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Kicker Signal = Powerful Profits. |
Do
you chase a stock that is already up 12% on
the day? What do you do when one of the your
stocks announces an earnings warning? What
do you do when one of your stock positions
announces an SEC investigation and after a
pleasant up-trend, it crashes and goes the
other direction? Or a company you own announces
a huge new surprise contract, reversing its
down-trend, gaps up, continues higher. Will
prices bounce right back after the news is
digested? These situations baffle most investors.
However, having the knowledge of Candlestick
formations provides huge advantages. The formation
that the price move creates is an important
function of how to profit from that price
movement.
Big dramatic moves! What do you do? Many investors
act like deer in the headlights, do nothing
as most advisors suggest. But Candlestick
analysis tells you instantly what to do. An
announcement can completely reverse a trend
direction. For example, if a trend has been
in progress, whether strong or mild, and a
surprise announcement occurs, how that formation
rolls out will tell the investor what to do.
One viable possibility is observing the previous
day's candle formation, with the open price,
then the closing price continuing in the direction
of the existing trend. After the announcement,
the price alters its direction, opening at
the same level as the previous day, a gap
open, and proceeding to close in the complete
opposite direction of the previous day. This
is known as the Kicker signal. It is a high-powered
candlestick signal. This signal should never
be ignored. It can create huge easy profits.
The Japanese rice traders identified approximately
50 reversal and continuation signals through
their centuries of developing candlestick
signals. Of these, about 8 major signals will
provide more trades than most investors will
ever need. We put the Kicker signal in the
category of a “major” signal because the results
created from the aftermath of the Kicker.
Figure 1 - 1, Kicker Top and Kicker Bottom
Formations.
The Kicker Signal is the most powerful signal
of all. It works equally well in both directions.
Its relevance is magnified when occurring
in the overbought or oversold areas, but is
effective no matter where it appears in a
price trend.
Consider the investment sentiment that formed
this pattern. It is formed by two candles.
The first candle opens and moves in the direction
of the current trend. Investors are continuing
with the established trend, closing the price
further in the existing direction. Then, something
has occurred to violently change the direction
of the price. Usually a surprise news item
is the cause of this type of move. The signal
illustrates such a dramatic change from the
current price direction that the new direction
will persist with strength for a good while.
(There is one caveat to this signal. If the
next day prices gap back the other way, liquidate
the trade immediately. This does not happen
very often, but when it does, get out immediately.)
The second candle opens at the same open as
the previous day, a gap open, and heads in
the opposite direction of the previous day’s
candle. The bodies of the candles are opposite
colors. This formation is indicative of a
dramatic change in investor sentiment. The
candlesticks visually depict the magnitude
of the change.
Figure 1 - 2, DLTR, Dollar Tree Stores
Due to the change being so dramatic, and the
initial reversal effecting a large percent
of the price, the trend usually persists in
the new direction for an extended period of
time. First, the news report takes investors
by surprise. The people that heard it from
the time it was reported bailed out on the
open. Others will hear about the news later,
making their investment decisions during the
next day or so. Others may not hear about
it for a week or so. If it is bad news, the
overhanging supply keeps weighing down the
price for a few weeks. If it is good news,
it will take a good while for the enthusiasm
to wane. These moves can usually be substantial,
especially if it is moving in the same direction
as the market in general.
The Kicker Formula
The Kicker Signal is can be easily formulated
for search purposes. The position of the signal,
in a trend, is not important. The important
factor is that a severe change in investor
sentiment has occurred. Because the Kicker
signal is a two-day signal, two opposite elements
are required. First, in a Bullish Kicker Signal,
the predominant trend should have been downward.
The first day of the signal would have opened,
traded down, then closed lower than where
it opened.
(O1 > C1)
Day two should have opened equal to or above
the open of day one and then closed higher
than the open of day two.
AND (O => O1) AND (C > O)
Do not let the magnitude of a kicker reversal
signal deter you from making the trade. The
announcement or event that created the Kicker
signal in that stock is not going to be a
one-day affair. It has reversed the direction
of investor sentiment. That was the surprise
in which the investment community reversed
its outlook. The big percentage move, that
first day before you got in, is just a small
part of the rest of the move.
Many investors will mistakenly wait for the
price to pull back so that they can get in.
The candlestick investor does not want to
see a pullback. The buyers should maintain
their buying to make this trade a strong one.
To wait for a pullback is not the buying pressure
that you would want for a strong up-move stock.
The Bearish Kicker Pattern has the opposite
formulas. Of course the trend should be in
a predominantly upward direction. Usually
a bad news announcement will send the stock
price crashing. The formula should be
(O1 < C1)
The open on the following day is equal to
or lower than the open of the previous day
and continues down, closing lower than the
open.
AND (O <= O1) AND (C <= O)
The more overbought when the signal started,
the better. Again, the magnitude of the reversal
is directly related to the strength that should
be conveyed in the remaining portion of the
new trend. Do not be afraid to participate
in the move despite the magnitude of the initial
move. Because the news was a surprise, it
will take at least a few days, if not much
longer, for the investment community to digest
and assess the ramifications of the surprise.
Candlestick Advantage
Knowing what a candlestick signal looks like
creates tremendous profit making advantages.
If a surprise announcement occurs, the Candlestick
trader can take advantage of the price movement
immediately versus waiting to see what direction
the trend will evidentially take. These opportunities
will happen almost every day. Having the proper
search criteria provides a constant supply
of highly profitable trades. In a universe
of 9,900 stocks, it is likely that one or
two will have a surprise external event that
will drastically alter the perception of the
future of those companies. Violent price moves
usually leave investors in their tracks. Having
the foresight of what candlestick signals
can be forming creates great opportunities
to make big profits. Somebody is taking advantage
of the big profit situations. No reason it
can’t be you.
Stephen W. Bigalow is author of “Profitable
Candlestick Investing, Pinpointing Market
Turns to Maximize Profits” and principal of
the Candlestick Trading Forum, the leading
website on the Internet for providing information
and educational material about Japanese Candlestick
investing. |
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