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October 29th Market Direction

How can you identify when a price trend is about ready to reverse? If you understand that prices do not move based upon fundamentals but move based upon investor sentiment, the candlestick charts will provide evidence of when the reversal is about to occur. This is based upon Japanese Rice traders identifying how human nature reacts. There are simple indications that produce higher probabilities of a reversal about ready to occur. The T line has been a good indicator showing the downtrend is continuing based upon the lack of bullish strength to allow the markets to close above the T line. However, the T line also acts as an indicator for when a market reversal is about to occur. The further away a price moves from the T line, the higher the probability it will come back and test it. Witnessing dramatic selling in the over sold condition is an alert for watching for candlestick reversal signals. Witnessing candlestick sell signals, such as the bearish engulfing signal that occurred today in the indexes, also provides better probabilities that last gasp selling has occurred. Witnessing a dramatic gap down in the oversold condition also provides better probabilities that the panic selling has made a bottom in the markets.

Knowing how human nature normally reacts at the end of a market/price trend allows the candlestick investor to be prepared to make position entries at the most optimal times. The optimal times usually occur when everybody's analysis has turned dramatically bearish. This demonstrates one of the most basic analytical observations of the Japanese Rice traders. When do most people sell? They panic sell at the bottom. Currently numerous stocks that have had huge profits on the short side. The candlestick charts will now provide pieces of evidence of when to take profits.

 

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Good Investing,

The Candlestick Forum Team


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