Today the markets traded positive after trading lower early in the day. The Dow traded up 200 points after closing at the 200 day moving average yesterday. Does today’s positive trading mean there is a reversal in the market? Using candlestick analysis today’s trading may be more inclined to be a bounce versus a full-scale reversal. Although the indexes traded up strong, they did not produce candlestick reversal signals. Why is this relevant? Simple logic! If trading formations such as today’s trading was signifying a relevant change of investor sentiment, it has to be assumed that the Japanese Rice traders, with 400 years of observations, would have provided a name for these type of reversal days.
The fact that they didn’t makes for the assumption that these are merely up days in a downtrend. The other high probability factor is that the indexes closed below the T line. Because candlestick analysis is based upon the graphic depiction of human nature, the signals working in conjunction with some high probability confirming indicators provides an extremely strong trading format for investors. A format that is based upon high probability human nature reactions that have work extremely well for centuries.
Candlestick patterns provide expected results. The advantages of working with candlestick patterns is twofold. One, it illustrates when there is a high probability of an expected price move and secondly, that price move usually has much more strength than mere uptrending stock prices. Today, HCLP was recommended based upon the cradle pattern, a high profit candlestick pattern. The utilization of candlestick signals and patterns puts an investor in situations where the probabilities are greatly in their favor.
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