What is the most advantageous aspect of a stock trading system? Being able to identify the trend of the market! A stock trading system becomes extremely profitable when the reversals are correctly identified. Most stock trading systems are predicated upon parameters that do not necessarily correlate with the direct movement of the markets. For example, a fundamental research-based stock trading system establishes positions based on the projection of companies in a sector or industry improving their earnings over a specific period of time. However, what is lacking in this stock trading system is the fact that investor sentiment can change many times before the results of those increased earnings finally occur. The advantage of Candlestick signals is being able to identify what investor sentiment is doing in those stocks, no matter what the long-term earnings projections might be.

The Candlestick signals are the result of a simple premise. Investor sentiment is going to change based on price movement. The best company in the world, one with great earnings expansion, is going to have price movements that do not correlate with the rhetoric that surrounds that company. A stock price that moves from $10 a share to $15 a share during a 10-day time frame may have profit taking occurring. The price at that point may start backing off, no matter how great the earnings expectations are for the next 12 months, because some investors felt they were happy with a 50% profit in two weeks. Price movements occur based on investor sentiment. A stock trading system that utilizes Candlestick signals exploits the oscillations that occur.

Becoming educated on how Candlestick signals work effectively allows an investor to create a stock trading system that takes advantage of human emotions. The fact that most investors panic-sell at the bottom and buy exuberantly at the top is not going to change. That investor mentality has occurred ever since the beginning of investing. And it will remain in effect for centuries to come. Understanding that most investors sell at the wrong time and buy at the wrong time allows the Candlestick investor to graphically recognize that occurrence. A very powerful stock trading system can be put into place by very simple rules using Candlestick signals.

Taking advantage of the incorporated knowledge, especially in the 12 major Candlestick signals, will greatly enhance an investors returns, whether trading in stocks, bonds, commodities, or currencies. Having the ability to analyze other markets that are affecting the markets you are trading in also greatly enhances the probabilities of being in a correct trade.

As illustrated in the March Crude Oil chart, the Long-Legged Doji, right at the 50-day moving average, followed by a gap-up, produced an excellent short term trade in Crude Oil. However, many Crude Oil stocks showed dramatic sell signals in Thursday's trading. Is it time to short Crude Oil related stocks? Maybe there is some profit-taking going on after the strong run up. This profit taking may be enhanced as we saw a Bearish Engulfing signal occur in Crude Oil prices at what could be considered a strong resistance trend line.

March Crude Oil

For the investor that might be considering taking profits in oil stocks, the analysis from the Crude Oil chart may assist in that decision making process. A stock trading system should take advantage of all the analytical tools provided by the Candlestick signals. This is not rocket science. This is a common sense application of signals that have occurred in tread reversals for the past few centuries. Learn the 12 major signals and you'll have a great advantage for trading any market that you want to participate in.

As illustrated in the Kerr-McGee chart, oil related stocks have had a nice run-up for the last month and a half. There were many bearish Candlesticks signals formed in the oil sector today.

The Bearish Harami, with stochastics in the overbought area starting to turn down, provides an excellent signal that profit-taking may be coming into the Kerr-McGee stock price. A lower open on Friday would warrant shorting the stock or buying puts. This stock trade will get confirmation from seeing lower Crude Oil prices Friday.

Kerr-McGee Corporation

Market Direction - The Dow has had stochastics in the overbought area for the past week or two. It has now come back up to the recent high that was seen in late December. What should be expected from here? Wednesday formed a Doji in the Dow while Thursday showed selling that came more than halfway down the bullish candle of Tuesday, forming a very strong Evening Star signal.

DOW

The stochastics are now curling over, indicating that we’re probably in for a sell-off. How long will that sell-off last? Who knows! Maybe back to the 50-day moving average or maybe a test of the January lows. Whatever the magnitude, which is not known at this point, it represents a very good time to come out of the long positions and add a few short positions. Is this a Double Top in the market? The probabilities point to that. So why be in positions that might be fighting against the flow? Reduce the long positions and take advantage of the pullback.

The NASDAQ formed a Shooting Star on Tuesday which just touched the 50-day moving average. Thursday formed a Bearish Engulfing signal with stochastics turning down. This, combined with the analysis of the Dow chart, creates a high probability scenario that there should be some major selling going on in these markets for the next few days at least. The S&P 500 chart and the Russell 2000 chart, both which had been acting well in this up-market, also sold off on Thursday. The fact that all the indexes were selling off at the same time gives a better indication that money was not rotating but was coming out of the market.

NASDAQ

Take profits on the longs and sell some short positions.

The 12-CD Candlestick Training Special - The response to the 12 major signals CD training program has been much better than expected. There has been strong feedback that the in-depth analysis of each major signal is done in a clear and concise manner. The learning process becomes very easy when all the elements of what makes for a strong successful reversal signal to work correctly is explained by Stephen W. Bigalow. Each 45-minute training session not only explains what indicators confirm the effectiveness of each of the major signals, but it goes into the investor psychology that was present that made each signal occur. Understanding the psychology of investors when a reversal is occurring is a tremendous insight into what makes prices move. If you have a few weeks at the beginning of the year to get yourself organized going into 2005, then take advantage of a special year-end offer so that you can use the major signals effectively for the rest of your life.

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You should never be put in a position where you do not understand why trades are being made for your account. Whether those positions are being put on in your managed account, or a hedge fund, or your own personal trading, you should have a full understanding of whether those funds are being put in the right positions at the right time. The Candlestick signals applied with Candlestick analysis will become the education process for understanding how to maximize your potential returns in your own trading or being able to analyze whether a money manager has any concept of correctly timing the markets.

Good Investing!

- The Candlestick Forum Staff

www. candlestickforum.com