Today’s trading illustrates why having stop losses at logical candlestick levels produces much safer trade positions. Candlestick signals are created based upon where they opened and where they close. As witnessed in today’s trading, numerous stock positions opened and traded positive. But when the tariff tweak occurred, many bullish charts became bearish charts as prices moved back down through open prices. The candlestick investor can identify that a bearish signal is more likely to occur when a bullish candle trades back through the open and is now creating a bearish reversal signal. Not only do candlestick signals and patterns reveal when high profit trade set ups are occurring, they also clearly indicate when those trades set ups have not confirmed.
Can all announcements be predicted? Definitely not, making the logic of candlestick formations very simple. A candlestick formation is based upon an open and a close. After yesterday’s hard selling in the markets, investor sentiment had broken the sideways trading mode of the markets that had been established for the past four weeks. The benefit created by candlestick charts reveals the direction of trends because of investor sentiment. Had today’s tweak occurred during a strong uptrend, the result may have been very minimal. The fact that bearish sentiment had taken over the previous day made the magnitude of today’s announcement more powerful on the bearish side. Because of the simple scanning techniques for finding both long and short trades, candlestick analysis makes it logical to have both long and short positions in the portfolio. Sometimes the majority of the positions will be on the long side while other market conditions make having the portfolio oriented to the short side much more logical. But having a mixture of long and short positions, based upon the probabilities that numerous short positions will work profitably in an uptrend as well as long positions will work well in a downtrend. The probabilities of being in a correct trade at the correct time is dramatically improved with very simple scanning techniques.
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Good Investing,
The Candlestick Forum Team
