Balancing a stock portfolio is done to increase profits and reduce risk in stock investment. A stock portfolio is the collection of stocks that a person owns. In picking stocks for a portfolio an investors seeks diversification of his investments. Diversifying a stock portfolio helps reduce investment risk and increases opportunity to hit an investment home run. Balancing a stock portfolio typically requires that investors purchase stock in several different market sectors. Buying large cap stocks, mid cap stocks, and small cap stocks is also an investment strategy used in balancing a stock portfolio. The investor goes about picking stocks as always but he purposely does not buy stocks in the same industry. It is possible to use a portfolio management service but investors or traders balancing a stock portfolio should know how to do their own fundamental and technical analysis. Scouting out stocks in crisis and buying at the bottom of the price curve is a viable strategy. Using Candlestick analysis to anticipate market trends and market reversal is integral to managing and balancing a stock portfolio.
In balancing a stock portfolio the investor will decide first upon his investment goals. Long term investing will require a different approach from short term investing. Older investors typically pick stocks with less risk but also lower reward potential. Younger investors commonly invest in stocks with more growth potential but which often are more risky. One approach to diversifying a stock portfolio is to balance risk. One or two stocks in a portfolio may be risky growth stocks while others will be dividend stocks which offer low growth potential but long term security. Microsoft in its younger years was a growth stock. Today it offers security and a dividend but little opportunity for the exponential growth of two decades past.
Investing in stocks in several market sectors is a common approach to balancing a stock portfolio. By not putting all eggs in one basket, or market sector in this case, the investor will not be hurt by economic events the affect the whole sector. By purchasing stocks in more than one sector the investor increases his chances for picking a big winner. However, it is not the mere act of picking more than one stock that makes balancing a stock portfolio successful. Use of both fundamental analysis and technical analysis with Candlestick pattern formations allows the investor to search for stocks that have the potential for near term rapid growth as well as long term stability. In balancing a stock portfolio the investor can choose different strategies for each of his stock picks. He can invest in high tech in bio technology, banking to take advantage of a growing economy, or big oil companies if he believes that prices will rise. He should limit the number of stocks in his portfolio to the number that he can comfortably follow with Candlestick charting techniques in order not to buy a stock for which market sentiment promptly changes. Balancing a portfolio is never an excuse for not watching the performance of each and every stock that one owns.
Market Direction
Support and resistance levels are very important factor in investing. They become more important when utilizing candlestick signals. Whereas most technical trading methods require additional confirmation at a support or resistance level, candlestick analysis has the benefit of being able to immediately identify what the investor sentiment is doing at those levels. As seen in the Dow chart, it appeared as if the 50 day moving average was going to act as support. That was more confirmed by witnessing a bullish Harami at that level. As a candlestick investor, that provided additional confirmation that the downtrend had stopped at the 50 day moving average. Upon seeing bullish trading the following day was an immediate sign that moving average was considered a support level.
The uptrend is continuing while demonstrating obvious profit-taking during the trend itself, as well as intraday profit-taking. This makes for a strong and steady uptrend. The continued profit-taking reduces the probabilities of exuberant buying followed by rapid selling. This allows individual stock prices to produce high profit patterns. Whether trading stocks or commodities, support and resistance levels are very important factor for profitable trading.
As can be seen in the May feeder cattle, a long legged Doji right at the T-line showed indecision. A lower open the following day showed the direction of the market was going to move in the direction of how they open it which would also indicate the 50 day moving average might not be acting as a support level anymore. A breach of the 50 day moving average resulted in a profitable trade for the short seller.
DOW
May Feeder Cattle
Each signal and pattern represents hundreds of years of observations. Do not ignore the probabilities of candlestick signals. They are created by nothing more than the force of investor sentiment. Learning how to utilize candlestick signals is not a difficult process. Understanding the 12 major signals, six long signals, and six short signals allows a candlestick investor to evaluate a price move with much greater accuracy and depth than all other technical analysis. This does not necessarily mean other technical trading methods do not have merit. Adding candlestick analysis to those trading methods will greatly enhance their accuracy.
Members training – members, Mark your calendars – May 7 – This will be a FREE three-hour training and review of the 12 major signals. For new members, this is an excellent method for reinforcing your learning process of the major signals. Hearing what occurred in investor sentiment to form the signal at the same time of witnessing what it did as regards of the trend greatly improve your understanding of where and why a trend is doing what it is doing. This becomes extremely valuable analytical information. This information allows investors to master their own investment decisions versus hoping for mediocre results from money managers.
Chat session tonight at 8 PM ET for members.
Good Investing,
The Candlestick Forum Team
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