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March 25th Market Direction

Trend analysis is greatly improved when knowing the effects of candlestick signals and the T line. The markets sold off hard on Friday, closing below the T line. This did not necessarily mean a reversal was in progress because the candlestick formation of Friday did not form a candlestick reversal signal, merely a down day in an uptrend. However, the markets did close below the T line. This implied there would probably be some consolidation but not a full-scale downtrend. Today's trading produced a Doji in the indexes. A Doji day does more than merely illustrate an indecisive trading day. It produces a much more accurate trend analysis. The simple Doji rule, a trend will usually move in the direction of how they open after a Doji, allows the candlestick investor to anticipate what will occur in the trend based upon how the markets open tomorrow. A positive open would imply positive trading, probably back up to the T line. This would be an indication that the past two days of trading were merely consolidation days. A lower open would produce a high probability of a bearish Doji sandwich, indicating the prospects of more downside.

The question is often asked, what happens when a trend is bobbing up and down at the T line area? The answer is obvious! The trend is indecisive, it doesn't know which way it wants to go. How do you trade that type of trend movement? You don't! You sit back and wait for the markets to tell you which direction it wants to move. Remember, candlestick patterns will continue to move in a direction that is not affected by the overall market trend. The frypan bottom is a very good illustration of continued price movement no matter which way the overall market is moving.

 

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Good Investing,

The Candlestick Forum Team


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