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Stock Trading in a Volatile Market

Stock trading in a volatile market relies heavily on technical analysis with tools such as Japanese Candlestick charts . Traders know that the fundamentals of stocks , indexes, and market sectors are discounted by the stock market as soon as they are known. The individual stock trading in a volatile market such as today’s often has to guess along with the rest as to where the fundamentals will go next. Two major issues, for example, are whether the US congress and president will come to a consensus about dealing with the US debt and if the EU will be able to wrest itself from the so called PIIGS debt dilemma. Both of these are unknowns that currently defy reasonable fundamental analysis and both situations could have drastic effects on the world economy if they do not work out well. Thus traders look to read market sentiment when stock trading in a volatile market. When the market is falling, or rising, traders look for indications of the kind of market indecision that typically precedes a market reversal .

A useful tool in this regard is the Doji Candlestick . The Doji is represented by a short to virtually non-existent candle with shadows of varying lengths. This Candlestick analysis signal indicates that a stock opened and closed at very nearly the same price but that it fluctuated greatly above and below the baseline price. This Japanese Candlestick is considered an indication of market indecision and a good indicator that current market trends will reverse. It is not especially useful in a flat market as it does not tell stock traders which way a flat market is likely to go.

With technical analysis tools like the Doji Candlestick both a day trader and one interested in long term buy and hold investing can take advantage of stock trading in a volatile market. A trader will buy stock , sell stock , sell short , buy calls or buy puts in order to gain short term profits . An individual more interested in long term investing can use Candlestick stock charts in bargain hunting and buying at the bottom of a market trough in order to gain a long term investment at a bargain basement price. In this regard it is notable that Berkshire Hathaway is said to have made its largest number of stock purchases of the year recently on an especially bad market day.

Although big picture fundamentals such as the evolving state of the world economy or the politics of Capitol Hill may baffle all investors, there are stock fundamentals that are useful even in a chaotic market. Consumer products companies tend to keep selling bathroom tissue, laundry soap, and household cleaners even in the worst of markets. Promising biotech companies will still come up with world changing discoveries. When the markets are chaotic traders can use these sorts of stocks for short term profits and long term investors can pick up bargains at the bottom of the price curve. In both cases the use of Candlestick patterns can help to spot opportunity based upon evolving market sentiment when stock trading in a volatile market.

Market Direction: Candlestick analysis not only identifies high probability situations, but it allows the candlestick investor to trade with much less anxiety. Today's pullback could be identified as a profit-taking day. The surrounding analysis has been witnessing the inverted hammer signal in the Dow, followed by bullish confirmation. There was further confirmation with another bullish day close in well above the tee line. The visual aspects of candlesticks provides a much more clear assessment of what is occurring in the recent trend. Although each formation provides a tremendous amount of information, that information has to be simulated into the surrounding indicators.

Chat session tonight at 8 PM ET, Everyone is welcome!

Good Investing,


The Candlestick Forum Team

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