Gap Analysis – Big profits with candlestick signals
The correct gap analysis for price movements can produce extremely large profits. One of the major advantages of candlestick signals is that it allows in investor to interpret the investor sentiment after a gap up in price. Being able to recognize strong buy patterns through gap analysis produces a very powerful trading format. Gap analysis includes gaps up in price after a major candlestick signal as well as evaluating a breakout candle. Being able to utilize the information conveyed from the candlestick formations allows an investor to exploit entry positions with maximum benefits. Candlestick charts reveal these opportunities.
Candlestick signals provide two major functions for extracting profits from trading markets. The most common use is having the ability to identify trend reversals. Reversals can be witnessed in index trends, sector trends, and individual stock prices. They can also be used for analyzing other markets or trading entities that can affect the trading markets an investor is directly participating in.
Another highly profitable function of candlestick signals is using gap analysis for strong trend reversal situations or breakout situations. The analysis of a gap is very simple. It is a graphic illustration of the investors wanting to get in or out of a trading entity with such enthusiasm that it gaps the price away from the previous trading range of the prior time frame/day. In the case of a gap up from a candlestick signal at the bottom of a trend, the buying enthusiasm is apparent. This is the exact type of trend in which an investor wants to participate. A price in an oversold condition, demonstrating a candlestick reversal, followed by massive buying. Does a candlestick buy signal in an oversold condition, followed by a bullish candle illustrate a high probability reversal situation? Certainly! But what would be better? Witnessing a candlestick buy signal in an oversold condition followed by extremely strong buying, a gap up in price. Extremely large profits can be made in a portfolio when successfully utilizing gap analysis.
Breakouts
Breakouts illustrate a very strong change of investor sentiment towards a trading entity/stock. A specific announcement or a world event can create a dramatic change for a company’s future. Unless an investor has the time or the immediate accessibility to a very large research staff, most investors will shy away from a price move that may be up 20%, 50%, 100%, or greater. However, utilizing candlestick signals, an investor can successfully evaluate whether to, and when to, get into a stock position after the price has broken out. The information incorporated into candlestick signals makes the analysis of when to get in to a large price move very easy.
Breakouts for specific stocks are usually induced by an announcement directly related to the company’s future. The announcement usually pertains to things such as breakthroughs in technology or huge contract situations that should affect the cash flow of the company for a long time to come. The study of breakouts can be put into very simple steps. How does the announcement affect the future of the company? What did the candle formation on the day of the announcement indicate as far as investor sentiment? Will the results of the announcement be a short-term or long-term benefit to the company? All these questions can be very easily answered. The first function of the candlestick signals is to illustrate what investor sentiment conveyed at the end of that first day.
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