Commodity Trading Trend Identified with Candlestick Reversal SignalsA commodity trading trend incorporates elements that make commodity trading easier than stocks. A commodity trading trend usually moves with more consistency than that of a stock trend. The reason is very simple. A commodity trading trend is usually influenced by very few factors. These factors are usually supply and demand or weather. Candlestick signals clearly define when investor sentiment is reversing in a commodity trading trend. Keep in mind, the candlestick signals were successfully developed in the most basic of commodity, RICE.
Stock trends are influenced by many factors not directly related to the stock price itself. The market movement in general, interest rates, crude oil prices, and many other outside influences can change the direction of a stock price. A commodity trading trend is directly influenced by demand outpacing supply or vice versa. The demand versus supply can be clearly illustrated by the reversal signals in candlestick signals. Investor sentiment is directly affected by price. Candlestick signals become a very strong indicator for illustrating when investors anticipate the price is now meeting the demand requirement. This change of investor sentiment creates clear candlestick reversal signals. A commodity trading trend will show the same investor changes repeatedly.
Learn to recognize the candlestick signals. It becomes extremely useful to have this knowledge for recognizing a change in a commodity trading trend as well as a stock trading trend. Although a stock trading trend may be more difficult to read as far as consistency, the candlestick signals still produce a high probability trend analysis. Each signal has been fully analyzed by Japanese Rice traders for centuries. This is the purest form of statistical analysis. The benefit of the candlestick signals is that they are actual working signals that have been utilized successfully. Having the knowledge that is incorporated in each of the reversal signals provide the investor with a huge advantage for trend analysis. An example of a trend reversal is outlined below in the "ladder bottom'.
The downtrend is finishing with four consecutive black candles, each closing lower than the previous day. The fourth day is different. It opens and trades higher during the day, even though it closes the day on the low. The next day opens higher than the open of the previous day, a gap up, and continues to head up all day. The final day of the signal closes higher than the trading range of the past three days.
- Like the Three Black Crows pattern, the beginning of the signal has three black candle days, each with lower opens and closes of the previous day.
- The fourth day resembles a reverse hammer signal, opening, then trading up during the day before closing on its low.
- The final day opens above the open of the previous day open, a gap up and continues upward for the rest of the day, a Kicker-type pattern. It finally closes above the trading range of the previous three days.
After a strong downtrend has been in effect for a while, there is a day when prices try to climb back up to the previous day's high. This gets the bears attention even though it closes on the low that day. When it opens up much higher the next day, the bears start scrambling to cover and the bulls start taking control. If volume increases noticeably on the final day, that will be a good indication that the bulls and the bears have exchanged their positioning.