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When to Buy Stocks

As the economic recovery falters the Dow Jones Industrial Average has dipped. When to buy stocks if often just at such a market correction . When to buy stocks differs from when to buy stock in an individual company. When to buy stocks in the broader market is when investors believe that conditions are set for a generalized market rally . When to buy stocks for traders is when both fundamental and technical analysis indicate new market trends either up or down. Successful long term investing requires that the investor find secure companies, each with a margin of safety such as cash or other unencumbered assets. The long term investor looks for intrinsic stock value in the form of forward looking earnings. When the broader market rallies there is a tendency for all stocks to rise. Thus a long term investor will add to his stock portfolio when fundamentals as well as technical analysis tools such as Candlestick charting indicate a coming rally. At this time the investor will look for underpriced dividend stocks as well. The situation for traders is somewhat more flexible.

Stock market trading profits come from changes in stock price . Because stock traders look for market volatility and a market correction in either direction they can profit from short selling as well as buying stocks . Traders may choose to trade the overall market by trading exchange traded stock index funds. This method of when to buy stocks simplifies the issue of following individual stocks with individual fundamentals and technical analysis . The trader simply follows Candlestick patterns of the stock index fund. The broader stock market will rise as the economy mends itself. It will also react to economic stimulus plans, although as nations heap debt upon debt the duration and effectiveness of government economic stimulus plans has many skeptics.

When to buy stocks, ideally, is at the bottom of the price curve. Buying at the bottom requires a clear sense of the fundamentals of the stock market. Successfully buying at the bottom requires the use of tools such as Candlestick pattern formations in order to profitably gauge market sentiment. A time honored tool in predicting a market turnaround is the Doji Candlestick . This signal is a vanishingly short candle with often substantial upper and lower shadows. The Doji Candlestick shows us that the opening and closing prices of a stock are virtually the same because the candle is very short. It also shows us that there is a great deal of market indecision in that the stock has traded much higher and much lower during the day as evidenced by the lengths of the upper and lower shadows. A Doji Candlestick does not tell us when to buy stocks in a flat market as it simply indicates market indecision. However, in a downward or upward trending market this is an excellent signal that the market is likely to turn around. The value of using Candlestick analysis in deciding when to buy stocks is that Candlestick signals are statistically based and take the guesswork out of deciding when to buy stocks, when to sell stocks, and when to hold on to your money.

Market Direction:

How do you tell the difference between a strong reversal versus a reversal in a trend? That answer becomes much more clear when you identify and analyze what type of formations are occurring during a potential reversal area. A strong reversal usually involves a severe candlestick reversal signal, a long legged Doji, a hammer with an extremely long downward shadow, etc. On the other hand, a reversal may be formed by a slow lethargic bottoming action, sometimes taking many days, if not many weeks to form. The combination of signals found in both the Dow and the NASDAQ is providing a relatively clear evaluation of what is occurring in the markets right now.



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Good Investing,


The Candlestick Forum Team

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