Visually analyzing the indexes based upon candlestick charting produces a much more clear assessment of what is happening in the overall market trend. Today the Dow traded down 135 points. This could be construed as a sell signal, especially with the Dow closing below the T line. However, there are other factors that may not necessarily conclude that a major market reversal has occurred. The fact that the Dow traded lower but did a Doji formation reveals the selling was indecisive. The Dow closed above where it opened today. This is something that is usually not recognized by most charting techniques. A close above where something opens indicates there was buying occurring even though the final results is a lower close. The assessment of any trading entity can be done extremely quickly based upon the formations revealed on a candlestick chart. The S&P 500 traded flat today, producing a Doji day that actually supported at the T line. The NASDAQ finished higher. When adding the results of each index to the overall evaluation, quickly reveals there was no major change of investor sentiment in the overall market conditions, merely the Dow trading lower and the other indexes trading flat or positive.
A major benefit of trading candlestick pattern setups is the lack of selling pressure. On unexpected selling days, a price movement in a pattern will usually not be affected. This is based upon the patterns being created by bullish or bearish sentiment without any regards as to what the overall market conditions are doing. This means frypan bottom patterns or J-hook patterns will continue to produce profits on days when everything else is selling off. PZZA is a good example of a classic pattern, a frypan bottom followed by a J-hook pattern. Trading the candlestick patterns puts investors in situations where the profitability will be much greater than merely uptrending stocks during an uptrend as well as not selling off on days when the whole market is selling off in general.
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Good Investing,
The Candlestick Forum Team
