As demonstrated in the Dow chart, the downtrend started with the Bearish Engulfing signal that had a upper booster tail to it. Confirmation of that 'sell' signal involved the tee line the next day. As taught in the Candlestick Forum chat rooms, trading below the tee line has only one predominant prognosis. The downtrend is in progress!  As seen in mid-August and early September, a pullback through the tee line occurred but was quickly nullified by bullish signals. That same scenario could have been taking place over the past few days. But this is where the specifics of candlestick signal knowledge greatly enhances an investors analytical perspectives.

DOW

Wednesday's trading went well below the tee line. By the end of the day, the Dow chart was trading near the top end of the trading range, just below the tee line. The NASDAQ closed just above the tee line. This created indecisive trading signals in both the Dow and the NASDAQ. How does this help the candlestick investor? Each signal has specific results that will identify what is occurring in investor sentiment. The indecisive trading day on Wednesday, forming hammer/Doji type days produced easy trend evaluation scenarios. What was required after an indecisive signal to indicate the Bulls were still in control? Positive premarket futures and positive trading on the open today. That would have confirmed the Bulls were using the tee line once again as support.

What should be analyzed if the market started selling off on the open? It should already be analyzed that a downtrend could be in progress. A Bearish Engulfing signal last week was the first signal that allowed a breach of the tee line. A Bearish Harami this week showed the lack of bullish strength after another attempt to move up above the tee line. Simple logic helps the candlestick investor make the immediate decisions required for successful investing. If the markets were going to open weaker today, what would that imply? Obviously, the tee line was  acting as resistance versus support.

Making that assessment should have been the instigation of closing out long positions that were not continuing to show strong bullish signals. This analytical process allows for quick and decisive action for closing out long positions. This may seem like a very simple explanation for what to do, but that is exactly the purpose of knowing what information is conveyed in individual candlestick signals.

The same logic can be applied to knowing what should occur in a candlestick pattern. As illustrated in our recent recommendation of MDZ, the Fry pan bottom pattern was the instigation to purchase this position. There is a unique benefit of purchasing a pattern. The pattern is formed by the cumulative buying and selling sentiments of investors. It is not an overnight process. The length of the pattern indicates a build up of investor sentiment. Even on large market selling days, the bullish sentiment build up of a pattern should still continue. This may not result in a big gain when the market is selling off hard, but it maintains the price of the stock so that in investor has time to decide whether to hold a position or close it out. This usually results in the least a break even or a slight positive.

MDZ

Candlestick analysis is merely the evaluation of what is going on in investor sentiment. The graphic results allows for much more clarity in analyzing a price trend. This valuable aspect can be applied to all trading markets. Whether trading options or Forex, the direction can be much better evaluated when having the commonsense knowledge behind each candlestick signal.