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Find the Market Bottom with Candlesticks

As the Euro sovereign debt bailout regains life and another economic stimulus package is on the horizon it may be time for traders to find the market bottom with Candlesticks. Two things drive stock and stock market prices. These are the fundamentals of the economy and individual stocks on one hand and market sentiment on the other. In both trading and long term investing, margin of safety and intrinsic stock value are good measures of the value of a stock. What may look like a promising stock with a low price to earnings ratio may be underpriced as regards forward looking earnings but market sentiment may be such that the stock remains inactive and underpriced. Market sentiment is the composite action of everyone from the day trader to one who only engages in buy and hold investing. While fundamental analysis helps spot hidden stock value in a bottoming market, it is often more profitable to find the market bottom with Candlesticks. Technical analysis with tools such as Candlestick stock charts is useful in spotting new market trends and market reversal. If a trader or investor is looking to profit from a market turnaround he will do well to find the bottom with Candlesticks and trade or invest accordingly.

It is fine to talk about finding bargains in a down market but just how long will the market be down and how long will a given stock be ignored by the market? Both fundamental and technical analysis are necessary in both short term trading and long term investing. However, it is with Candlestick analysis that smart traders are often able to spot when the market is going to turn and profit from buying at the bottom. To find the market bottom with Candlesticks, either for the market in general or for individual stock prices, traders follow stock price patterns and their representations as easy to read Candlestick signals. A commonly useful signal is the Doji Candlestick. This Japanese Candlestick signal indicates market indecision. It is useful in predicting a market rebound or a correction in an ascending market. The Doji is a very short to virtually flat candlestick with long upper and lower tails. It tells us that the market opened and closed on a stock at nearly the same price but that the market tested both higher and lower during the trading period. This signal often precedes a breakout. It is not especially useful in a flat market as it does not tell us in which direction the stock market or individual stock will move but in an upward or downward trending market it commonly warns the trader of a turnaround. In a falling market it is a way to find the market bottom with Candlesticks.

After a recent sell off took two and a half trillion US dollars of value out of the markets many are predicting that the market has hit bottom. The smart stock investor or stock trader will not rely upon the pundits. He will work to find the market bottom with Candlesticks and profit thereafter with Candlestick trading tactics.

Market Direction:

There are numerous technical support levels and resistance levels that make trend analysis very easy. As illustrated in the Dow chart, the Dow is currently in a sideways slowly ascending trend channel. This becomes valuable information for the technical investor. However, what can be more clearly demonstrated is what investor sentiment is doing act important technical levels. The Dow went down through the support level early this morning. The markets all traded lower most of the day. The Bulls steped back in near the end of the day. The hammer signal that was formed provides an immense amount of information for the candlestick investor.

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Good Investing,


The Candlestick Forum Team

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