Investing in Stocks
Investing in stocks has the potential for steady profits over the years in excess of inflation and well above the returns of bonds and bank accounts. Investing in stocks is different than trading stocks. Investing in stocks means picking a promising company, buying its stock, and making money from dividends and capital gains over a period of time. Trading stocks means buying and selling stocks in order to make money on temporary stock market moves.Investing in stocks starts with learning basic stock information such as what shares are and how a company comes to be listed on a stock exchange. Then one needs to learn the basics of stock market investing such as where and how to buy stocks, paying commissions, and the difference between stock appreciation and dividends.
Investing in stocks requires that one either hand over the management of ones stocks to a stock broker or develop an investing strategy. Even if one has a broker or portfolio manager who is picking stocks and bonds for investment it is wise to understand the stock market and exactly what the portfolio manager is doing and why.
Once a person is familiar with the characteristics and nuances of the stock market it's time to learn about when and how to buy stocks. Successful investing in stocks has to do with market timing. Market timing has to do with predicting the future moves of the stock market. This is where candlestick analysis and candlestick charting come in. Letting the market tell you what the market will do is the essence of candlestick analysis. This technique can be used both in trading the stock market and for long term investing in stocks.
Successful investing in stocks requires discipline. It also requires diversification by purchasing stocks in different market sectors in order to balance investment risk. Typical investment advice is to invest in oil stocks, tech stocks, and others when the economy is booming and to invest in bank stocks and companies that sell consumer items during a recession. Diversifying an investment portfolio with companies in all four market sectors reduces the risk of substantial loss in a turn of the market and provides opportunity for growth in several companies.
Stock investment is also about psychology, or not falling prey to market psychology. The stock market rises and falls. Sometimes a herd mentality develops among investors. Knowing stock market basics, maintaining discipline, and sticking with tried and true methods such as Japanese candlestick stock trading is wise advice when the market fluctuates. Use of a trusted means of predicting stock market moves removes fear and greed from the picture. Accurate market analysis minus greed and fear leads to profits.
Part of stock investing is knowing when to sell stock. When a stock is going up the tendency is to want to let it ride to higher and higher profits. However, very old, very wise advice is that you have not made a profit on stocks until you take your profit. When there is a market rally many wise heads advise that the stock investor sell a portion of his or her holdings. This is a sort of portfolio diversification too. Holding part of ones assets as cash allows the investor to buy the next promising stock when the investment timing is right.
Market Direction: Candlestick analysis provides a common sense analytical process for evaluating market trends. What are the markets telling us now? A slow progressive uptrend! Over the past two months, the Dow traded sideways, producing the possibility of a Dumpling Top formation. However, upon witnessing the trajectory of the rounded top being breached to the upside, a different scenario can now be applied. Since the beginning of November, the formation looks like a wave one, wave two, wave three formation. The Dow Transportation Index has broken out into a wave three over the past two trading days.
DOW
Dow Transports
Is this hindsight analysis? Not necessarily, knowing what usually occurs with candlestick signals, candlestick patterns, and common technical patterns, an investor can produce investment strategies that would coincide with the expectations of pattern results. A wave one, two, three pattern result is a common price move. When that pattern shows confirmation, it has to be assumed the pattern will continue until a reversal signal shows differently.
A slow gradual uptrend for the next few weeks will still provide some big percentage days in stocks that are coming out of patterns. Keep in mind, the element that keeps prices moving in a particular direction is the lack of change in investor sentiment. As can be seen in the Macmoran Exploration company chart, the Fry pan bottom pattern was allowed to continue without any interruption in overall market sentiment until the expected results could occur. This is not a low probability chart pattern. The chart patterns identified by the Japanese Rice traders have occurred over and over throughout history. The results are high probabilities and high profit.
MMR
XTEX illustrates a high probability result of a belt hold signal followed by bullish trading above the T-line. Candlestick signals and patterns are merely the reoccurring results that make the probabilities great enough for them to be identified. Take advantage of the purest form of statistical results. The Japanese Rice traders became immensely wealthy, by not only identifying the signals and patterns, but putting them to practical use.
XTEX
If you are going to start a new year of investing, please take the time to learn and analyze how candlestick signals and patterns perform. Whether you want to use them as your primary investment tool or add candlestick analysis to your existing trading program, you will find the information built into candlestick formations will greatly enhance your profitability.
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Good investing,
The Candlestick Forum Team