011 - The 12 major signals - free for members only - Saturday morning from 9:30 AM to 12:30 PM, Mr. Bigalow will provide a free review session for demonstrating how the 12 major signals work correctly and efficiently.
The visual aspects of candlestick signals allow for greatly improved interpretation of any trading method. Candlestick analysis, when applied to technical analysis or fundamental research dramatically improves the probabilities of be in the correct trades at the correct time. Fortunately, the candlestick forum will have the opportunity to present speakers that have contributed greatly to the investment community. Over the next few months, the Candlestick Forum will be presenting well-known speakers such as John Bollinger, Bob Prechter, Dave Elliott, Larry McMillan, and Price Headley. Members of the candlestick forum website will have the opportunity to apply candlestick analysis with proven trading techniques of the speakers to formulate their own successful trading programs. Checked the candlestick forum home page for the speaking schedule.
Chat session tonight at 8 PM ET for members.
There will also be an early training session walking through the Candlestick Forum website, revealing the multiple areas of information on the website.