Stock markets all over the world have the same basic characteristic. They are moved by human emotion. The trends in stock markets are not affected by fundamental reasoning. Stock markets move based on investor sentiment. Candlestick signals provide a graphic depiction of that sentiment. There are very little fundamental changes in the individual stocks that are traded in the stock markets from one week to the next. What moves prices is the perception of those fundamental changes.

Candlestick signals quickly identify the reversals of investor sentiments. The US stock markets, which were being heavily sold off for the last three weeks, now appear to have new investor confidence coming into them. What changed in the fundamentals of most US stocks over the past three weeks? Probably nothing at all! However, as often seen in any trading entity, investor sentiment is based on prospects for the future. Stock markets move as that sentiment ebbs and flows.

Stock markets move up and down in waves. These waves are the perception of investors that prices are too high or prices are too low. Candlestick analysis is a simple graphic evaluation of when those perceptions are reversing. The Candlestick signals represent high profit, high potential depictions of the change in human emotions. Human emotion, when applied to investment psychology, has not changed for centuries and probably will not change for the next few centuries.

Being able to evaluate the changes in human emotions provides the Candlestick investor with a huge advantage. This is not a difficult concept. The oscillations of human emotions have been projected for many years with numerous indicators. These indicators, such as stochastics, Fibonacci numbers, Elliott waves, etc. would not be in existence if they were observed over and over. Applying Candlestick signals to these indicators that indicate overbought or oversold conditions greatly enhances an investor's ability to extract profits from the stock markets with great consistency.

Market Direction - As seen in the Dow chart, the downtrend in the markets were clearly identified by the Evening Star signal in early March. The stochastics indicated that the market was overbought. The Shooting Star signal at the very top acted as the indecision day in the Evening Star signal. The 200 day moving average acted as support in late March and early in April. However, when that level was breached, the panic selling started entering the market. This is illustrated by three large black candles in the Dow.

Where do most investors sell? They usually panic sell at the bottom. That is clearly illustrated by the three strong down days this past week. When do you grab for the falling knife? The Candlestick signals help answer that question. As seen on Monday, the Dow formed a Hammer/Doji formation. The stochastics indicated that prices were oversold. The following Tuesday showed signs of new buying. This starts to confirm the Candlestick signal at the bottom.

DOW

The NASDAQ provided an alert that the bottom was near on Friday. It gapped down when stochastics were in the oversold area. That now becomes an indication that the sellers are getting panicky. Where to most investors sell? They panic sell at the bottom. A gap-down in an oversold condition indicates that the selling is getting overheated. Monday's trading created an Inverted Hammer-type signal, although not a pure Inverted Hammer. However, the gap-up trading on Tuesday was a bullish sign.

NASDAQ

Is this the absolute bottom? Maybe not, because the reversal signals have not yet been very convincing. This would create the analysis that a bottom is forming. A few days to the upside might be expected on a bounce. After that, another pullback that tests the recent low might be possible. What should the investment strategy be at this point? Take profits on the short positions and start adding long positions. However, if the current potential rally shows weakness in the next few days, close out the long positions and wait for another buy signal to appear.

Sector Potentials - One of the obvious indications that a whole sector is getting money put into it is seeing that a large number of stocks in that sector are turning up. This may be overly simplistic but if you analyze what that illustrates, the probabilities line up in your favor. Buy signals can always be found in stocks where the rest of the sector is in a decline. That might demonstrate that something specific is going on with that one company. On the other hand, it may be short covering or just a large buyer on one particular day.

US Steel


Seeing many bullish signals occurring in stocks in a sector illustrates that the whole sector is now being looked favorably upon. Finding the best Candlesticks in those groups of stocks provide better probabilities. It is obvious that money is coming into the whole sector. That means the buy signals are probably less likely to be a fluke in one particular stock.

This current upturn in the stock markets, for the past couple of days, has provided very strong signals in the steel stocks, the auto parts stocks, mining stocks, and in the oil and gas exploration area. Watch these sectors. They have moved in steady trends either up or down for the last few months. Data storage stocks had a nice reversal in the past few days. These should be some strong signals coming off some of the major moving averages. A bounce from a major moving average usually has some more strength to it. The moving averages, when applied with Candlestick signals, become very powerful tools for enhancing profits. The Candlestick Forum's training CD on "Candlesticks and the Major Moving Averages" demonstrates how to use the moving averages greatly to your advantage. The use of moving averages provides an excellent format for analyzing when sectors and stocks are about to make major moves.

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!

DVDs of the 12 Major Candlestick Signals - For those of you that would like to thoroughly analyze the 12 major signals, the signals that will perform more reversal patterns prospects than most investors will be able to utilize, the eight hours of concise analysis for each signal is now on DVD's. For the investor who likes to get comfortable in front of their TV screen, this DVD set will provide the opportunity to relax and learn at the same time.

Over $509 of valuable Candlestick signal education, for identifying the most powerful Candlestick reversal signals, is now priced at:

$397.77

Do not delay, gain the understanding of how prices move. This is information that you will be able to use for the rest of your life. The profits that this information provides can be made in your account month after month after month.

Click Here for the 12-Video DVD Major Signals Newsletter Special

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