Candlestick Stock AnalysisWhile stocks go up and stocks go down traders using Candlestick stock analysis commonly make money. There have been many approaches to trading stocks over the years. Those engaged in long term investing believe that well-chosen individual stocks, market sectors, and even the stock market in general will rise in value over the years. They cite historic data going back, typically, to the stock market crash that ushered in the Great Depression. The time period included in their data includes the period of the historic rise of the United States to Superpower status and the fall of the USSR. As Japan, China, and Europe have risen in global prominence this argument has been used less and less. Traders take an objective view of the stock market. Traders recognize the fact that there are growth stocks, dividend stocks, volatile stocks, and stable stocks. All stocks can rise or fall and all are tradable using Candlestick pattern formations. Traders using Candlestick analysis of stocks seek to profit from both the ups and downs of stocks and the market. Traders using objective and easy to read Candlestick patterns as a guide obtain a clear view of market sentiment and are commonly able to profit from market trends, market reversal, and general market volatility. Candlestick stock analysis helps both the long term investor and day trader successfully and profitably anticipate stock price movement.
Candlestick stock analysis provides an objective view of market sentiment. Candlestick charts have a long history, going back to commodity trading of rice in Japan centuries ago. Traders recognized that certain price patterns repeated themselves and that traders could effectively ignore the fundamentals of the market and simply base their trading upon Candlestick patterns. As a Candlestick pattern develops it becomes statistically more likely that a given end result will emerge. A classic pattern is the Doji Candlestick. This vanishingly short Candlestick has long upper and lower shadows. It occurs at moments of market indecision. What this signal indicates is that the stock opened and closed the trading period at roughly the same price but that it tested both higher and lower. The signal only indicates market indecision and not market direction. However, when stocks are trending up or down, and then a Doji Candlestick pattern occurs, it commonly indicates that stock prices will reverse direction. By using time honored signals such as the Doji traders can profit from Candlestick stock analysis.
Traders, unlike long term investors, commonly pick volatile stocks to trade. They may trade stocks directly or may trade options on stocks. In either case easy to read Candlestick signals take fear and greed, the twin bugaboos of investing and trading psychology out of the picture. Candlestick stock analysis helps traders predict stock price direction. Coupled with Candlestick trading tactics these easy to use signals can lead to profits when trading commodities, futures, options, and Forex as well as stocks. Traders have been profiting from the use of Japanese Candlestick charts since the days when the Samurai roamed Japan.
Market Direction: Where do most people buy? They buy exuberantly at the top! This is what the Japanese Rice traders have professed for the past few hundred years. They point it out graphically on their candlestick charts, showing large candles forming in the over bought condition. This is exactly what occurred in the Dow on Thursday. Although there was not any high degree of profit-taking on Friday, the Dow did form a Doji type day. Today's trading, closing more than halfway down Thursday's large candle forms an evening star signal. The evening star signal is considered one of the 12 major candlestick reversal signals. The remaining indicator that is important for trend analysis is the T-line, the eight exponential moving average.
Candlestick analysis has some very high probability "truisms" built into the graphic depiction. The Doji that formed on Friday made for a very simple trading platform for both the short-term investor as well as the longer term investor. A Doji in the over bought condition, followed by selling, which was evident upon the lower premarket futures this morning made for a high probability time to take profits. A candlestick truism – the trend will move in the direction of how prices open after a Doji. A candlestick truism – the further prices move away from the T-line, the higher the probability prices will move back to the T-line. This made a lower open in Monday's trading an extremely high probability profit-taking day. The potential target? A test of the 200 day moving average and/or a test of the T-line. Short-term candlestick traders would have closed positions immediately on the weaker open today. Swing traders and longer-term investors would wait to see if the T-line was going to continue as support.
Being able to apply candlestick signals to high probability confirmation indicators creates a much greater degree of accuracy for trading in any time frame. The candlestick signals and patterns have an extremely large amount of information built into each formation. This enables a candlestick investor to project the next price move with a very high degree of accuracy
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