Candlestick Trading Blog
Market trends fall into three broad categories. Secular trends are long lasting while secondary trends are short term. Market trends that fall in the middle are called primary trends. An upward market trend is commonly called a bull market and a downward market trend is called a bear market. Fundamental analysis of market sectors, the economy as a whole as specific stocks commonly helps in long term investing. For short term trading technical analysis helps predict where the stock market, options markets, futures markets, or commodities markets are going next. Technical analysis tools for predicting market trends go back hundreds of years to ancient Japan when rice traders developed Candlestick charting techniques to forecast movement in the rice market.
Buy and hold investing did well for many investors over large time periods of the twentieth century because of the expansion of the US economy after the First World War and again after the Second World War. In a persistent bull market the odds are better that a stock price will go up than down. The argument for long term investing has often been that market trends usually go up over the years so in buying and holding the investor does not pay a lot of commissions and just collects dividends and watches prices of their stocks rise. Such investments did, indeed, do well for years. Even with the occasional market reversal many long term investors regained any losses after a recession corrected itself or a mismanaged company brought in new management. However, the world changes, the market crashes, and the reemergence on an American bull market soon is far from certain. The problem with buy and hold investing is that there is a lot of market movement that just gets averaged out over the long run. Traders typically look at medium term (primary) market trends or short term (secondary) trends. Traders know that by using time honored tools such as Candlestick pattern formations and Candlestick trading tactics that there can be substantial trading success in a year in which a stock goes up or down and then back to its starting point. The long term investor, in this case, does not lose or gain anything but the trader, by being aware of medium and short term market trends, profits. Use of Candlestick charts will let the market tell the trader what the market will do next. The trader believes that active involvement in markets is more profitable than passive buy and hold investing. Another example of trading success over “buy and hold” principles is in how each handles a bear market. The long term investor will too often follow the passive strategy too long as a stock drops in price, getting out when everyone is despondent and thinks the next Great Depression is around the corner. Traders will sell short as the market collapses, profiting from downward market trends. Then, when technical analysis of stocks predicts a market turnaround they will buy to cancel out their short sell and, buying calls in the options trading continue to profit from market trends.Online Stock Market Reviews presented live via the internet by Stephen Bigalow |
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