November 12th Market Direction
How did the candlestick charts reveal the markets are probably ready for some profit-taking/selling? Simple – human nature. There are obvious price movements that occur over and over based upon human nature. They are very visually easy to recognize. Last week the Dow gapped up on Wednesday and had a big day. The first alert was the gap up. Where do most people buy? The Japanese Rice traders profess that most people buy exuberantly at the top. A gap up in the overbought condition was the first red flag that profit-taking might occur. The next day formed a Doji. This made the trend analysis relatively simple. The Doji rule was a high probability indication of what the markets were going to do. The lower open on Friday produced a high probability expectation that the indexes would come back down and support/test obvious resistance levels that were breached a few days before. The Doji rule is very easy to analyze, prices are usually going to move in the direction of how they open after a Doji. Witnessing a Doji in the overbought condition and seeing it opened lower made the prospects of the Dow coming back to test the 50 day moving average a very high probability situation. For the candlestick investor this merely provided market trend information that indicated any long positions in the portfolio might be closed out if those positions were confirming candlestick sell signals. And the possibility of adding some short positions to the portfolio.
Candlestick sell signals appearing exactly at resistance levels makes the probabilities of taking profits and/or going short a very high profit trade prospect. This was illustrated in numerous charts that had come right up to the moving averages and then experienced candlestick reversal signals. Knowing what each candlestick signal represents allows the candlestick investor to move with much higher probabilities of being in or out of a trade at the appropriate time.
We will conduct a "Members Only" chat session tonight at 8:00 pm EST.
The Candlestick Forum Team
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