Candlestick Trading Blog
Not every market rally is the same. A market rally is an up turn in the stock market, superimposed on a downward trend. A derogatory term for a bear market rally is a sucker’s rally as it implies that optimistic investors are being suckered into buying when the overall bear market will shortly reassert itself and wipe out any short term profits. Unlike long term investing which will look for temporarily under priced stocks, trading stocks, especially short selling, can be profitable both in a short term market rally and the reassertion of the downward trend. The use of time honored technical analysis tools such as Candlestick charting and Candlestick analysis will help traders understand and profit for market reversal, whether it is the market rally or the reassertion of the bear market.
Whether traders are trading stock, buying puts, selling calls, or trading futures, understanding the nature of a market rally can spell the difference between sweet profit and sad loss. A rally is a secondary market trend and is an upward movement in a bear market. This is as opposed to a correction which is typically a five to twenty percent drop in stock prices superimposed on a bull market. In each case traders and investors want to know if the secondary trend is temporary or a change in stock market movement. Both fundamental and technical analysis are necessary to understand the nature of a market really. Fundamental analysis will tell the trader where a stock “ought” to be based upon price to earnings ratio, progressive cash flow ratios, the promise of its products, and the buying power of its market. Technical analysis using Candlestick basics will compare share price history with known technical patterns to help predict where the market is really going. Being there at the start of new bull market is the hope of the long term investor. Buy once, pay commissions once, and profit for years as a stock rises in value and increases dividends every quarter is the stuff of dreams. It is certainly possible with a firm grasp of fundaments and close observation of a stock’s performance with Candlestick chart analysis. As history always repeats itself the use technical analysis charts will help the trader see the future (as a repetition of the past). Having a firm sense that fundamentals and market price movement both predict a market reversal can help the trader buy the stock at the right time. The same principles will help the trader sell stock at the top of the rally and then immediately short sell if the rally turns out to be just a bull market rally, a sucker’s rally. A typical secondary market trends, whether a correction or a rally, can last a couple of weeks or a few months. The duration will depend upon resolution or worsening of market fundamentals as well as solidifying market sentiment. Traders make their living on market volatility so trading a market rally with the help of Candlestick pattern formations can be just another opportunity to take advantage of temporary market inefficiency as the market sorts itself out.Online Stock Market Reviews presented live via the internet by Stephen Bigalow |
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