Stock Market Investing Basics - Candlestick Signals
As investors feel they need to become more sophisticated in investing, they start overlooking stock market investing basics. They start trying to analysis what elements will make a stock go up or down. The “professionals” evaluate where the price earnings are compared to years past or compared to other industries. Analysts try to project the sales and earnings of specific companies and industries months and years out into the future. All these projections and trying to anticipate world events and demands, elements that can be changed instantly by one turn of a pebble somewhere.
The stock market investing basics get thrown out the window. What are the stock prices/markets doing now? “Now” being this minute, day, week or month, whatever time-horizon the investor wants to invest. That is what the candlestick signals tell us. Investing is the practice of having investment funds exposed to the best possible probabilities of producing profits. Yet most investors will ignore or rationalize the reasons they got into an investment when all the parameters are not in effect any longer.
Candlestick signals keep those parameters in check. The signals are the format for keeping to the stock market investing basics. They instantly reveal where the buying and selling is occurring. Understanding what the signals represent will completely alter an investor’s perception about investing. When using the candlestick signals, all other investment parameters become less important. The most important aspect for investing is to identify trades that are going to make you money. All the other fundamental input into why to buy a stock becomes secondary when the signals reveal what is going on in investor sentiment right now.
Market Direction - As pointed out in the last newsletter, the direction of the market becomes a function of what is affecting investor sentiment. The last few weeks, the market indexes were being dampened by the rising price of crude oil. Knowing this, being able to analyze what oil prices will be doing provides a valuable insight into the direction of the market. The comes right back to stock market investing basics. If you know what affects the trend movement , you can position yourself ahead of the investment public.
Note in the crude oil chart that the bearish engulfing signal made a clear indication of what the trend was going to do next. Was that the top in crude oil prices for the near term? Maybe not , but the candlestick bearish engulfing signal, when stochastics were in the overbought area, produced an extremely high PROBABILITY that the uptrend was over.
Add that knowledge to the evaluation of the DOW and NAS charts, a candlestick investor has a much more clear vision of what the life of the trend will be. The DOW chart revealed two Morning Star signals in the oversold area, reversing the downward trend. After a bottom signal in the DOW and the NAs chart, knowing that oil prices were an influence on the bullish potential trend, and then seeing that the oil prices were turning down allowed for continued holds on existing positions and adding more long positions with renewed confidence. Combining the analysis of the charts aligns the probabilities that the uptrend was going to continue.
Where should be the area for taking profits? First, it is when the signals reveal sell signals. Where will that happen? Anytime! But the Moving averages come into place. As of Friday, the DOW went through the 50 day MA with some gusto. The stochastics are now in the overbought area. The logical target should be the 200 day MA. That is where watching for a candlestick sell signal becomes important. The NAS appears to be attempting to test the 50 day. The stochastics in the over bought area also provides a logical target to watch for a sell signal.