Archives for August 2019

Market Analysis Systems – Seeing The Market Move

August 5, 2019 by Leave a Comment

If you only knew what the market was going to do before it did it, you would be rich by now. If a thought like that has run through your mind before, you are going to love this topic. It may seem like successful traders have the ability to see movement in the market before it happens. While there are no known psychic stock investors, it is possible to develop the ability to determine movements in the market before they occur and you won’t even have to use a crystal ball or bend spoons with your mind! All you need is to do your technical analysis and use the best market analysis system available.

What Is a Market Analysis System?

This sounds so good that if you don’t know, you are probably wondering what a market analysis system is. This is a method for tracking the market and looking for stock market trends, either of the entire market or of a particular stock. A market analysis system can be something simple like a bar chart or something more sophisticated like the Japanese Candlesticks. Both are market analysis systems but there are substantial differences between them and that difference can help you know what is happening in the stock market.

Bar Charts and Japanese Candlesticks

Bar charts, like Japanese Candlesticks charts, are a type of market analysis system. Bar charts consist of a series of ranges, the open and close for the market or a particular stock each day. By studying this data, an investor can try to determine a day’s event and when he or she analyzes the data for a week or month and tries to find trends. The problem with bar charts as a market analysis system is that there just isn’t much data provided and there is no underlying stock technical analysis provided. For example, if a stock closed yesterday at $5, opened today at $5, rose to $20 at mid-day, then fell to $6 at close, only the range between $5 and $6 would be reflected in your bar chart.

With candlestick analysis, the level of data provided is much higher. You still have open and close prices but you also have things like daily high, daily low and comparisons to previous close. If you use the example we mentioned for bar charts, you would have a body that reflected the difference between $5 and $6, a vertical line that extended up to $20 and the body color would represent the relationship of the opening price to the previous close. It is easy to see that this market analysis system provides much more stock market information than a simple bar chart.

Candlestick charts are the oldest type of price predicting charts, dating back to the 1700’s when they were used for predicting rice prices. In fact, during this era in Japan, Munehisa Homma became a legendary rice trader and gained a huge fortune using candlestick analysis. He is said to have executed over 100 consecutive winning trades! Candlestick charting still has a strong reputation as a market analysis system today. It is said to enable the investor to spot market trends three days before they occur.

Conclusion

A market analysis system is an important part of your stock trading plan. With a system like Japanese Candlesticks an investor has access to more data and the analysis abilities only Candlesticks provides. The strength of this system gives the investor the ability to see the market move without having to buy a crystal ball!

Filed Under: Free Newsletters

Trading the Mat Hold Candlestick Pattern

August 5, 2019 by Leave a Comment

Mat Hold
(uwa banare sante oshi)

Mat Hold

Description

Similar to the ‘Rising Three Method’, it has the look of an Upside Gap Two Crows except that the second black body (third day) dips into the body of the large white candle. It is followed by another small black body that dips a bit further into the white candle body. The final day gaps to the upside. It continues its upward move to close higher than the trading range of any of the previous days.

The implication is that the trend has not been stalled. This is a good point to add to positions. The Mat Hold pattern is a stronger continuation pattern than the Rising Three Method. During the days of ‘rest,’ unlike the Rising Three Method, the price stays close to the top of the white candle’s upper range.

Criteria

  1. An uptrend is in progress. A long white candle forms
  2. A gap up day that closes lower than its open creates a small black candle
  3. The next two days form small candles somewhat like the Rising Three Method.
  4. The final day gaps up and closes above the trading ranges of the previous four days.

Pattern Psychology

The Mat Hold pattern does not pull back as much as the Rising Three Method. It is easier to identify. The pull-back days are less concerning. The relatively flat rest period does not create the concern that the Rising Three Method does. After three days of the bears not being able to knock the price down to any great degree, the bulls step back in with confidence.

Back to Continuation Patterns

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Successful Traders Use Successful Trading Techniques

August 4, 2019 by Leave a Comment

What are the successful trading characteristics of today’s successful traders?

Some people are very comfortable doing stock analysis and some are not. And just because you feel confident and comfortable trading stocks, it doesn’t necessarily mean you will be good at it. There are no hard and fast rules on what makes a successful stock trader, yet there are several characteristics that those who make the most amount of money in the least amount of time all have in common.

1. To be successful, a trader must be patient. A successful trader let’s winning positions run, but is able to swallow his pride and close the trade when it isn’t working. Patience means knowing how to be resilient, courageous, and disciplined when the markets go against you.

2. The exploration of stocks is a key ingredient to becoming a successful trader. Developing skill in both fundamental and technical analysis is suggested.

3. The successful trader is passionate and has a biting desire to succeed. The biting desire to succeed can make all the difference in educating yourself about what you want to know and sticking to your strategy when the going gets rough.

4. As they practice stock trading, potential embarrassment is not a concern with successful traders. They expect to have losses and know when to cut them as soon as they are recognized.

