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Investing for Long Term Profits

Those investing for long term profits tend to take a different view of the stock market than someone who trades stocks for short term rewards. The rationale behind long term investing is that historically the stock market in the USA has gone up over time. People use different measures but the fact is that over long periods of time well chosen stocks outperform bonds, bank accounts, and many other investments. There are, however, some specifics regarding this assessment. For example, a commonly used argument for investing for long term profits had to do with the Dow Jones Industrial Average, or DJIA. If one looked at the DJIA the day before the stock market crashed in 1929 and then checked in every year or so he would find that the DJIA caught up, even after the worst market crash of the century, and outperformed many other types of investments over the years. There are a couple of problems for both traders and investors in this argument. First, the composition of the DJIA changes over time. Stocks are added and stocks are taken out. Second, unless one is engaged in stock index trading he will not be buying every stock in the DJIA in the same proportion that each of the stock is represented in the average.

Successful investing for long term stock profits has to do with picking stocks. It has to do with understanding stocks and finding underpriced stocks with a good margin of safety and intrinsic stock value. For example, long term investors look for a low price to earnings ratio as an indication that a company is making money but that its strength has not yet been recognized by the market at large. The rationale for investing for long term profits with this method is that the investor seeks to choose stocks in companies that have and will develop strong products, bring them profitably to market, and effectively control their overhead along the way. By investing once in a steadily growing company the investor avoids paying fees and commissions on repeated trading and only concerns himself about when to sell stock when he needs money for other investments, retirement, college education, and the like.

An important thing to remember about investing for long term profits is that a long term investment is only good so long as it is profitable. Although the DJIA rose over the last century despite frequent setbacks, not all stock in the original DJIA prospered. Because the investor, as well as the day trader, typically deals with one equity at a time, it is important to follow each stock with fundamental and technical analysis in order to keep stock, buy stock, or sell stock before the bottom falls out. Using technical analysis tools such as Candlestick chart formations, investors can profitably anticipate a turnaround of a falling stock price and increase long term profits buy buying at the bottom of the price curve. Using Candlestick analysis the investor can commonly anticipate when rising stock prices will be subject to market reversal as well as continuing upward market trends. What those strictly investing for long term profits miss out on are the profits to be obtained from short term market volatility. With the use of technical analysis with Candlestick pattern formations the trader will profit from short selling, buying calls, buying puts, and buying penny stocks that have fallen out of favor while the long term investor sits on the sidelines, waiting for the general strength of the market and the economy to pull his stocks upward.

Market Direction: There is not yet a consensus between the Dow and the NASDAQ. Although the NASDAQ was up today, it was trading lower than where it opened. The Dow formed a bullish Harami. The NASDAQ produced another dark candle. To have a true reversal signal in the markets, both the Dow and the NASDAQ need to be trading in the same direction. When one index is showing strength and the other weakness on any given day, it has to be assumed there is not a change in the current investor sentiment. In this case, the market indexes are showing bottoming action but not yet any great change from that scenario.



This information becomes valuable to the candlestick investor. Bottoming action usually involves bullish days and bearish days. The sideways action does not put extra pressure on stock prices that are in their own trends. The bullish stocks will continue to move in a bullish pattern while the bearish stocks will continue to move in a downward direction. The direction of the market in general will not have a major influence. This makes for a portfolio mixed with long and short positions the most viable strategy. Utilizing the commonsense built into candlestick signals produces the current trading environment that allows for making money in both directions at the same time.




Mini training session ¨Daytrading with Candlesticks ¨ Tuesday March 22 - learn how to use a structured trading framework to take advantage of investor sentiment on a minute by minute basis. The combination of a 1 min., 5 min., and 10 min. chart produces a powerful alert for change of investor sentiment. Whether trading commodities, currencies, or the indexes, investor sentiment works consistently the same. Take advantage of clear graphic reversal setups for consistent daytrading profits.

Chat session tonight 8 pm ET - Effective in the money option trades

Good Investing,

The Candlestick Forum Team

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