|
|
| Don't
Get Enron'd - Candlesticks Can Protect Your
Retirement. |
Millions
of Americans work for good, stable companies.
So we think! Yet consider the twenty thousand
plus employees who worked for Enron. In September
2001, the atmosphere in the Enron offices
was not any different than what it had been
for the previous five years, robust and vibrant.
People were proud to work there. The management
policies made the daily business environment
a place people looked forward to every day.
Everything was great, no problems whatsoever.
The majority of the Wall Street analysts were
recommending the stock. Top management was
painting a rosy picture for the company’s
future. New projects were being introduced.
Money was flowing. The future looked great.
Enron employees, like millions of other corporate
employees around the world, were immersed
in the day-to-day activities of the corporation.
How could they have ever have known there
was any trouble?
This could be the same description for thousands
of corporations across the nation, across
the world. So how does the individual employee
protect himself or herself from the unthinkable?
What precautions can be taken that will alert
you to something not being right in your own
company? Something that was not detected by
the “diligent” Wall Street analysts, the scrutiny
of professional accounting firms, the safeguards
of your company’s management.
The odds of another Enron debacle could be
extremely minute. But can you afford to lose
your retirement money, can you afford to be
hit by the same ramifications that thousand
of ex-Enron employees are facing today? There
was a simple tell-tale indicator that could
have saved people's retirement accounts. Japanese
Candlestick charts.
If you are not familiar with Japanese Candlestick
analysis, it will be worth your while to learn
how to use the charts. It is simple and easy.
The visual illustration of what is happening
in a company’s stock is clearly apparent on
Candlestick charts. This simple yet accurate
depiction of what is the cumulative sentiment
of the investment community reveals valuable
information. For the employee, it cuts to
the chase as to whether investors are buying
or selling the stock.
Japanese Candlestick signals are the result
of hundreds of years of successful rice trading.
Successful is really an understatement. The
Honshu family refined the technique. Observing
the highly accurate reversal signals not only
made them wealthy, it made them legendary
wealthy. Their influence is the basis of today’s
Japanese investment philosophy, stemming from
the observations derived in Candlestick analysis.
The basic function of investing is to make
money. However, few investors develop a trading
program that puts the probabilities in their
favor. If searching for the “Golden Goose”
of investment programs, the criteria would
be simple; well researched, proven track record,
and easy-to-identify reversal points.
All three of these elements are incorporated
into Candlestick signals. Hundreds of years
of rice trading resulted in the identification
of high probability, profitable trades. Make
one assumption. The signals would not be around
today if it were not for one convincing result.
PROFITS! Candlestick signals exist
today because of hundred of years of actual
profitable trades. Not computer back testing.
Not questionable results. Profits produced
from utilizing the signals are the only reason
we are witnessing these signals today.
Reversal points were identified by rice traders
using very simple charting techniques. You
can take advantage of these clear, profitable
signals. Japanese rice traders used the same
information found on a standard bar chart.
The difference is that they put more weight
on the open and closing prices as well as
the high and the low of a time period.
As illustrated in Figure 1, an open that is
lower than the closing price creates a white
candle. An open that is higher than the close
creates a black candle. The positioning of
these candles, with analysis of the colors
of the candle, provides valuable information.
Figure 1 - Bar Chart vs. Candlestick Chart
Learning how to use the signals correctly
is now easy and can provide tremendous investment
profits. Until recently, mastering the Candlestick
technique had its drawbacks. First, there
were very few places to go to learn how to
use the signals effectively. That resulted
in a lot of misinterpretation of the signals.
This created a questioning of the effectiveness
of the candlestick signal technique. However,
websites such as www.candlestickforum.com
provide investors with a learning forum as
well as the exposure to different degrees
of candlestick analysis. Trying to master
approximately 40 signals has been the major
deterrent for the methodology becoming overwhelming
popular during the past couple of decades
in the U.S. Fortunately, eight to ten of the
signals will be responsible for 90% of the
potential profits. This makes the learning
process immensely easier.
