Investing in the stock market requires having a trading program that has accountability. Most investors, when invested in the stock market, do not have any program. They buy stocks based on a multitude of investment input. The problem with this approach is that there is no program for when to get in and when to get out. Investing in the stock market requires a trading format that can be analyzed after both good and bad trades.
Most investors don’t have an exit strategy for a trade that does work and especially for a trade that does not work. The lack of that information makes investing in the stock market more hit or miss. Using the analysis of Candlestick signals allows an investor to quickly interpret what a price action or a trend is going to do. Once this analysis has been made, price movement that deviates from that analysis can be quickly analyzed viewing the Candlestick signals. The prime example occurred on Tuesday as the Dow came back down and tested the 200 day moving average. The bullish signal that formed late in the day in both the Dow and the NASDAQ would have prepared investors to start buying upon seeing confirming buying on Wednesday. Using candlestick charts make the analysis very easy.
However, the consolidation in the morning could have been expected after a big reversal day. The fact that the sellers came in and pushed the markets back down to the 200 day moving average at the end of the day creates a completely different scenario than if the Bulls had sustained the uptrend on Wednesday. The weakness in both the NASDAQ and the Dow require a new analysis.
With the NASDAQ trading near its recent lows and the Dow trading right near the 200 day moving average, and with the Dow once again forming a Bearish Engulfing signal makes for a different evaluation. Two weeks ago, a Bearish Engulfing signal in an oversold condition meant to look for a buy signal. The Bearish Engulfing signal on Wednesday formed when the stochastics were not in the oversold condition any more.
This makes the new analysis fairly simple. Further weakness on Thursday, taking prices down through the 200 day moving average in the Dow and heading to new lower levels in the NASDAQ, while stochastics are turning back down, would indicate that more selling will probably come into this market. On the other hand, a positive trading day, such as a Bullish Harami or a Doji-type day would provide more evidence that the 200 day moving average was going to act as support.
Dow
Having the Candlestick signals to make an evaluation and using other simple technical indicators provide the Candlestick investor with a much easier view of what investors’ intentions are. Thursday’s trading needs to see strength above the 200 day moving average to consider holding on to any long positions.
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