Stock Investing Concepts
All stock investors face one primary challenge; a challenge so formidable that it can undermine even the most successful stock investing concepts. This challenge is simply called "emotion".
Emotions are the impetus behind every stock market trend. Frankly, if they didn’t exist in the machinations of the stock market, investors could make money based entirely on the expanding or receding economy, as opposed to solid, time-tested stock investing concepts. Additionally, the more successful investors wouldn't have the ability to profit from the emotional mistakes of the "amateurs".
As an example, let's say that you have studied numerous techniques, read "Stock Market for Dummies", as well as all the rest of the recommended trading and investing books, dabbled in paper-trading, and read all of the stock market newsletters. Now you're ready to take the plunge and make some real money with your own stock investing concepts.
You wisely approach your new venture with the expectation of a certain amount of losses, although you want to keep them as minimal as possible. You are aware that losses are a part of the game and you've experienced your share of them but, up to this point, your wins have outnumbered your losses. Your reasoning for this is that you have not deviated from your chosen stock investing concepts. You are excited to get started.
One day, after fighting traffic for hours, you eagerly log in to your stock market online investing account and find that there have been changes in the market. Although you would normally follow your usual plan of action, pressure and greed take over. You alter your normal stock investing concepts regarding buying and selling but convince yourself that it will be OK just on this one occasion.
Stock prices start dropping and now, not only do you have to deal with pressure and greed, but also with fear. Fear wrecks every investor's self-confidence with tenacity. Fear will whisper in your ear - "you don't know what you're doing."
Greed and fear are now in control and are telling you what to do. Self-confidence, reason, and caution have all been thrown to the wind.
By now you have totally forgotten the golden rule of investing - "buy low and sell high" because you've lost too much money and you feel you have to get it back. Greed tells you "it will work," and fear tells you it has to work!"
Your spouse, partner, or trading buddy has now become aware of your plight and is complaining about the lost money, adding even more pressure to the mix. Your funds are now all but gone. You made critical errors and invested money that you need right now. Now you're playing the margins and are totally out of control.
Don't let the above scenario happen to you. Although the specifics of the experience will change, the underlying cause of this situation is your own emotions. You'll get through it, but the memory of that terrible defeat will stay with you forever. Fear will affect every future investment decision and significantly limit your ability to return to your previous successful stock market investing strategy. You are afraid that the same scenario will happen again. However, it doesn't have to be that way.
Developing a line of attack to deal with your emotions can put you back on the road to success.
Here are some solid stock investing concepts:
- Don't go into the stock market simply to feed your ego.
- Always look outside of the stock market for self-gratification and affirmation.
- Stay true to your chosen stock investing concepts. Don't deviate from them.
- Evaluate and learn from your losses. Don't try to get even or blame someone else for their recommendations.
- Before you commit to investments, do your homework! Don't jump into a position haphazardly.
- If you are in a highly emotional frame of mind, (either high or low), don't trade. It's not worth the risk.
Here's the bottom line...emotions are inevitable occurrences in everyday life. Instead of denying or resisting them, learn how to understand their effect on your investment decisions and develop a strategy to work in harmony with them.
High profit candlestick trade potentials - What provides the information that a high profit trade is potentially setting up? A candlestick buy signal in an oversold condition being confirmed with indications a very strong change in sentiment. What is that strong indication? A gap up in price! A gap up after a candlestick reversal signal provides an extremely strong probability of a positive move. Consider what a gap up after a candlestick reversal signal reveals.
When the conditions are appropriate, prices in the oversold condition, witnessing a candlestick buy signal produces a high probability situation. Whether that signal is a Doji, Hammer, Inverted Hammer, Bullish Engulfing signal or a Bullish Harami, Japanese Rice traders have analyzed for centuries that these are reversal signals. That provides a set-up for a possibility of a reversal. What is revealed the following day when prices gap up? This analysis should be very simple. The day after investor sentiment looked like it was reversing a trend, investors showed a very strong desire to now get into that position. The 'strength' of that new trend is illustrated by a gap up in price from the previous days trading. That is exactly the type of trend an investor wants to be participating in. The candlestick investor has the advantage of being able to visually analyze that pattern set up.
As illustrated in the Momenta Pharmaceutical chart, a gap-up in price after a Bullish Harami formation provides the alert that investors want; a very strong demand for this stock, great enthusiasm. Not only did they gap up the price, they moved the price up through a major technical level, the 50 day moving average. This should instantly reveal that not only did investor sentiment become very strong, any potential resistance levels were not affecting the new buying. As seen in the chart, the following day demonstrated a huge buying spree.
MNTA
Will all candlestick 'buy' signals, followed by a gap-up, produce a huge profit? Not always! However, the gap-up from the candlestick signal combination puts the investor into a situation where the probabilities are much greater for being able to participate in a huge price move. That huge price move can occur very quickly or over a reasonable period of time. The fact that investor sentiment was being witnessed as a potential reversal and then followed by very strong confirmation, a gap-up, produces the high probability scenario that is clearly revealed by the information built into candlestick signals. Learn these signal combinations to put yourself in high profit, high potential trades. Click here for information on utilizing candlestick signals and gaps.
Market Direction:
The Morning Star signal of two weeks ago started this latest uptrend in the DOW. Last week the volatility was relatively strong. However, the Methods Rising formation that formed on Monday revealed that the uptrend was still in effect. Stochastics heading in a nice upward direction. The 50 day moving average might have acted as resistance. The fact that they closed it well above the 50 day moving average on Tuesday produced a new scenario. The 50 day MA was not acting as resistance any more, as it had over the past two months. Now that the Dow has broken up through the 50 day moving average, it would not be unusual to see it come back down and test the 50 day moving average to see if it will act as support.
DOW
The NASDAQ is trying to bottom but appears to be in a choppy trading area. It needs to break out at least through the 20 day moving average, which was very close to Thursday's highs. However, the Bearish Engulfing signal that formed in the NASDAQ today gives more credibility to some pullback for the next day or so. This would coincide with the Dow coming back down to test the 50 day moving average. But more importantly, it would indicate the lack of direction that is currently being exhibited in the NASDAQ index.
This scenario should produce the evaluation of pinpointing the charts/sectors that are showing strength, creating long positions, as well as identifying the sectors that are weak, producing some good short situations. When the direction of the market is not showing any great resolve in one direction or another, the prudent strategy is to have both long and short positions established in the portfolio.
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Good Investing,
The Candlestick Forum Staff