Candlestick Trading Forum
keyword search

Candlestick Trading Forum

Stock Market Chart - A Candlestick Signal Map

Being able to correctly read a stock market chart produces huge advantages. The Candlestick investor uses the stock market chart to put the probabilities in his/her favor. A stock market chart incorporating Candlestick signals as well as other technical indicators produces the visual map for correctly identifying the direction of the markets.

Candlestick signals being identified at important support and resistance levels allows the Candlestick investor to better evaluate market trends. A stock market chart should be an easy and clear format for producing investment strategies. Candlestick signals appearing when stochastics are in overbought or oversold conditions provide high probability trades. These same conditions, occurring at major moving averages or trend lines, increases the probabilities that much greater.

The stock market chart analysis of the Dow should be made in conjunction with the stock market chart analysis of the NASDAQ and the S&P 500. The indexes will confirm each other. A trend can be better analyzed even when seeing the stock market chart in the Dow being positive when the stock market chart in the NASDAQ is negative. This analysis may have a different ramification during a trend than seeing both indexes move in the same direction.

When placing positions in a portfolio, knowing the direction of the overall trends becomes valuable information. The Candlestick signals provide that visual information immediately.

Market Direction - As can be seen in the Dow trading over the past few weeks, the 500 day moving average acted as support and recently the 200 day moving average acted as resistance. This latest rally started with a Spinning Top, just touching the 500 day moving average, and a Bullish Engulfing signal the next day.

From that level, it should have been assumed that the 500 day moving average acted as support. Had trading closed below that moving average, the analysis from the stock market chart would have been completely different. The lack of support would have implied a much lower market.

The rally from the 500 day moving average made the 200 day moving average and the 50 day moving average the potential targets. The fact that Wednesday's trading went right through the point where the 50 day and the 200 day moving average were coming together has significant implications. A weak Candlestick signal at that level provided the information that those moving averages were going to act as resistance again.

As the stock market chart in the Dow reveals, those moving averages are now not a resistance level. Stochastics still have room to the upside before becoming overbought. This would imply that there are a few more potential up-days. That also provides the possibility that on the next pullback, the 50 day moving average or the 200 day moving average could act as support. Once a resistance level is breached, it commonly becomes a support level in a continued uptrend.

High Profit Patterns - Having the ability to analyze the stock market chart permits a Candlestick investor to take advantage of high profit patterns in individual stocks. Patterns such as the Scoop pattern, a J Hook pattern, the Fry Pan Bottom pattern and other common patterns become much easier to exploit with Candlestick signals.

As illustrated in the RT chart, which was recommended for Wednesday morning, the probability of being in a correct trade becomes greatly enhanced. Additionally, the Candlestick signals occurring at the correct support levels increases high profit potential. When these parameters are added to the evaluation of the market direction, the combination becomes a very powerful investment tool.

Notice how the RT chart had a Harami/Hammer that bounce right off the 50 day moving average. The following day showed confirmed buying. Now the high profit pattern analysis becomes easy. A gap-up from May 1st produced an extremely strong trade. The Doji at the top indicated the sell signal. It should not be considered a mere coincidence that the pullback came down to almost exactly the 50 day moving average.

Buying on the open, after a signal set-up, with all the parameters in the right place makes for a profitable trade probability. Will all trades produce 10% moves in one day? Definitely not! However, when a high profit pattern such as the J Hook pattern appears to be forming and it occurs right on a major moving average, the potential for a profitable trade is very good.

Does that mean that a trade set-up such as this will always be a big potential profit trade? Definitely not! But it does put the Candlestick investor in a situation where a high profit returns an occur. The basic premise of profitable investing is to have your money in situations that have a high probability of being in your favor. Being in those positions with all of the indicators in your favor increases the probabilities of being in strong price moves.


Candlestick Trading Forum