Candlestick analysis is not necessarily analyzing each individual signal for a reversal, it is being able to identify the overall investor sentiment of a trend. As demonstrated by the Dow over the past month of trading, there were dramatic swings up and down almost on a daily basis, reaction to whatever the current tweet was. However, simple candlestick trend analysis techniques revealed when there was a change of investor sentiment. A bullish engulfing signal using the 200 day moving average as support once again and a close above the T-line at least provided visual evidence of a possible change of investor sentiment. A gap up the following day indicated the T-line was not going to act as resistance. Early last week, the markets sold off hard again but had one obvious trend factor, the Dow did not close below the T-line. Additionally, a rounding bottom action was taking place, revealing that bullish investor sentiment may be taking control. The next day, with the Dow opening positive, was another indication the T-line was acting as support and further illustrating a rounding bottom. The coup d’état was a gap up out of the sideways trading range and up through the 50 day moving average, revealing a new dynamic in investor sentiment.
Although the bottoming action was hard to identify on an individual signal basis, the accumulation of indicators confirming the Bulls were taking control provided a prospective that allow the candlestick investor to start looking at individual stock charts that might be revealing the same bullish tendencies. This analysis allowed for establishing long positions well before other trading techniques could identify bullish sentiment starting to enter the markets. The visual aspects of candlestick analysis have a tremendous amount of information built into each graphic signal and pattern. It merely takes common sense analysis to start identifying what is occurring between the Bulls and the Bears, allowing for entering long positions well before the rest of the market traders start participating. Numerous long positions established over the past week of trading has made good profits because those positions were established well before everybody else started entering those trades. This is not do to any great stock picking talent, it is merely identifying what investor sentiment is doing.
We will conduct a “Members Only” chat session tonight at 8:00 pm EST.
Good Investing,
The Candlestick Forum Team
