The bear market is usually accompanied by negative connotations and a bad feeling by investors.  Once this market trends hits, investors are motivated to sell in order to avoid further loss.  The most famous bear market in history was the Great Depression during the early 1930’s. A bear market can be described as a prolonged period of time where stock prices fall by about 20% or more, and are typically accompanied by words such as recession, unemployment, and inflation, thus the negative connotations mentioned previously.

The bear market is the opposite of the bull market and is due to a sharp decline in prices in the stock market as a result of a decrease in corporate profits.  This market trend can also be a result of overvaluation of stock prices which inevitably are corrected and fall to more appropriate levels.  The lower earnings caused by this market trend cause investors to sell their stock, which then drops the price of stock.  Other investors see this happening and they also sell creating the beginning of a viscous cycle.

One of the investing mistakes frequently made is when a bear market is mistaken for a correction.  The difference between these two market trends is that a correction is a much shorter duration of falling stock prices, whereas the bear market occurs over a longer time frame and to a greater degree of loss. A market correction at times can be a drop of 10 -20% over a short period of time.  Market corrections can also be a great opportunity for investors to make money playing in the stock market due to depressed prices and valuation.

If your intention is to hold your investments for decades, investing during stock market trends such as this, is an investing strategy you may want to research further. While there are negative connotations surrounding bear markets, those only hold water if you are planning to sell your stock immediately.  If you are planning on more long-term investment strategies, then falling stock prices and depressed markets are the way to go.  The reason for this is that it is inevitable that prices will return to a more reasonable price. When trading in the stock market during this market trend, you must research companies to find out which ones will have value 10 plus years from now. It is also imperative that you understand the companies you have chosen, from the stand point that the stock price and the business of the company actually have little to do with each other.

The opposite of a correction is a bear market rally. This market trend is a temporary increase during a bear market and is sometimes an increase of 10 to 20%.  It is extremely difficult to know whether this is taking place or whether a correction or a bull market will occur since it is a secondary market trend.  A secondary market trend is a temporary change in price during a primary trend.  It is difficult also to predict the market trend in that a correction will sometimes indicate a bear market. Experts investing in the stock market will spend hours predicting and debating over the next market trend.

Candlestick signals are excellent indicators to show when a change of direction might be occurring in a price trend. Each signal has built into its formation the accumulation of investor sentiment. Recognizing the candlestick reversal signals is a valuable tool for getting into a position. Logic dictates that the appearance of a candlestick reversal signal creates a high probability of a trend reversal, especially with the confirmation of other indicators. The Japanese Rice traders utilized that same information for establishing proper stop loss procedures. If a bullish candlestick reversal signal indicates when it is time to buy, it can be assumed the signal was illustrating where the Bulls were taking control of the trend. Simple stop loss procedures can also be applied using that same criteria. If a bullish candlestick signal represents the Bulls taking over, at what point would price have to move that would negate the bullish sentiment. In some cases it is at the low of the previous bullish reversal signal. In other cases it may be a close more than halfway down the previous candle. The half way point of candlestick bodies is a very important level for the Japanese Rice traders' analysis.

The simple explanation is if a candle body demonstrates the Bulls are taking control, and the bears could knock it back down more than half way into that candle, that would clearly illustrate the bears were in still control. What is the best way to not be panic selling at the bottom? That would be recognizing when not to be in a trade. There is nothing wrong with getting into a position only to have it immediately negate the buy signal the next day, and closing the position out. A candlestick buy signal has a high probability that a reversal has occurred. The important word in this past statement is "probability." Not all investments are going to work. The way to not be part of the crowd that is panic selling at the bottom is to be a candlestick investor that knows to get out of a position immediately when it is not working. That is part of the process for cutting your losses short and let in your profits run. The Candlestick Forum provides a training CD that fully explains how to utilize the 12 major signals correctly. Part of that education is understanding when the signal is not performing as it should. Click here for the 12 major signals special.

Signals and price patterns are formed by the consistent reoccurring phases investor sentiment goes through. The identification of these patterns are the expected results occurring an inordinate high percentage of the time. That makes it much easier to project what should occur after the formation of a candlestick reversal signal or pattern. As seen in the PPCO chart, a Cradle pattern followed by some consolidation could have had strong upward price move potential. However, a close below the candles/signals that indicated the Bulls were in control was a clear indication that the expected results were not going to occur. This would have instigated closing the position immediately.

PPCO

Each signal is formed by the graphic depiction of investor sentiment. Visually recognizing the signal and understanding the investor sentiment that formed the signal allows an investor to more accurately analyze the direction of a price trend.

With candlestick signals providing a very simple format for when to enter a trade and where to exit a trade, taking advantage of high profit potential trades becomes easy. As illustrated in the WCG chart, the candlestick signals indicated the selling had stopped. A Bullish Harami was a visual indication that the severe price drop was over. This made entering the trade much easier to evaluate. What was the potential price move after bottoming? Maybe the T-Line. Where was the obvious stop loss level? If a good reversal has occurred, logical spots can be identified as a stop loss level based upon simple logic. Prices should not go back down through a level that was indicating the Bulls were taking control. This produces a trading format that allows for exploiting big price move potential and limiting the downside risk.

WCG

Market direction - The Dow formed a tweezer bottom today, this is very important in the analysis of the market direction. A tweezer bottom, although fairly rare, produces significant results. The fact that the Dow hit the same exact level usually conveys a strong support level. The Dow formed two Hammer type signals over the past two days of trading. A positive open tomorrow would be a good spot to start buying again after the tweezer bottom of today.

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