Enhance Price Moves in Market Trends with Candlestick Signals
The effectiveness of candlestick signals
The 12 major signals provide some powerful insights. Not only for projecting which direction a price trend will move but more importantly when that price trend will move. Each day prices create candle formations. The evaluation of those formations may not reveal anything one way or the other. However, witnessing a candlestick signal in those formations should bring attention to a possible price move. When a price activity does not demonstrate any particular direction, there should be no reason to suspect that the current trend is going to change. That trend could be up, down, or sideways. That is not a profound statement. But being able to identify a major candlestick signal now creates the opportunity to project where the next price move may go.
Notice in the Wesco International Inc. chart a slow uptrend had been occurring after the initial strong up-move from mid-June. The uptrend in early July appeared to be supported by the 50 day moving average, possibly heading prices higher! Stochastics had remained in the overbought condition, not indicating any change of the upward movement. But notice that the move off the 50 day moving average, followed by a doji and then a strong selling day, created an Evening Star signal. This definite candlestick 'sell' signal becomes a valuable tool for looking for stocks in overbought condition when the market in general appears to be selling off hard. The Evening Star signal, a major candlestick bearish signal, provides the information needed for participating in a down trending market. What positions should be shorted in a down trending market? The probabilities favor shorting a stock that is in the overbought condition showing a sell signal versus a stock that has already had a decline.
Utilizing the information conveyed in candlestick signals produces a better probability of being in the right position at the right time. The decisive move occurred after a major reversal signal appeared. Utilizing this information, along with the general market analysis, provides a better probability of a price of an individual stock moving in the same direction as the markets; and it doing so with enhanced strength. The majority of stocks will move up in an uptrend. The majority of stocks will move down in a downtrend. What candlestick signals can identify is which of those stocks will move in the same direction as the market but with more strength. Those are the type of positions that want to be identified for a good profit moves. Click here for the candlestick forum Ultimate Candlestick Training Package special
Market direction - After a hard sell off like we have seen in the markets, a definite reversal signal is required to show that the downtrend has ended. Both indexes, the Dow and the NASDAQ, are in the oversold area and demonstrating some indecision. However, with the magnitude of the selling that has occurred this past week, it is not unusual to see a bounce. Being able to identify a bounce versus a full-scale reversal involves analyzing what the candlestick reversal signals reveal. An illustration of an oversold bounce can be viewed in the BUCY chart.
Note that a Doji formed after gapping down in the oversold condition. The following day produced a small Bullish Engulfing Signal. It traded up