Today’s selling was signaled by one of the strongest candlestick reversal signals, the bearish left/right combo. The Dow formed a bearish engulfing signal following a Doji yesterday. Additionally, the selling had the indexes closing below the T line. Very simple analysis! A strong candlestick sell signal and a close below the T line gave a high probability the sellers are starting to take control. Although there was some bullish trading early today, the fact that there was a candlestick sell signal provided the probabilities that the sellers are taking control. This cautioned for any bullish transaction on positive trading early in today’s trading. The next analysis is whether this is a major reversal in the market trend or merely consolidation. The indications of consolidation was illustrated by the NASDAQ and the S&P 500 showing indecisive trading days, Doji days. Additionally, the transportation index came back up strong. This would indicate there was not an overall selling consensus in all the market indexes.
Although the indexes traded lower, numerous candlestick patterns continue to trade profitably. Knowing the expected results of candlestick patterns provides the framework for knowing when to stay long or when to close out a position based upon a close that would indicate the pattern was not continuing to perform. This is illustrated by the build up of investor sentiment that creates the pattern in the first place. Knowing the indicators that continue to confirm a trend is still in progress allows a candlestick investor to hold positions that are not being affected by the opposite direction of the overall market.
Chat session tonight at 8 PM ET.
Good Investing,
The Candlestick Forum Team