5. Successful traders are highly disciplined. Extremely disciplined. A successful trader does what needs to be done, even if he isn’t in the mood. Discipline also means sticking to your strategy, not suddenly buying or selling on a whim, or because of a” hot tip”.

6. Successful traders know that mistakes are going to happen. They realize and appreciate that the ability to make their own mistakes is a necessary part of the learning process.

7. A winning trader knows the difference between defensive and offensive behavior, and when to use each – protect your money first, profit later.

8. Successful traders balance their lives. Stock trading can be addicting, a successful trader can break away ‘at will’ before putting too much at risk.

9. Successful traders are risk adverse. They don’t like losing money and control themselves before losing a large quantity, even if they have to admit they made a mistake.

10. Getting emotionally involved or placing trades based on hunches or rumors are not characteristics of successful traders. To be victorious you have to be able to resist the urge to prove you are right and be ready to make mistakes. Greed and fear should not affect your decisions. Setting stop losses on every trade is something that promotes success in trading. This means that on more than one occasion, you will have to admit that you are wrong.

By using stop loss strategies correctly, your ego and your portfolio will survive and you may be able to get back into your “pet” position again when trends tell you it is the appropriate time to do so. You will have to learn to disregard any emotional ties you have to your stock and make quick stock trends your master. Although you might miss the lowest entry points and the top selling points, you will be able to sleep at night and look at yourself in the mirror in the morning. Learning to get out of a stock position before your profits turn to losses becomes a necessity. Learn solid stock investing concepts.

Filed Under: Free Newsletters

The Dynamic Doji – A Clear Trend Reversal Signal

August 3, 2019 by Leave a Comment

The Doji is one of the most revealing signals in Candlestick trading. It clearly indicates that the bulls and the bears are at an equilibrium, a state of indecision. The Doji, appearing at the end of an extended trend, has significant implications. The trend may be ending. Just this fact alone creates a multitude of investment programs that produce inordinate profits. What is the best method for making big trading profits? Knowing the direction of a trading entity and the strength of that move, Candlestick analysis perfects the trading strategy. Candlestick formations reveal high probability profitable reversals. Hundreds of years of investing refinement have proven that point.

Candlestick analysis incorporates approximately 50 to 60 Candlestick signals. However, twelve of the signals, considered the major signals, will produce the vast majority of the trend reversals. Recognizing and understanding the psychology that formed these major signals will provide completely new insights for investors in understanding optimal times to buy and sell. Japanese rice traders realized that prices do not move based on fundamentals, they move based on the investor perception of those fundamentals. The Doji signal is one of the most predominant reversal indicators. It is very effective in all-time frames, whether using a one-minute, five-minute, or fifteen-minute chart for day trading or daily, weekly, and monthly charts for the swing trader and long-term investor.

The Japanese say that whenever a Doji appears, always take notice. A well-founded rule of Candlestick followers is that when a Doji appears at the top of a trend, in an overbought area, sell immediately. Conversely, a Doji seen at the bottom of an extended downtrend requires buying signals the next day to confirm the reversal. Otherwise, the weight of the market could take the trend lower.

The Doji signal is composed of one candle. It is formed when they open and the close occur at the same level or very close to the same level in a specific time frame. In Candlestick charting, this essentially creates a “cross” formation. As the following illustration demonstrates, the horizontal line represents the open and close occurring at the same level. The vertical line represents the total trading range during that time.

Doji Star

Doji Star

Upon seeing a Doji in an overbought or oversold condition, an extremely high probability reversal situation becomes evident. Overbought or oversold conditions can be defined using other indicators such as stochastics, When a Doji appears, it is demonstrating that there is indecision now occurring at an extreme portion of a trend. This indecision can be portrayed in a few variations of the Doji.

The Long-legged Doji is composed of long upper and lower shadows. Throughout the time period, the price moved up and down dramatically before it closed at or very near the opening price. This reflects the great indecision that exists between the bulls and the bears.

Long-legged Doji

Long-legged Doji

The Gravestone Doji is formed when the open and the close occur at the low end of the trading range. The price opens at the low of the day and rallies from there, but by the close the price is beaten back down to the opening price. The Japanese analogy is that it represents those who have died in battle. The victories of the day are all lost by the end of the day. A Gravestone Doji, at the top of the trend, is a specific version of the Shooting Star. At the bottom, it is a variation of the Inverted Hammer.v

Gravestone Doji

Gravestone Doji

The Dragonfly Doji occurs when trading opens, trades lower, then closes at the open price which is the high of the day. At the top of the market, it becomes a variation of the Hanging Man. At the bottom of a trend, it becomes a specific Hammer. An extensively long shadow on a Dragonfly Doji at the bottom of a trend is very bullish.

Dragonfly Doji

Dragonfly Doji

Doji that occur in multi-signal patterns make those signals more convincing reversal signals.

