Candlestick signals make analyzing stock market trading patterns relatively easy. Trading patterns become recognized because of the reoccurring mental processes of investor sentiment. Normal investor decision making is flawed with the input of emotion. The majority of investors are usually wrong. Human emotions are contrary to rational investment decision making. Being able to graphically analyze what investors normally do provides a huge advantage. Candlestick analysis is capturing and analyzing investor sentiment on a chart.

Western analysis has identified many reoccurring stock market trading patterns. Adding Candlestick signals to the analysis creates a huge advantage. Once recognizing that a trading pattern is developing, it can be better analyzed and more accurately timed when applying Candlestick signals. One of the most highly profitable stock market trading patterns is called a “Fry Pan Bottom”.

The Fry Pan Bottom pattern, once analyzed, is very easy to recognize and it is very easy to understand how it forms. This week’s online Candlestick training session on the site delved into the Fry Pan Bottom pattern. Understanding the ramifications of the psychology that forms the Fry Pan Bottom allows an investor to prepare for the potential of a high profit trade.

One of the recommendations this past week was Phazar Corp. (ANTP). The recommendation was based on recognizing the set-up for a Fry Pan Bottom. As illustrated in the ANTP chart, a Fry Pan Bottom was forming over the past three weeks. Being able to analyze the formation creates a fairly low risk trade and can be used in an aggressive trader's strategy as well. Note how the downward trajectory was very slow, followed by a few days of indecisive trading, small Spinning Top signals, then a small Bullish Engulfing signal formed and was followed by a slow uptrend. This stock market trading pattern was occurring during a time when the indexes were in a steady downtrend.

ANTP

That slow bottoming action is the Fry Pan Bottom. It looks like the bottom of a frying pan. The psychology is simple to analyze. First, investors had a negative bias. That bias became neutral, then started slowly moving back to the upside, revealing the rebuilding of investor confidence. A conservative investor could have bought the stock after the first little Bullish Engulfing signal, knowing that the stop loss would have been any trading below the bottom of that bullish candle. A more aggressive trader would start buying as the candle formations started to enlarge, revealing that investor sentiment was dramatically building up confidence.

The result of a Fry Pan Bottom is that when it breaks out through the peak that started the downward trend, the force of the new confidence will move it to much higher levels. Does this work every time? Not every time, but the probabilities are extremely high. This is the type of knowledge that is easily obtained through Candlestick analysis. Once you understand the common sense logic of how the formation is created, the eye will become easily trained to identify this type of stock market trading pattern.

BOOM

That is why we have been so successful in trading the BOOM stock this past month. The analysis becomes much easier once the pattern of its recent past trading is identified. Being able to identify the potential chart pattern that could develop, and using other technical indicators such as the moving averages, allows the refinement of the entry and exit strategies. In this case, BOOM was first bought back in mid-January on seeing the Morning Star signal. Its lackluster movement after that signal could be credited to the 50-day moving average. Once it broke through at the end of January, the 50-day moving average acted as support. But more importantly, the slow uptrend after the slow downtrend was now giving the implications that a Fry Pan Bottom was forming.

This evaluation creates a different criteria for analyzing when to get in or when to get out of a stock. Where a gap at the top usually represents a time to start looking to take profits, in a Fry Pan Bottom analysis, the gap-up out of the end of the pattern indicates strong buyer sentiment. A gap-up or a strong bullish candle reveals very strong investor sentiment. Its occurrence at the end of the slow positive trend reveals that investors have gained their confidence and want to get back into the position with zeal. This is the area that will produce very large profits.

Market Direction - After three weeks of a pullback in the Dow and the NASDAQ, the stochastics have gotten into the oversold area. The Dow formed a Spinning Top on Thursday and an Inverted Hammer on Friday. The 200-day moving average is not too far away at this point, another hundred points or so. If they move the market in a positive direction on Monday, thus confirming the Inverted Hammer, a trading channel could be in the process of forming. Weakness on Monday would imply that the 200-day moving average is still the target. However, a test of the 200-day moving average should produce a Hammer-type day, closing at the top end of the trading range.

DOW

The NASDAQ is currently hovering at the 200-day moving average. It formed a couple of Inverted Hammer signals over the past couple of days. Even though the Dow may try to hit the 200-day moving average, the NASDAQ may consolidate and stabilize near the 200-day moving average.

The markets should be close to the bottom. This will be the time to start taking some good profits on the short positions. There have been some good steady downtrends from major Candlestick “sell” signals in these positions over the past three weeks. Be ready to cover those positions on signs of strength.

Members Chat Training Session - The members chat training session scheduled for Sunday night will be moved to Monday night due to the Easter holiday. However, Monday night appears to be the favored choice for most members anyway. We may continue with that schedule. We will also move the open chat training sessions to Thursday nights instead of Wednesdays. The best time for both sessions appears to be 7 p.m. central standard time.

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Houston Candlestick Training Seminar - Details for the Houston Training Seminar are now on the site. The one major point that everyone should keep in mind is that kids can attend for free. The analysis of Candlestick signals is so simple that kids can probably better describe and practice Candlestick analysis with you when you get home than another adult. Mr. Bigalow makes learning the Candlestick signals extremely easy. Teach your kids at least one investment technique while they're young so that when they are older and need investment knowledge, they are not learning from the ground up. Instead, they are improving upon what they already know. Please check the site for details on the Houston seminar.

Click here for more information on the Houston Candlestick Training Seminar

The Major Signals Educational Package - NOW ON DVD!

The response to the 12 major signals CD training program has been astounding. 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.

A New Twist to an Old Favorite!

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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