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Learning The Stock Market - Simplified with Candlestick Signals

Learning the stock market is something that most people never master in their lifetime. Although everybody seems to know somebody that has made big profits in the markets, learning the stock market seems to be difficult for the vast majority of investors. Even the so-called professionals tell most investors to put your money into the markets for the longer term. This is because they do not have a better solution. When they were learning the stock market, if they had any guidance at all themselves, it was to find companies that have strong earnings growth. When you find these companies, buy them and hold them long term.

The most supposedly sage advice that we get from investment professionals is that you cannot time the market. That usually comes from somebody that has not taken the time to learn the stock market. Prices do not move based on strong fundamentals. Prices move based on the ‘perception’ of strong fundamentals. When most people are learning the stock market, they are not told how professional investors trade. When somebody tells you that you cannot time the markets, ask them why the names Warren Buffett and George Soros are so well known.

The Candlestick signals make learning the stock market a very easy process. Instead of being taught about what “should” make you money in the markets, the Candlestick signals, when fully understood, what illustrate why you should be making money in the markets. The psychology that is built into the formation of the Candlestick signals is purely common sense investment philosophy put into a graphic form. Learning how to make money in the stock market is a process of learning how to control your emotions.

The Candlestick signals are a graphic depiction of the mass investor psychology. If it is understood that most investors panic sell at the bottom and buy exuberantly at the top, learning the stock market will become extremely easy when applying Candlestick signals to your analysis. Fortunately, understanding the Candlestick signals is not a difficult process. Understanding where and when most investors invest improperly, being able to see that in Candlestick formations, now allows a Candlestick investor to completely reverse their investment perceptions.

Making correct trades - Learning how to profit in the markets is a function of analyzing when it is the proper time to get into a trade. The Candlestick signals represent hundreds of years of visually analyzing formations that signify high probability potential. As demonstrated in the BOOM chart, some very simple trading observations provide the potential to make high profit returns. As seen in the early to mid part of January, a strong Morning Star signal, with stochastics in the oversold area, stopped the downtrend. It also became obvious that the 50-day moving average stalled the upside reversal. One of the simple rules, when applying Candlestick signals to a chart using moving averages, is that the first attempt at a moving average will usually fail. That was demonstrated in mid-January. The second attempt will usually succeed, as seen on the last day of January.

In this case the last day of January formed a very strong bullish candle that gave the indication that the 50-day moving average was not going to be considered a resistance level anymore. The uptrend continued with the expected pullback. A second basic rule is that usually when a major technical level is finally breached, it will come back and test that level. What had been a resistance level now became a support level. Using these techniques allows an investor to fine tune their investment program. Part of learning the stock market is learning how to take your profits and/or reduce your risk. Approximately the fifth day of February revealed a Bearish Engulfing signal after a Doji. Stochastics were in the overbought area starting to turn down. The probabilities say that this is the time to take profits.

The chart graphic illustrates that the 50-day moving average could be the pullback target. Important criteria in that observation is the words "could be". That is the potential support level but nothing is set in stone. Why continue to own a position where the probabilities indicate that it is going to go back down? Take profits and be ready to buy it back if the 50-day moving average becomes the support.

As illustrated in the chart, the 50-day moving average acted as support, the evidence being that the Hammer-type signal and a couple Doji's. The bullish trading off of the 50-day moving average after those indecisive days reveals that the buyers were stepping in. Buying back in at that level creates a low risk trade. A move back down through the 50-day moving average becomes the stop. The upside potential becomes a breach of the $14 area, then the $17 area. The gap-up through the first resistance level, with stochastics starting to turn back up, provides a graphic picture that the buyers are starting to come into the stock with force.


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