Stock Market IndecisionTimes of stock market indecision can be extremely profitable for traders who are prepared. Stock market indecision may have to do with uncertain fundamentals or confused market sentiment. Profits can come from using Candlestick analysis to see through the fog of a confused market. There are a number of ways to approach extreme market volatility, unexpected market trends, and an unanticipated market rally. The safest way to deal with a market that you do not understand is to stay out, watch the action, and learn. The more profitable way to trade during times of stock market indecision is to review fundamental analysis of stocks in which you are interested and continually update your technical analysis using clear and easy to understand technical analysis tools such as Candlestick pattern formations. Even if particular stocks or the market in general seem unpredictable, a solid sense of a given stockfs margin of safety and intrinsic stock value is useful. It will tell you when value investors are likely to step in and buy stock or sell stock in a mass exit from a given position.
Stock market indecision often happens when events move very fast. The resulting stock market inefficiency causes buying and selling opportunities for the astute trader using Candlestick trading tactics. Traders often use stock options when the stock market direction is uncertain. Buying calls on a stock that is expected to go up in price or buying puts on a stock that is expected to go down in price provides the trader with three advantages when there is a lot of stock market indecision. The first advantage is that the trader can never lose more than the price of the options he buys. The second is that he locks in opportunity in purchasing the options contract. The third advantage in trading options is the investment leverage that options trading affords the investor. The trader need only invest the price of the options premium. If the underlying stock price moves as anticipated the trader can simply exit his position by making the opposite trade. In times of great market indecision the resulting stock volatility can lead to substantial swings in stock prices. Options prices follow. The smart trader who tracks stocks with Candlestick stock charts can find advantage and profits in successful anticipation of where a stock price will go next.
The key to successful trading when there is stock market indecision is timely and accurate technical analysis. Using Candlestick charting many traders take advantage of the fact that trading history repeats itself. It may be a different year or different decade but the same trading patterns come around again. By staying abreast of technical analysis charts the trader is able to step above the fray and see that the sum total of todayfs stock market indecision is a readable pattern. Reading Candlestick patterns correctly can lead to substantial profits for the trader who can see where the market is going while other traders deplete their assets in confused trading.
Market Direction: Why do the candlestick signals work so effectively? The signals are merely the graphic depiction of what is occurring in investor sentiment. Obviously, as can be seen over the past two weeks of trading, fundamentals do not have any significant function as far as moving prices. The Dow has butted its head at the recent highs. The term "butted" implies that every time the Dow tried to break out into new territory, the buying pressure seemed to disappear. The candlestick signals reveal very important information. The formation of a series of Doji's illustrate there is indecision occurring between the Bulls and Bears at this level. An important factor of trend analysis though includes other evidence. The NASDAQ and the S&P 500 index both closed below the T-lines today. That is a very important ramification. Past observations have revealed that there is extremely high probability factor when prices close below the T-line, especially after a candlestick sell signal in the over bought condition. Does this necessarily mean the trend is going down? Not absolutely, but the probabilities greatly favor the fact that the bears are now taking control based upon witnessing the same occurrences in the past.
The aspect of investor sentiment is the main basis for why prices move up or down. If you own the best stock in the world, with great upside potential based upon its fundamentals, holding that position when the rest of the market is selling off hard as much greater possibilities of being the baby being thrown out with the bathwater. The simple process for putting the probabilities in your favor is finding a strong bullish chart signals when the market in general is moving in a positive direction. Finding the best short positions should be done by identifying weak individual stock signals when the markets are in a downtrend. That is pretty simple logic, right? Then why is it difficult to make money in these market conditions? Unfortunately, although the market has been in a slow uptrend, there has been plenty of oscillation in individual stock prices. This has an effect on specific trading methods. The buy and hold method might have been the best strategy for these market conditions. However, the buy and hold method would have been a very difficult strategy to continue had you used that trading method during late 2007 until early 2009.
Although the markets have slowly moved positive over the past few months, many individual stock prices have had numerous slow uptrending time frames followed by a few hard selling time frames. This may have made swing trading more difficult. To try to capture profits would require closing portions of positions at times when there was still no signs of weakness. Day traders may find that price swings are not moving as dramatically. This also might alter how one trades when prices are not moving in the same magnitude as other market conditions. There will be times when breaking even, or taking slight losses is the best trading strategy/result. Sometimes the markets will only allow you to breakeven. You would not know whether you are in these conditions until it becomes evident that your balance sheet is not improving even though you have been taking advantage of what appeared to be good profitable signals. Do not deviate from that trading program. The candlestick signals and patterns are witnessed today because of their performance in the past. They will produce profits when implemented in general market conditions.
Training session schedule - Please look at the training schedule on the Events & Training page. There will be some special trainings free for members over the next few weeks. Tuesday night will be a mini training session on Staggered spreads. This presentation will also include in the money call and put positioning. Option traders should have numerous trading strategies available so as to take advantage of the most profitable potential trade.
Chat session tonight at 8 PM ET for members.