Candlestick Trading Blog

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Market timing means to predict the future direction of the market and technical indicators are typically used to do this. A technical indicator is a series of data points that result from applying a formula to the price data of a security. This data includes the open, high, low or close of a security such as stocks or commodities, over a specific period of time. While some market timing indicators only use closing prices, others look at an incorporate volume and open interest into their formulas. The data point is produced by entering the price data into a formula. Technical indicators are used in technical analysis as opposed to fundamental analysis. Technical analysis is the study and prediction of price movements.

There are many different types of technical indicators available to investors who practice market timing when investing. In today's article we will discuss two. First we will take a look at Candlestick patterns. There are 12 major candlestick patterns that must be memorized by the investors however there are about 40 candlestick signals that consist of continuation and reversal patterns. The major signals occur in price movements often enough that that they warrant actually placing trades. The other signals while they rarely occur are still effective in producing profit when trading stock.

The moving average (MA) is another technical indicator that shows the average value of a security's price over a specific period of time. There are different types of moving averages such as the simple moving average (SMA), the exponential moving average (EMA), and the weighted moving average (WMA). The purpose of using the moving average is to track the trends of a security by smoothing out the stock price fluctuations of daily price data, also known as market noise. Market timing uses moving averages by plotting data onto a stock chart that stock traders can then use to identify trends.

On another note, there is also mutual fund timing that is the switching of mutual fund asset classes in attempts to profit from the changes in their market outlook. This is different from market timing and it is frowned upon my long term investors because it has a negative effect on a fund's long term investors because they are subject to higher fees due to the transaction costs of the short term trading. Due to this, most mutual funds impose a short term trading penalty for traders who do this.

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