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| Candlestick
Profits - Still Untapped. |
Misunderstood.
That can be the only explanation for Japanese
Candlesticks, the most proven investment technique
in history, to be so underutilized. This technique
has been exposed to the U.S. investment community
for approximately twenty-five years. Yet it
is only recently that interest has picked
up in this highly accurate investment technique.
The investor who takes the minimal time and
effort to master candlesticks will reap inordinate
profits. This is not an empty promise. Basic
analysis of Japanese Candlesticks produce
a couple of irrefutable conclusions.
A candlestick signal formation has a major
aspect that makes it more powerful than all
other technical analysis. The signal is the
result of a change in investor sentiment.
This statement will be repeated for effect.
The signal is the result of a change in investor
sentiment. Not the anticipation of
a possible change! The actual result is the
change of trend direction. Having this tool
in an investor’s arsenal can dramatically
change an investor's ability to maximize profits
while reducing risk exposure. It allows the
average man/woman on the street to invest
with the same temperament as the professional
trader.
Buy at the bottom, sell at the top. Pretty
easy, right? Yet where does one grab the falling
knife? When is high too high? Candlestick
signals alleviate that problem. A candlestick
buy signal, appearing after an extensive decline
in a stock price (all trading entities can
be effectively analyzed with candlesticks.
The term “stock” will represent all trading
entities) reveals compelling information.
This information inherently benefits investors,
making for comfortable trading decisions.
The basic function of investing is to make
money. However, few investors develop a trading
program that put 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! Today’s Candlestick signals exist
today because of hundreds 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
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 misinterpretation 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. Learning how to use
the signals correctly is now easy and can
provide tremendous investment profits.
Utilizing the Candlestick technique produces
two powerful investment considerations. First,
the demise of most investors is that great
bugaboo – Emotion. Exploiting fear and greed
created by the masses is the biggest contribution
to professional investor's profits. Japanese
Candlestick trading eliminates emotional investing.
Due to the fact that the signal is the visual
depiction of investor sentiment and graphically
illustrates a change, the candlestick investor
becomes knowledgeable about when the masses
are creating a profitable opportunity. Most
investors panic at the bottom. And they get
over-exuberant at the tops. Knowing this and
visually seeing it happen forces the Candlestick
investor to buy when the buy signal is formed
at the bottom. They sell when they see the
sell signal at the top. Did you ever wonder
when people were panic selling, with blood
flowing in the streets, who was buying? Or
when the news on a company was so wonderful,
who was selling to everyone piling into a
stock at the top?
Secondly, the Candlestick signals have an
additional powerful aspect not found in other
techniques. Not only did the Japanese rice
traders identify high profit reversal signals,
they added another overwhelming aspect to
candlestick analysis. They proceeded to interpret
what investors were thinking when forming
a signal. This process alone institutes dynamics
that put candlestick analysis light years
ahead of any other trading technique. Remarkably,
what should be considered a highly sophisticated
program, is merely the accumulation of common
sense observations. This makes understanding
candlestick analysis very easy to learn. Yet
it provides insights that revolutionize most
investor’s decision-making processes.
The “technology stock” bull market and crash
is still fresh in everybody’s mind. The exuberance
was so great that most investors didn’t know
when the top was hit. Having the indexes graphically
depicted by candlesticks provided a platform
for knowing when to take profits and/or shorting
stock. Note in Figure 2, a Shooting Star formed
at the top of the Nasdaq market. A candlestick
investor, upon witnessing a Shooting Star,
(a Shooting Star is a formation where the
open and the close are at or very near to
each other at the lower one-third of the daily
trading range - it illustrates that the buyers
and the sellers are indecisive) at the top
of a major move, would have been immediately
alerted that a top was imminent.
Figure 2 - Top of the NASDAQ Market
Candlestick signals were present at the top
of the Nasdaq bull market.
Note that a couple of weeks later, the Nasdaq
tried to make a run for another new high.
However, another weak candlestick signal,
a Doji, occurred prior to the move making
a new high, demonstrating that the buyers
were running out of steam. This would have
been an opportune time to liquidate all positions.
Using the signals, whether day-trading, swing
trading, or long term investing, provides
a method to identify when the buyers are making
a presence and when the sellers are stepping
in. Even the fundamental investor can effectively
use candlestick signals to protect their positions.
A sell signal appearing in a stock position
can give the fundamental investor an alert
that something might be changing. Revisiting
the fundamentals of that company may be warranted.
Using the candlestick method of thinking,
shareholders of Enron Corporation could have
greatly modified their positioning upon viewing
the candlestick chart.
Figure 3 - Enron Corp. chart
Enron Corporation's long term chart showed
signs of a pullback. The magnitude could not
be anticipated, but employee retirement plans
could have been modified.
Making a basic assumption, that signals have
a high degree of accuracy, puts the probabilities
immensely in the Candlestick investor’s favor.
Adding simple confirming parameters also enhances
the degree of accuracy. There are approximately
40 signals. Fortunately only eight to ten
are more than the average investor needs to
learn to be highly successful at investing.
The frequency and consistency of these “Major”
signals will produce more trading opportunities
than most investors require. Easy-to-use search
programs can identify a dozen highly profitable
trades each day. Any investor with ten minutes
of subjective analysis can fine-tune those
stocks to find which position or positions
are the highest probable trades.
Using the Candlestick technique provides the
format for developing inordinately profitable
programs. The definition of inordinate will
range with the amount of time each investor
can contribute to investing each day. Achieving
returns of 10% to 40% monthly is not out of
the realm of comfortable investing. Having
a high degree of confidence in a trading entity's
direction creates many opportunities to maximize
profits. Short-term traders can go long or
short. Long-term investors can exploit short-term
pull-backs by writing options against their
positions. Relying upon brokerage firms ho-hum
recommendations becomes less vital. Investors
can now control the results of their own investments.
The prime aspect that allows investors to
amass wealth using candlestick formations
reverts to one basic element. Probabilities.
Visually recognizing a pattern having a high
degree of probability of changing the direction
of a trend, immensely increases the investors
ability to amass huge profits. To not take
advantage of the knowledge incorporated in
the signals is to leave an immense amount
of wealth on the table. Mastering Candlestick
signals and the ramifications that are built
into the signals is not difficult. Having
the most researched investment technique in
the world provides the structure for revolutionizing
investor thinking. Knowing how the signals
are formed by the masses providing fear and
greed opportunities, allows the Candlestick
investor to take advantage of a constant supply
of high profit situations. Learn to be the
buyer when everybody is panic selling. Take
two weeks of your life to master a technique
that will forever improve your investment
abilities. The concepts incorporated by the
signals are those that traders are currently
using to accumulate huge profits for major
brokerage firms. You can participate in those
profits.
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. |
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