Stock Market Trading Made Simple with Candlestick Signals
Stock Market Trading does not need to be a difficult science. The candlestick signals allow an investor to have a program to project where price trend will likely go based upon centuries of statistical observations. This week provides a clear illustration of why the signals work so effectively. Your stock market trading can be improved dramatically when being able to predict what the trend will do after a specific signal sets up. Knowing what should be expected with particular signals and the reaction with specific confirming set ups helps analyze whether a trend is truly reversing or not.
The combination of the candlestick signals and stochastics can produce a stock market trading analysis that keeps an investor from being faked out of positions. When keeping in mind the fact that the signals reveal underlying facets of investor sentiment, the analysis of whether a trend has reversed or not becomes much easier. Do you have to be right every day in a trend? Definitely not! However, the point of using the candlestick signals is to have a visual concept of what the probabilities are for the direction of the trend. That means that counter moves can be easier to evaluate as a temporary move versus a full reversal.
Market Direction - Wednesday's trading had the opportunity to change the downward direction of the recent trend. However, the stochastics did not confirm.
As seen in the morning comments on Wednesday, it was advised to wait until the end of the day before making any portfolio changes. The early strength in the futures, followed by the DOW and the NAS trading higher after the open, needed to maintain strength into the close. The initial buying stopped after about 20 minutes into the trading day. This anticipation of a fast fizzle in the buying was the fact that the stochastics were not indicating that it was time to buy. The 50-day moving average also acted as a level where the selling was still occurring.
If the stochastics had been in the oversold condition when the potential reversal signals were forming on Wednesday, there would have been a more immediate reason to cover the shorts and add to the longs. Wednesday and Thursday of this week saw continued selling. Friday, however, formed a slight harami in the Dow with the stochastics now getting into the oversold area. Although this may not be the exact bottom, this is the area to start watching for confirmed buy signals over the next two or three trading days.
The NASDAQ formed a Doji/Harami on Friday. This makes the trading strategy on Monday fairly easy. If the NASDAQ opens lower, the 50-day moving average is still the target. The stochastics in the NASDAQ indicate that there could still be two or three more days to the downside.
However, a positive opening followed by continued buying for the rest of the day on Monday should indicate there was still in uptrend the market. This would have us prepared to continue to stay short on a weaker opening or be prepared to take profits on the short positions on a strong open.
A Powerful Signal - With the markets in a downtrend, a Shooting Star becomes an obvious signal to watch for confirmation. As we saw in the BCSI chart this week, the gap-down after the Shooting Star signal was clear confirmation that the sellers were in this position with force.
This becomes an extremely high probability short trade. Knowing that a gap-down, after a Shooting Star signal and stochastics in the overbought area, is a high probability of selling confirmation, then the shorting of this position can be done anywhere during the initial trading, not being concerned about the immediate buying after the gap-down.