Trying to decipher what is corporate Rah-Rah
and what are true facts becomes difficult
when one is right in the middle of the forest.
Also, the amount of loyalty demonstrated to
the company usually has an underlying impact
in one's career progress. However, maintaining
one's retirement security is a high priority.
It is easier to accumulate your own company's
stock in your retirement account than trying
to analyze alternatives. The company has been
good to you. The stock price has been growing
well. Owning the stock demonstrates your loyalty
and dedication to the company. However, like
all investment vehicles, your company stock
can oscillate just like any other stock. There
will be times when it is ahead of itself in
price. There will be times that management
makes mistakes in which direction to take
the company’s growth. There will be times
that the market in general is not favorable
for being in any stocks.
Japanese Candlesticks can act as a monitor
for when an investor/employee should be accumulating
stock or moving to other investments. Note
in Figure 2, Enron’s monthly chart, that a
long-legged Doji signified that the current
uptrend was over. The corresponding stochastics
indicated that the stock price was overbought
and starting to curl down. This would have
been an indicator for employees to lighten
up on their stock position in their retirement
accounts and temporarily diversify to other
investments. Would the Candlestick charts
have projected the magnitude of the stock
price pullback? Of course not. But it would
have alerted investors and employees to reduce
their positions until the stock became oversold
and a buy signal appeared.
Figure 2 - Enron Corp. chart
The rosy picture of Enron’s future did not
correspond with what the rest of the investment
community envisioned.
The situation with Enron has awakened the
investment community to the pitfalls of Wall
Street analysis, professional accounting,
and management stop-gap procedures not always
alerting investors of problems. It magnifies
the need to be diversified. At worst, it alerts
employees that some due diligence is required
in their own company’s stock. Working there
day in and day out doesn’t always ensure that
the employees know everything that is going
on. Having Candlestick knowledge is a tool
that all investors should have in their arsenal.
Becoming familiar with Candlestick signals
provides other powerful investment ramifications.
The roaring bull market of the late 1990’s
brought many inexperienced investors into
the market. The huge growth of many 401k programs
opened the eyes of people who had not invested
previously. The “technology boom” created
the illusion that everything was going up
and always would. Investing in the stock market
was a place to make easy money.
The late 1990 period was the first time in
the history of the Dow that double digit growth
occurred more that two years in a row. Unfortunately,
the “technology” crash of 2001 more than took
back the gains produced in the prior four
years. New dynamics entered the market. The
“Buy and Hold” investment strategy may have
been severely compromised. The resulting changes
permanently altered how investors should look
at the markets. Those changes could produce
huge profits for the Candlestick analyst.
During the mid-70’s to the early 80’s, the
“Buy and Hold” philosophy was preached under
the guise that the market was undervalued
and would eventually move prices towards their
true value. This was a period during which
the U.S. economy was struggling. Interest
rates went sky high. The Japanese auto manufacturers
were producing much better product than the
U.S. manufacturers. The U.S. manufacturing
facilities were old. Modern plants in Europe
and Asia were more efficient. New American
industrial plants needed to be built to compete;
yet the cost of money prohibited any new construction.
Slowly, technology started making U.S. manufacturers
and service industries competitive again.
The mid 80’s to the mid 90’s had an American
economy that was again competitive in the
world markets. Stock prices grew steadily.
Technology was slowly being implemented into
the production of American products. Quality
increased, manufacturing costs were being
controlled. Inflation was abated. The Dow
moved from 1000 to 9000. The buy and hold
strategy was a reasonable strategy.
Then in the mid 90’s, a duo dynamic developed.
First, the availability of investor information
became instantly available through the internet.
The American public did not have to depend
upon brokerage firms any more for their investment
information. They could access the information
and interpret it for themselves.
The “intelligent” analysis from stock brokers
and investment analysts was not required.
The common man not only did not need investment
advice as it was doled out in the past, they
could place their own transactions without
exorbitant commissions through discount brokers.
The once popular adage, “when the public is
buying, it is time to sell” dissipated. It
became evident that the average investor was
capable of making intelligent choices. During
some severe one-day market crashes, it was
the institutions bailing out at the bottom
and the general public buying the bargains.
