Stock Market Timing - Candlestick Signals and Market Patterns
Stock market timing becomes dramatically enhanced when applying Candlestick signals to high profit patterns. This combination, utilizing the Candlestick signals in conjunction with known patterns, allows an investor to fine tune stock market timing programs. The basic premise of the Candlestick signals is that it tells an investor what the investment sentiment is in a trading entity right now. Whereas most stock timing programs use indicators that could represent timeliness in a price move, the Candlestick signals demonstrate the buying or selling sentiment of investors immediately.
When Candlestick signals are used in conjunction with recognized patterns of price movements, placing investment funds into a position becomes much more refined. Being able to analyze the direction of a price movement is difficult enough for most investors. To add stock market timing parameters becomes that much more difficult for the vast majority of investors. However, the Candlestick signals greatly alleviate that problem.
Simple logic dictates that Candlestick signals work effectively. Otherwise, investors would not be looking at them today. Also, there are established patterns that seem to work reasonably well in the investment markets. The simple application of Candlestick signals to, what appears to be, a recognized pattern forming is a very easy stock market timing program.
One of the highly profitable patterns used for stock market timing is the Fry Pan Bottom pattern. The Fry Pan Bottom pattern is aptly named. It does not take a high degree of technical analysis to figure out the investor sentiment that forms a Fry Pan bottom. This pattern gets its name because it looks like a Fry Pan. The pattern is a slow curving pattern to the downside, flattening out at the bottom, and slowly coming up out of the other side of the pattern. The analysis for the investor sentiment that forms this pattern is very easy to understand. Initially, after a downtrend, the selling sentiment starts to wane, making the trajectory of the downtrend a slow and active bottoming trading pattern.
After a lengthy period of time, the sentiment almost becomes neutral, forming a flat area. This lack of interest, one way or the other, eventually starts to incorporate a very slow change of investor sentiment to the plus side. The new positive outlook on this stock shows the same lack of enthusiasm on the buy side as it did on the sell side. However, the difference now becomes that the selling interest has disappeared and the buying interest is slowly coming back into the price. This pattern, unlike other patterns that become effective when stochastics indicate an oversold condition, utilizes the condition of the stochastics in an opposite manner. It is usually when stochastics are approaching the overbought conditions that the investor sentiment can now be gauged. Stock market timing is benefited when knowing how this formation is formed.
The alert for this pattern is activated when stochastics get up into the overbought area. The price now shows that confidence has built back up into the price in the form of a large bullish candle or a gap-up coming out of the positive side of the Fry Pan Bottom pattern. This buying indicates that investor sentiment has now produced confidence of being back in the position. A gap-up becomes a signal to buy, even though the stochastics are approaching the overbought area. Stock market timing is recognizing when enthusiasm is coming into a position. That enthusiasm, coming out of a long bottoming action, usually will create a strong buy trend.
Notice the long period of time, a four month period, in the Isonics Corp. chart that the investor confidence shifted. The telling factor for the potential breakout was being able to recognize the subtle Fry Pan Bottom formation. A couple of simple elements can be added to Fry Pan bottom analysis. The first being that the very bottom of the Fry Pan is approximately one-half distance from the time the Fry Pan Bottom started to when it will break out. This is not anything that is set in stone. A simple observation is that the very bottom occurs in the middle of the Fry Pan Bottom. Having this knowledge allows the investor to estimate when the breakout might occur, benefiting from a stock market timing process.
This calculation does not need to be exact. Visually, the buying can be seen as the confidence starts building back up. When that buying level starts approaching the same level as when the pattern started to develop, it is time to start taking action. In the Isonics Corp. chart, early October started revealing some bullish Candlestick formations. Volume started expanding. This now becomes evidence that the buyers confidence could create a breakout situation.
The confirmation of the breakout move after a Fry Pan Bottom becomes a large bullish candle or a gap-up. This will usually occur near the high point of the beginning of the Fry Pan Bottom formation. Whether you decided to buy this stock in the first few days of October or after the breakout occurred does not really matter. After the extended period of time that it takes the form this pattern, a buyer confidence has built up a lot of steam. The percentage move out of a Fry Pan Bottom pattern should be very large.
These patterns do not occur very often. Fortunately when they do occur, they can be found and then followed without too much difficulty. That allows an investor to become well-prepared for taking advantage of the potential results.
The W. R. Grace & Co. chart illustrates a very slow decline, followed by a dimple in selling and buying at the very bottom of the pattern. Once it was interpreted that the buy signal was not creating the immediate buying one would hope for, the slow building up of confidence could be seen. This creates a different analysis versus a stock price that is starting to get to the overbought area finally seeing some exuberant buying. The breakout occurring after a Fry Pan Bottom formation now reveals a completely different scenario.
Training the eye to recognize how a pattern is setting up creates the opportunity to participate in a big profit move. The slow downtrend, followed by a slow uptrend, will have different results. When the trading gets close to completing the Fry Pan formation, funds can start to be committed.
Because of the length the time that a Fry Pan Bottom takes to develop, they should not be a primary source for a trading strategy. However, they can be used when the timing becomes apparent. Although they do not occur with great frequency, the percent return produced makes them well worth being enabled to recognize the formation.