Stock Trading Picks - The Advantage Candlestick Signals Provide
How do the Candlestick Signals give you the Advantage in any Market Conditions?
How do most investors choose their stock trading picks? There are many different methods, both technical and fundamental strategies. However, most work off the basis of the expected possibilities of making a good return based upon specific parameters. Technically, those parameters could be trend lines, support and resistance, technical formations, Fibonnacci numbers, Elliot Wave, or a multitude of other technical methods. Fundamental research is based upon the speculation of what a company's potential is for the future, the potential of their earnings expanding because of their product or service. The speculation is based upon somebody's analysis that in the future the improved earnings potential of a particular company or industry is going to improve. Additionally, that the improvement is going to be recognized by other investors after the position is bought.
Candlestick analysis gets right to the heart of finding correct stock trading picks. The candlestick signals indicate now what the direction of the price should be. The signals are the direct result of investor sentiment. The trend reversal for stock trading picks is narrowed down to what the signals have indicated over hundreds of years of visual observation. Fortunately, this is based upon the most constant element involved in moving prices, investor’s fear and greed. No matter what an analyst speculates will be the future potential for a stock or industry, it is purely conjecture based upon the evidence available currently. The risk is that the circumstances change sometime out in the future that can completely negate that potential. That creates a double loss possibility. First, if a holding period is supposed to be six months, a year, or two years, you have the possibility of losing money if things don't project out correctly. Secondly, you have lost the opportunity to make money with that money while it was sitting in that position for that period of time.
Candlestick analysis works in the complete opposite direction. It allows the investor to be investing immediately in a position that has the potential to be moving up now. The information provided in candlestick signals now becomes the reason to research that stock or industry to discover why investors are starting to add to this position at the very bottom. This puts the candlestick investor shoulder to shoulder immediately with those investors that anticipate new fundamental changes within a stock or industry well before the average analyst recognizes the potential.
The signals reveal what the smart money is doing now. Unless you have access to a huge research department, you have to rely on information provided by somebody that may or may not be correct in their analysis. The Candlestick signals reveal the results of those who have made a decision based upon their projection's of a stock's potential. Their decisions are the conviction of their analysis.
A clear illustration is provided by the Champion Enterprises Inc. chart. This was a position that was recommended a little over a week ago by us based upon the Morning Star signal. It had all the elements of a perfect buy situation. Note how the Morning Star signal formed right on the 200-day moving average. Also note how the stochastics were in the oversold area starting to curl up. For the next week, the price did nothing but show indecisive trading, Doji's, an Inverted Hammer, and Spinning Top right on the 200-day moving average. Friday, as we saw, was a big selling day in the markets. However, CHB gapped up and traded strong all day on Friday. The advantage of Candlestick signals is that they provide fundamental information built into a graphic. This chart revealed indecision signals that were reversing the downtrend from mid-September. A huge research staff was not required to be able to analyze that a change of investor sentiment was occurring.
This is why candlestick charts are valuable for investors.
Champion Enterprises Inc.
The chart on CHB was indicating that the selling did not want to go down below the 200-day moving average. The Candlestick "buy" signals, on an important support level, become an obvious place to start looking for an entry.
Do all Candlestick signal positions work out correctly? No! But they do put the probabilities of being in the correct trading dramatically into the Candlestick investor's favor. This becomes evident on days like Friday where there is strong selling in the markets. The majority of our recent recommendations were either up or traded flat, not being affected by the downward bias of the market. This is based upon one simple premise. The signals that created the "buy" signals that we recommended indicated that buying was coming into these positions. That sentiment does not change dramatically when selling comes into other portions of the markets. Investment logic should indicate that if strong buying was coming into a position, that buying pressure was based on something other then the direction of the markets.
Market Direction - The Dow Jones average has been in a downtrend since early October. The stochastics are in oversold conditions. Wednesday and Thursday revealed some nice Hammer signals. Friday's sell-off, a large sell-off day in oversold conditions, sets up the potential of more Candlestick "buy" signals.
The NASDAQ, on the other hand, has maintained a very slow trend since early October. The sell-off of Friday in the NASDAQ brought trading right back to the lower trend line that has developed recently. Monday should reveal whether the trend will continue down for a few days or whether Friday was just a sell-off day. The fact that it was a big down-day in the Dow in oversold condition's, after a couple of bottoming signals, the Hammers, would indicate that the bottom is fairly close. The NASDAQ, pulling back to the recent trend line, needs to see a Harami-day to show that the selling has stopped.
Fortunately, the direction of the market in general has not been a plus or minus when pinpointing which sectors are acting well. Currently, the oil pipeline sector and the auto parts sector are showing some good bottoming action. This would give us the opportunity to start searching for stocks in those sectors that have potential upside bias. EP is an oil pipeline stock that could be watched at this point. DCN and FLE are auto part related stocks where new positions could be placed upon seeing buying confirmation.
In the DCN chart, the "probabilities" are saying that it is the right time to be watching for a confirmed "buy" signal.. The set up is providing the indicators that would make this a high probability trade. The price has moved away from the moving averages. The stochastics are in the oversold area. Now there are indecision signals, Doji's, forming. Upon seeing a positive candle soon from this area would produce an extremely high probability trade. Whether this trade could produce a 3% profit or it could test the 50-day moving average will be decided after it starts moving up, when the "sell" signals appear.
The Major Signals: There are 12 major signals that should be learned in Candlestick analysis. The other 40 or 50 signals should be recognized but not a lot of mental energy should be used in trying to remember them all. Once you have learned the major signals and how they work effectively in trend reversals, you'll have a much better understanding of what transpires in investor sentiment to make for high profit trades. Remember, the major signals have worked for hundreds of years. They provide a clear insight into trend reversal psychology.
Stephen Bigalow has now provided nine hours of analysis on the major signals. The 12 major signals are fully analyzed in twelve 45 minute video CD training sessions. These training videos walk through many charts and Steve gives his insightful knowledge for why and where the signals work most effectively. You now have the opportunity to learn all the nuances that make for successful Candlestick trading. Take advantage of this knowledge. You'll be amazed at how easy it is to understand why trends reverse when the signals occur. This is not only for stock trading, but can be used on any trading entity that has human emotions involved. Check out the CD or DVD set in the "Products and Services" section of our site.