Understanding the Stock Market
Patience and persistence are both absolutely necessary to understanding the stock market. There must be clear dedication and focus as well as the willingness to continuously learn. The stock market is a forever changing machine and while history repeats itself it never does so in the exact same manner. Many people are overwhelmed by the very thought of investing in the stock market. There really is nothing to fear as long as you take the time to educate yourself and you have discipline. While many think investing in stock is not for everyone, if you investigate you will find that there is a trading niche out there for almost every personality. The key is to find a trading style that suits you.
Many new stock investors have succeeded at their jobs and are looking for more ways to invest their hard earned money. The appeal to the stock market for most is the financial freedom that comes from learning about the world of investing and what it has to offer. You can actually trade commodities, futures, options, exchanged traded funds and more rather than stock. You can practice long term investing or short term trading. You can also find out what it means to short sell a stock, and if that sound like a strategy that works for you. There are so many investment options that it can at first be overwhelming. The good news is there are so many options! Part of understanding the stock market is simply figuring out what you want to do to grow your wealth.
Once you have the basic stock market terminology down you will need to decide if you would like to practice the theories of fundamental analysis or technical analysis. Depending upon which one you choose, that will steer you in one direction. Fundamental analysts typically practice long term investing while technical analysts often consist of day traders and swing traders.
Additionally you will need to educate yourself on the different types of stock charts available. There are line charts, bar charts, and candlestick charts. They vary in the information that they provide, however most find that candlestick charts are the most visually appealing and they provide the most valuable information. Again, you will have to decide for yourself.
If you decide to trade stocks using stock technical analysis, you will also need to become familiar with technical indicators and decide which indicators you will use to trade. Part of understanding the stock market using technical analysis is learning to predict future price movements, which is done through the use of these technical indicators and the stock charts mentioned above.
The Doji, the Spinning Top, the Hammer, and the Inverted Hammer are signals that represent indecisive trading. These signals are excellent alerts for a possible change of trend direction, especially when the stochastics are in the oversold condition. They also are excellent tools for analyzing existing trends. Today, the Dow sold off most of the day. The Dow and the NASDAQ were trading below the tee line. By the end of the day, the Dow had closed back up above the tee line. It was still down 47 points on the day. Would this be considered a weak day? Obviously to most people it would. But when you study the formation it produced today, a Hammer or Hanging Man type signal, it clearly reveals the selling was not very decisive.
DOW
The same can be said for the NASDAQ today. It gap down after a small bearish Belt Hold signal from Friday. It gapped down be low the tee line. However, it formed a Doji type day with the low bouncing off the 20 day moving average. Although it closed below the tee line, it was not a decisive selling day. The indecisive trading in both the Dow and the NASDAQ today continues to make the sideways mode of a market the predominant analysis. The Doji in the NASDAQ and a Hammer in the Dow makes tomorrow's trading relatively simple. A positive open would indicate the Bulls are maintaining control. A weaker open would indicate the downtrend/profit taking was still in progress.
NAS
Having the ability to analyze a trend down to specifics of what the market should do the next day allows an investor to enter or exit trades with a high degree of accuracy. This is not rocket science! This is merely taking situation A and knowing what should occur the next day based upon a high probability results from historic candlestick signals.
TSRA
How do you make money in the markets? By having a reasonably accurate program for analyzing which direction a trend should move. The uptrend has produced excellent profits for candlestick investors since the identification of the Cradle pattern back in March. The returns on some of the banking stocks are well over 150%. This was done at the same time many of the big money managers did not participate in the markets because "they felt" we had not reached a bottom. This becomes a perfect example of why you should let the market tell you what the market is doing. With candlestick signals and patterns, that is very easy to do.
Good investing,
The Candlestick Forum Team
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