As stocks have taken a beating of late it could be time to look for bargains and buy cheap stocks. When deciding to buy cheap stocks for long term investing the investor is looking for different characteristics than a day trader who might buy cheap stocks in expectation of a quick profit. In long term buy and hold investing one looks for stocks that are underpriced in relation to their eventual value. Such stocks will commonly have a low price to earnings ratio, a strong margin of safety, and forward looking intrinsic stock value. An ideal stock for a long term investor is often lying forgotten by the market. It is not especially volatile. On the other hand when traders decide to buy cheap stocks they are commonly looking for stock volatility. They may look for stocks that have had drastic changes in their fundamentals and are in a period of market inefficiency as market sentiment settles on a stock price. Using Candlestick charts traders can buy cheap stocks before they rebound or sell short before the market makes them cheap stocks.
Picking stocks in a down market is only part of how to make money if one chooses to buy cheap stocks. The other part is timing. Candlestick analysis provides traders with an objective means of stock market and individual stock analysis. Long ago traders recognized that market price patterns repeat themselves. Rice traders in ancient Japan developed an easy to read system of signals for trading rice. Today Japanese Candlesticks are used for trading commodities, stocks, options, futures, and foreign currencies. Candlestick patterns essentially predict the future by remembering the past. When a trader or investor wants to buy cheap stocks he does so in order to profit when the stock rises in price. Although the long term investor may have a longer time horizon in mind he, as well as the trader, wants to buy stocks at the lowest possible price. He does this with an eye on the fundamentals of the stock but with his full attention on technical analysis tools such as Candlestick stock charts where he expects to see clear signals telling him when to buy stock, sell stock, sell short, or stay out of the trade.
Traders, unlike long term investors, look to profit from both the ups and downs of the market. By following stocks with Candlestick charts traders seek to buy cheap stocks before they rise in price, sell expensive stocks before they fall in price, and repeat the process each time the market cycles through the same set of stock price patterns that it has followed for many years. By assessing the fundamentals of a stock and gauging market sentiment with Candlestick pattern formations traders are able to distinguish between stocks that are likely to rise in price and cheap stocks that deserve to be cheap and may be on their way to bankruptcy or a buyout by a stronger competitor. The point, when using Japanese Candlesticks, is to profit from buying cheap stocks in either the long or short term.
