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February 7th Market Wrap-Up

The candlestick charts for the indexes revealed profit-taking ready to occur. This was caused by very simple indicators that reveal what often occurs in human nature. Tuesday's trading showed a gap up in the indexes in the overbought area. This was the first alert to start watching for profit-taking. Wednesdays trading produced bearish Doji/Harami's, an indication the buying had stopped. This made for very simple trend analysis for the candlestick investor. A lower open today would be confirming the bearish Harami. Lower trading was further indicated by the simple Doji rule, prices are going to move in the direction of how they open after a Doji, especially in the extreme overbought or oversold condition. The simple indicators that are conveyed by candlestick charts allows investors to be proactive versus reactive. Witnessing a bearish Harami Doji after a gap up in the overbought condition would have provided the impetus to take some profits. This is based upon the probabilities of a trend direction reversing due to a gap up in the overbought condition. These indicators allow an investor to be closing profitable positions when witnessing the probabilities starting to turn against the trend.

Patterns have inherent buying or selling strength to offset overall market direction. This is evident in J-hook patterns or frypan bottom patterns. The reason is very simple! Investor sentiment has been building up this pattern while aware of what the overall market direction has been doing. Because candlestick signals and patterns are the accumulative knowledge of everybody buying and selling during a specific time frame, a pattern continues it's performance because the knowledge of what the overall market direction is doing it still built into investor sentiment. This is why candlestick patterns will not reverse immediately when the overall market reversals because of the built in strength of the pattern itself. Patterns not only produce inordinately strong price moves, but they also are slower to reverse during an overall market reversal.

 

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Good Investing,

The Candlestick Forum Team

 


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