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May 29th Market Direction

Today's market direction was easily anticipated. The Dow and the S&P 500 formed Doji's right on the T line on Friday. This made using the Doji rule very relevant. The markets were going to move in the direction of how they opened in today's trading. Add the fact that would also indicate trading below the T line made the prospects of lower trading in today's market highly probable. Did that indicate the markets were going to be down huge? Definitely not, but it did put the prospects of being in the right direction of the market and benefiting from a big move that much more probable when using candlestick signals. The T line, in conjunction with candlestick signals dramatically improves the probabilities of identifying which direction a trend move will occur, whether analyzing the market in general or individual trading entities.

Go with the flow is the probable trading strategy. Adding short positions on a weaker open today would of been a viable trading strategy. However, there is a major benefit to analyzing candlestick signals and patterns. Because they are based upon the development of investor sentiment, creating those signals or patterns, they do not necessarily get the same influence of the overall market direction. Today, even though the markets are selling off hard, numerous candlestick signals and patterns continued moving positive. This creates two benefits for the candlestick investor. First, obviously the trades remain profitable. Second, because the influence of the signal or pattern is created by human nature that have been building up, when the market in general start showing weakness, the candlestick investor will still have extra time, an extra day or two, to be more diligent to see whether the bullish pattern is going to continue or start showing weakness. A reversal and an individual stock/trading entity is much more easily identified when using the T line for confirmation.

We will conduct a "Members Only" chat session tonight at 8:00 pm EST.

Good Investing,

The Candlestick Forum Team


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