Effective Stock Market Trading System – Candlesticks!

Most investors do not have a stock market trading system. Unfortunately, that is usually a natural evolution of learning how to invest. We become educated, we develop a career, we earn money and then we have to figure out how to invest our money. There is no educational institution that will show us how to invest or even set up a stock market trading system. We usually learn by the seat of our pants. But the age of computer is changing all that. The Internet has provided the information for investors to make their own investment decisions. This is much different than how investment information was disseminated a mere decade ago. With the development of computer software, the dynamics of the investment arena has changed dramatically. An investor can develop their own stock market trading system. They have all the information that is available to every investment professional in the world right at their fingertips. Candlestick charts provide this information at a quick glance.

Candlestick analysis is just now coming into its own because of computers. Here is a stock market trading system, although a few centuries old, that is benefiting from today’s computer technology. It can be assumed that the correct trade ratio for candlesticks has to be relatively good or we would not be witnessing them today. However, they were developed without the benefit of a multitude of investment parameters that can be found on computer systems today. In the following months you will be exposed to some of the techniques from modern-day computer research that when applied to candlestick signals enhances the probabilities of being in the correct trade all that much more. This is the best of both worlds. Taking a stock market trading system that has worked for centuries and being able to tweak it constantly with improvements that are showing up every day through computer research. The Doji, forming at the 50 day moving average, is one of those patterns that has been found to greatly improve returns.

Market Direction

As mentioned in last week’s newsletter, the Long-legged Doji, forming right on the 50 day moving average, would and did become the pivotal point for the next major move in the market. The Doji forming a 50 day moving average as an important alert for a substantial move in a current trend. ( Further explanation can be seen later in this newsletter ). Friday was a bullish day. The NASDAQ had a good strong bullish Candlestick signal, a bullish day that came more than halfway up into the last large dark candle of Wednesday, after a gap down inverted hammer. The Dow had the same strong reaction. The Dow did have a good bullish day, a Bullish Harami. The question then becomes whether this is a full-fledged reversal or merely a bounce back up. However, even a bounce should be substantial enough to make some profits on the long side. The 50 day moving average now becomes a resistance target.

Common sense dictates that you try to invest in the direction of the trend on the market. Why try to swim against the current? However, keep in mind that the candlestick signals are the cumulative knowledge of everybody that was buying and selling that day in whatever trading entity or index. That point becomes quite clear in our recommendation of SUPG this week. During a time when the markets were selling off dramatically, the chart of SUPR revealed an extremely strong Candlestick buy signal. The Doji, followed by a gap-up and a strong bullish day, illustrates that the buying was coming into this stock in spite of the fact of the markets were being sold off heavily. The advantage of the candlestick signals is that it tells you exactly what the investors are doing. It can be assumed that something had to motivate the buyers to buy aggressively in SUPR when they knew the rest the market was being sold.

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