Harami Doji  Evening Star - Abandoned Baby

Harami Doji           Evening Star – Abandoned Baby

Having the knowledge of what a Doji represents, indecision, allows the Candlestick analyst to take advantage of reversal moves at the most opportune levels. Regardless of whether you are trading long-term holds for day trading from the one-minute, five-minute, and fifteen-minute charts, the Doji illustrates indecision in any time frame.

A prime example can be seen in the Taser chart from this past year. The Candlestick signals become an important tool to cut through all the investment rhetoric. As was demonstrated during Tasers price run from approximately a $5 range up to the $65 range in a matter of months, the news station commentary started exuding accolades on the company’s products. As the price skyrocketed, it became clear that the price had gotten well ahead of the fundamentals. But where did you take profits? Where did you start shorting a stock? That answer became obvious once we saw all of the huge Doji at the top.

Taserchart

This graphic illustration of indecision provided a format for taking profits or even, more aggressively, being prepared to short the stock on the next days lower open. The Doji becomes the illustration of indecision at these prices. This is not rocket science. It is based on the the observations of successful Candlestick trading over the past four centuries.

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Trading the Three Line Strike Continuation Pattern

August 1, 2019 by Leave a Comment

Three Line Strike
(sante uchi karasu no bake sen)

Three Line Strike

Description

Three Line Strike, also known as the Fooling Three Soldiers, is a four-line pattern that occurs during a defined trend. This pattern represents a resting period, but unlike most resting periods, this one occurs all in one day. It ends up as an extended Three White Solder pattern

Criteria

  1. Three White Soldiers, three white candles, are continuing an uptrend
  2. The fourth day open higher, but then pulls back to close below the open of the first white candle

Pattern Psychology

The Three White Soldiers indicate the trend is continuing. The fourth day opens in a manner that resembles the previous days; however, profit taking sets in. It continues until the close is below the open of the first white candle. The black candle body completely negates the rise of the past three days, but it has gotten the short-term pullback sentiment out of the way. The uptrend continues from this point.

Back to Continuation Patterns

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Practice Stock Trading with Candlestick Chart Patterns

August 1, 2019 by Leave a Comment

Practice Stock Trading –  important advice to novices to the stock market. A great way to practice stock trading is to paper trade. This simulated trading provides great insight without risking any real money while you practice stock trading. There is one caveat to paper trading; play money is very different from real money. While it is wise to practice stock trading before putting your hard-earned bucks on the line, the emotional component is not as intense.

As your finger hovers nervously over the “submit” button to place your first trade, you experience a tightening in your stomach that is oddly exhilarating and yet unsettling. It is amazing how many thoughts go through your mind once you close your eyes, push that button and start watching your trade. “Please, please let this be a good trade”  “Maybe I should practice stock trading a bit more, I think I’m going to be sick”  “Is my trade running against me already!”  “Should I get out now or wait? Maybe I should turn this trade into a long-term hold and wait for it to go back up.”  “My wife is going to kill me!”  NOW you know why we recommend trading with candlestick charts. Take advantage of the emotional component that all investors experience and see it; Visually depicted  in the charts.  Japanese Candlestick charting dramatically increases the information conveyed into visual analysis. Each candlestick trading formation clearly illustrates the change of investor sentiment. This process is not apparent in standard bar chart interpretation. Capitalize on the emotional process other investors fall prey to  and practice stock trading with candlesticks.

We recommend you begin learning the 12 Major Candlestick Signals – Major in the sense that they occur in price movements often enough to be beneficial in producing a steady supply of profitable trades. Once comfortable with the major signals, expand on your training to include the Secondary signals, which do not occur as often as the Major Signals but are just as effective.

Trading the Unique Three River Bottom Pattern.

Three River Bottom Pattern

Description

The Unique Three River Bottom is a bullish pattern, somewhat characteristic of the Morning Star Pattern. It is formed with three candles. At the end of a downtrend, a long black body is produced. The second day opens higher, drops down to new lows, then closes near the top of the trading range. This is a Hammer-type formation. The third day opens lower but not below the low of the previous day. It closes higher, producing a white candle. But it doesn’t close higher than the previous day’s close. This pattern is a rare pattern.

Criteria

  1. The  candlestick body of the first day is a long black candle, consistent with the prevailing trend.
  2. The second day does a harami/hammer. It also has a black body.
  3. The second day’s shadow has set a new low.
  4. The third day opens lower, but not below the lowest point of the previous day. It closes higher but below yesterday’s close.

Signal Enhancements

1. The longer the shadow of the second day, the probability of  a successful reversal becomes greater. 

Pattern Psychology

After a strong downtrend  trend has been in effect, the trend is further promoted by a long body black candle. The next day prices open higher but the bears are able to take prices down to new lows. Before the end of the day, the bulls bring it back up the the top end of the trading range. The third day, the bears try to take it down again, but the bulls maintain control.  If the following day sees prices going up to new highs, the trend has confirmed a reversal.

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