Investment Timing - Improving Your Results With Candlestick Trading
The phrase 'timing is everything' is absolutely true when committing to any stock market investing strategy. For our purposes, it may even be more true that 'investment timing is everything'. Politicians, actors, comedians, singers, and athletes all rely on timing as a key skill in their success. Putting yourself in the right place at the right time is a crucial part of the skill, or luck, of any kind of success.
So does investment timing success depend on luck? Well yes and no. Successful traders believe that you create your own luck if you put yourself out there, take risks, although calculated ones, and put yourself in situations where you can take advantage of investment timing opportunities.
As an example, a common piece of advice that is given today is 'get into property', and as a general rule it's sound advice. In general, property appreciates in value over time and delivers significantly better risk reward ratios than any savings program or bank can offer. However, investment timing can make or break the investment opportunity. Many people have haphazardly entered the property market at the wrong time and made very little; and in some cases ended up in negative equity. If you buy in a city or town that is rising, then you will normally make money from your long term investing calculations. If you buy in city where a factory lays off 1,000 employees, causing widespread unemployment, as soon as you enter the market - there is a good possibility that you could see very little growth, lose money, or wait a long time to see a return on your investment.
The best investment advice is to continually develop your investment timing skills and be able to recognize opportunities as soon as they arise. Think laterally, broaden your perspective, and learn how to predict how local and world events will shape things financially. Then take calculated risks based on those factors. If you can get comfortable with this new kind of thinking, then you will benefit from investment opportunities that others in the stock market community miss – and more importantly you will see them in time to get in early.
Market Direction: As indicated by the Bullish Harami right on the 20 day moving average last week, followed by a doji day coming back to test the 20 day moving average, and closing at the higher end of the trading range, produces the evidence of the 20 day moving average was going to act as support. A longer-term basis, what could have been a downtrend starting with an Evening Star signal was terminated. The uptrend, which could be seen in the trading channel, was becoming a higher probability.
DOW
What did today's trading demonstrate? The Dow formed an indecisive trading day near the top of the trading channel. It was not a Harami in that it opened slightly higher than yesterdays close. Has the potential of being a Hanging Man signal. How does this fit into your analysis? The top of the trading channel is very close, which could be potential resistance. The stochastics are still in an uptrend but appear to have some more upside potential. This would create the conditions for the Dow to butt along the top of the trading channel for the next day or so. Or have the potential of another strong day that would breakout through the top of the trading channel. A breakout through the top of the trading channel would probably induce some stronger buying. Investor confidence should be building up with the uptrend persisting. Upon seeing the futures showing a very weak open tomorrow would be an indication that the Hanging Man signal will be confirmed in the top of the trend channel had once again held.
The NASDAQ closed just slightly positive after opening back on the 200 day moving average. The stochastics are still in an uptrend but in the overbought condition. This evaluation would also imply that there is another day or two at least to the upside. But once again, very weak futures seen tomorrow morning would provide an indication that the NASDAQ would be failing at the 200 day moving average.
NAS
The recent investor confidence has come back into the equity markets based upon the hard drop in crude oil prices. That hard down move was easily seen from the candlestick signals revealing the sellers coming into the price with force. Interest rates have been holding up above the 20 day moving average. Lower interest rates also diminish investor anxiety.
Continue to hold long positions until sell signals become obvious. The individual stocks that are acting well can continue to be held. The definition of acting well is being able to identify strong buy signals in a trend reversal and the potential sell signals after the prices moved. A clear example is from one of our recent picks. WITS shows a Cradle chart pattern that formed in mid August. The uptrend persisted without any confirmed sell signals for over three weeks. The obvious profit taking strategy can be viewed in the dark candle at the top.
WITS
A Doji in the overbought condition starts to reveal indecision. However, where do most investors buy? Buying enthusiastically at the top. Overbought conditions in the stochastics, followed by a large gap-up, should have been the candlestick investors alert to be prepared to take profits. The large gap open was immediately followed by selling versus buying. Upon seeing the gap-up in price in the overbought condition, taking profits on half the position should be an immediate consideration. Could the price go higher by the end of the day? Certainly, but the probabilities indicate that prices are in an area of higher risk. If half the position is closed with a large profit and the other half position continues to move higher, at least profits are still be in made with the remaining half position. Utilizing trading strategies to plug profits into the account when the probabilities dictate helps the investor consistently make profits for the account, not trying to maximize profits on every trade. Click here for the Advanced Pattern Analysis Training CDs.
Commodity Trade - Our recommendation to short October Live Cattle was instigated by the Evening Star signal. Maintaining the short position becomes much easier when utilizing the information the signals provide at major technical levels. The failure of major moving averages can be viewed as a decisive or indecisive price move. Having the ability to interpret what the candlestick signals indicated at important levels becomes a very profitable exit strategy or allows an investor to maintain profitable positions.
LC
As can be seen in the Live Cattle chart, the 20 day moving average did not show any support. The failure of that level made the next level, the 50 day moving average, the next viable target. Analyzing where the stochastics were gave an indication of what might be expected at that level. Witnessing the price, opening below the 50 day moving average, reveals valuable information. The probabilities of the trend continuing lower, with the stochastics not quite to the oversold conditions, produce the confidence to continue to hold the short position. Had a candlestick signal formed at the 50 day moving average, the decision to hold the short position may have been completely different.
Candlesticks work very well with commodity trading. Keep in mind, candlestick signals were developed on the most basic of commodities, Rice. The graphic depiction that forms the signals can be utilized in commodities, currencies, stocks, bonds, or any other trading entity that involves investor emotions. The correct interpretation of candlestick signals can produce large and consistent profits in many trading areas.
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Good investing,
The Candlestick Forum Staff