Which direction is the market moving from here? When using a very simple combination to demonstrate when an uptrend may be reversing, it makes the analysis very simple. The combination is witnessing a candlestick sell signal and a close below the T-line. Today’s trading produced a sell signal in the Dow, a bearish Doji/Harami followed by Today’s trading which close the Dow below the T-line. The NASDAQ, S&P 500, and the transportation index all formed a bearish Harami’s but closed above the T-line. This allows the candlestick investor to be ready to close positions based upon very simple analysis. If the markets trade lower tomorrow, confirming the bearish Harami’s and taking the indexes down through the T line, at the same time the Dow is already trading below the T-line, it becomes a high probability evaluation that the sellers are taking control. A positive open and positive trading in the markets? That would clearly indicate the T-line is still acting as a support level. Do these market conditions indicate which way the market is going to move from here? No, but additional information from the current graphics of the candlestick charts produce the information that investors can make high probability trade decisions.
Although the overall market is trading in decisively, simple candlestick scanning techniques allow investors to see which patterns are currently working well. The frypan bottom and the bobble breakout patterns not only reveal high probability trades set ups, but they also produce expected results in spite of what the overall market direction is indicating. Utilizing candlestick patterns is taking advantage of the information that has build up that pattern with investor sentiment accumulating strength that is not immediately altered by a change of direction in the overall market. This produces three beneficial results. First, it indicates the direction of a trade with a high degree of probability. Secondly, the strength/magnitude of the trade is much more profitable than merely trending stocks that are trending in the direction of the market trend. Third, if the overall market direction changes, a candlestick pattern will usually allow for exiting the trade profitably a day or two after the market has changed the direction. Learning how to utilize investor sentiment, the formation of candlestick charts, produces huge advantages for making profitable trades.
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Good Investing,
The Candlestick Forum Team
