Stock Trading Program - Enhanced with Candlestick Signals
Computer software programs have provided investors with a multitude of stock trading programs. However, stock trading programs are only as effective as the percentage of correct readings for trend reversals. This may be overstating the obvious, but many stock trading programs may only work under certain circumstances. Candlestick patterns allow investors to greatly enhance the percentage probabilities of identifying a reversal when added to other stock market indicators. They work effectively in all market conditions, mainly because they are produced by investor sentiment that create the market conditions.
A case in point is the first day of trading after the new year started. As witnessed in the NASDAQ index chart, many indicators showed that the NASDAQ had been trading in an overbought condition for a good while. At what point, will a pullback occur? Understanding the psychology behind what forms a Candlestick signal gives the Candlestick investor a huge advantage for determining that.
Knowing how candlestick patterns are formed allows a Candlestick investor to be prepared for potential reversals in a trend. The first trading day of January, 2005 started out with a gap-up in the NASDAQ chart. This should have immediately alerted the Candlestick investor that a potential reversal was in the making. A gap-up in an overbought condition is usually the first sign to watch for a Candlestick “sell” signal. In this case, once the gap-up occurred and by the end of the day, a Bearish Engulfing signal had formed. This should have been the confirmation of other stock market indicators that were indicating that the market was overbought and that a reversal could potentially occur. A Candlestick signal, when correctly identified, can reveal immediately when investor sentiment has changed. Candlestick charts reveal this information.
Using the Candlestick signals effectively acts as an immediate confirmation of other indicators. In Candlestick analysis, other technical indicators now become an alert that a reversal can occur and the Candlestick signals become the immediate verification.