Profiting from candlestick patterns in up and down markets

Profiting from candlestick patterns in up and down markets

Current market situation make trading stocks tricky even for probably the most knowledgeable traders. On one hand we have mounting unemployment and spending cuts, on the other - stock market lately went up more than usually. It's tricky to buy more shares with financial climate so bad, yet it's even more risky to sell shares when they're still going up. So what can a minute investor do? How to turn a profit from current market when media time and again report contradicting business news?

One method utilized by veteran traders and investors is recognizing market action with candlestick patterns. The truth is, candlestick patterns were used many years ago in Japan to trade rice, but now they are being successfully used by 1000's of traders in USA. A candlestick pattern is nothing more than a graphical representation of market's actions in the last few days. If the stock rose throughout a day - a candle representing such a day is painted white; if the market fell - the candle is black. Some types of candles laid out in a certain way generate a candlestick pattern and some of them occur more often than others.

So how can one profit using candlestick patterns? This process can be divided into 3 key stages:

Learning the patterns. You have to identify what to hunt for in a candlestick chart. More often than not the market does totally meaningless things, but every so often a major top or bottom is formed in a well researched and known pattern. The best method to become skilled at candlestick patterns is to utilize plentiful websites on the Web, just keep in mind you need to backtest the patterns on past market quotes.

Spotting the patterns. Certain patterns have particular meaning in a down market, several only in an up market - first you have to distinguish what sort of market you're in and then look for for a exact pattern. Unfortunately, this is the tough part - you need to look at charts vigilantly, nothing will replace well trained trader.

Placing the trade. This part is quick and easy, but numerous traders find it really frustrating and repeatedly miss a trade out of fear. You shouldn't be afraid of the market - if you have done your homework and you know what you're doing - you'll be fine. Just remember to use stop loss orders to limit your risk (there is always risk when trading stock market).

That's it! There is absolutely no basis to listen to market-gurus on TV who don't know any better.

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