“Buy and Hold” may not be effective for the
next market environment. Technology, despite
its current blemished reputation, makes Candlestick
analysis a must for the next few years. Consider
what we have witnessed during the past five
years. The markets roared, led by technology
stocks. Although they got ahead of themselves
and came plummeting back down, an important
message was delivered.
Up until five years ago, manufacturing pursued
technology to develop new and innovative advances.
When manufacturing needed to become more competitive,
it went to research departments and companies
to develop a better way to do things. However,
a dynamic change occurred in the mid 90’s.
Technology, with constantly improved computer
tools, started to leap-frog on itself. Technological
improvements for manufacturing, medicine,
software, and the service industries started
to advance in geometrical proportions. Improvements
were being made on improvements before they
could get it to production.
Having knowledge about Candlestick signals
now becomes more vital to investor's performance.
Sector stock trends may not have the long
growth cycles any more. It will become important
to observe where and when funds are flowing
to particular industries. This is the valuable
aspect that Candlestick signals present to
the investment community.
Because technology stock prices are greatly
reduced from their recent lofty heights does
not mean that the results of the technology
that each company produced is diminished.
The speed to which new technology processes
can change the face of an industry has not
been abated. Technology is now pulling industry
along versus industry having to push for better
technology. It will be important to follow
when each company has great growth potential
and when new technology being introduced to
a competitor can stop that growth rate. Fortunately,
Candlestick analysis easily identifies when
the buyers and sellers are coming into a stock
price. Instead of one or two years or more
of a leader of an industry being able to maintain
their leadership position, technology may
compress leadership positions into a six month
to a one-year time frame.
Investment cycles may become relatively short.
The buy and hold method could provide low
returns in the future. Holding a stock that
goes up 25% in six months, then back down
to even over the next six months does not
add any value to an investor's portfolio.
The best investment program in this technology-stimulated
market may be to take profits after three,
six, or nine months.
Candlestick charts are a great way to enhance
returns for the fundamental research investors.
Being the best research analyst in the world
does not do any good if it requires sitting
in a stock months or years before the rest
of the market takes notice of what your analysis
discovered.
The Candlestick signals provide fundamental
research analysts with two valuable functions.
First, they develop a platform for the most
effective timing to enter a position. Fundamental
research can prepare an investor to be ready
for good things to come in a particular company.
Candlestick charts provide the mechanism for
maximizing returns, entering and exiting positions
at the exact times. Returns on managed money
can be greatly enhanced utilizing Candlestick
signals.
Second, established positions can be better
protected by monitoring the Candlestick charts.
Once a company has been researched and a position
has been put in place, a strong candlestick
“sell” signal can warn investors that a severe
change may have occurred in the fundamentals
of a company. It would allow for a quick review
of the company’s operations to see if a change
of status had occurred. As in the Enron situation,
all the good news from the company was not
verified by the accumulative action of investment
community thinking. The charts showed selling.
Something did not match.
Candlestick signals have been around for hundreds
of years. They were introduced into the U.S.
investment community twenty–five years ago.
New teaching methods are making candlestick
signals very easy to learn and use. Whether
to use them as a high profit investment program
or to use them for monitoring your existing
portfolio, every investor should utilize the
powerful aspects incorporated in the signals.
Being able to see what stocks are doing versus
relying upon what “the professional sources”
are telling you, could keep you from ending
up with a worthless retirement plan some day.
Stephen W. Bigalow is author of “Profitable
Candlestick Investing, Pinpointing Market
Turns to Maximize Profits” and principal
of www.candlestickforum.com,
the leading website on the Internet for providing
information and educational material about
Japanese Candlestick investing. Over fifteen
years of extensive study and utilization of
candlestick analysis has produced an array
of easy-to-learn educational material about
Candlesticks. As one of the leading Candlestick
experts in the nation, Mr. Bigalow, through
his consulting with major trading firms, has
developed multiple successful trading programs
for the day-trader to the long-term hold investor. |
|
|
|
