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Stocks Trading at a Discount

Every quarter companies listed on the NYSE and NASDAQ issue earnings reports. Prior to the issuance earnings reports on stocks the stock market news is full of earnings estimates. Stock trading at a discount to earnings estimates are often profitable for both long term investing and as day trading stocks. In long term buy and hold investing one looks for stocks trading at a discount to future earnings, at a discount to their intrinsic stock value.

A long term investor does fundamental analysis to identify stocks which have the potential for strong and continued earnings. He then looks at price to earnings ratio as well as the ratio of price to projected earnings. He buys stocks trading at a discount to future earnings for his stock portfolio with the expectation of profiting from dividends and stock price appreciation for a long time. A long term investor uses technical analysis tools such as Candlestick stock charts in order to understand and predict changes in market sentiment and profit from buying stock, selling stock, and selling short at optimal stock prices.

A day trader may well follow the same stock that the long term investor is watching. However, traders really don’t care if the stock is going to go up or down, in the long term. Using technical analysis traders can successfully predict price movement and profit thereby. Stocks trading at a discount to earnings estimates may appear to be underpriced. The earnings reports come out a stock may rise or fall in price depending upon how close estimates were to the actual reports. Traders watch market sentiment and take advantage of price fluctuations prior to reports coming out and the brief period of market inefficiency that can occur after reports are issued. Candlestick analysis allows traders to anticipate new market trends as well as market reversal. During periods of stock volatility traders using Candlestick charts can profit when stocks trading at a discount to earnings estimates turn out to be successful and when estimates are wrong as well.

Traders know that fundamentals are important and that the market corrects for new fundamentals very quickly. Therefore stock traders use Candlestick patterns when dealing with stocks trading at a discount to earnings estimates in order to accurately and profitably anticipate market sentiment. Stock prices follow patterns. These patterns are driven by stock and economic fundamentals and by market reaction to both fundamentals and to its own movement. Candlestick pattern formations do not care if they are generated by changes in commodity pricing, stock pricing, or foreign currency pricing. It is the price pattern that can predict the next movement in stock, commodity, or Forex price. As earnings seasons approach long term investors look for good deals and traders look for stock price movement and stock volatility. Both can profit by using Japanese Candlesticks to see the future by remembering the past. Using price patterns to profit in markets has been profitable for decades and even centuries. Stocks trading at a discount to earnings estimates are no exception in technical trading of the stock market.

Market Direction:

The Dumpling Top – Market Downdraft Eminent


The market is currently developing a Dumpling Top. This information will produce powerful and profitable investment results. What if you had analytical tools that are highly accurate for evaluating price trends? Wouldn't you be able to establish profitable investment trades with a much higher degree of accuracy? Candlestick analysis provides these tools. One of them is the Dumpling Top pattern. Knowing what formulates a Dumpling Top pattern allows investors to implement trading strategies that are highly effective. Once it becomes evident that a Dumpling Top pattern is in progress, two valuable pieces of information are known. Until the pattern is completed, price movements are going to be relatively indecisive. This information assists   investors in making decisions that are most appropriate for  trading the current market conditions. The investor  is going to have to be in and out of positions extremely fast, basically scalping. For those investors that cannot sit by the screen and trade actively, they should decide not to invest at all until the consummation of the pattern. Once the results of the pattern start to perform, huge gains will be produced when the uncertainty of the trend disappears.

Candlestick analysis is a powerful investment tool due to the inherent probabilities built into candlestick signals. This information outperforms all technical trading methods. Additionally, the accuracy established with knowing what the signals and patterns represent, candlestick analysis can accurately project what investor sentiment will do to the near-term price trend. The Japanese Rice traders provided valuable insights into price trends more than merely identifying reversal signals. Through centuries of analyzing 'why' the signals performed well, Japanese Rice traders formulated ‘what’ was in investor sentiment that created reversal signals. The identification of candlestick signals, that foretell a high probability trend reversal, also allows candlestick investors to be prepared for immediate shifts in portfolio positioning or reversing very short-term day-trading trades. Candlestick signals and patterns have extremely high probability results.

Because of the significant research that has been attributed to candlestick analysis over the centuries, there is much more to candlestick analysis than merely identifying trend reversals. Due to the accuracy of the if/then results of candlestick signals, the candlestick investor gains valuable insights into whether a trend is producing false signals or merely profit-taking in a major trend. This becomes an essential tool for not exiting big-profit trades too early. It becomes very easy to discern whether a selling day in an uptrend is a reversal day or merely a profit-taking day. Having the ability to recognize and interpret  candlestick reversal signals produces immense advantages. It allows an investor to close a position or to continue to hold a position. The difference is knowing  the probabilities  based upon witnessing a reversal signal or a non-reversal signal. A significant function that is built into the Japanese Rice trader’s analysis is common sense investment principles  put into a graphic depiction. This creates a frame of mind allows that investors  to be prepared for a “potential” signal or pattern.


Candlestick analysis contains many factors that put probabilities greatly in the investors favor. Trading against the information provided by candlestick analysis is going against the odds. The Japanese Rice traders became legendarily wealthy by utilizing the simple common sense investment perspectives built into candlestick analysis. Candlestick signals work. When you learn how to use them correctly, you can extract excessive and consistent profits from the markets. The Dumpling Top pattern does project a high probability that a major market downdraft is about ready to occur.


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Good Investing,


The Candlestick Forum Team

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