The Importance of Recognizing Buy Entry Signals
Today we conclude the
3rd part training lesson on candlesticks for BUY Entry Signals. The reason I
did the training this way is to give you the opportunity to learn, rather
than just telling you the answers. You do not learn by being told, you learn by
doing the work first and then studying your answers and comparing them to the
teacher’s training.
Spatial Pattern
Recognition Skills™
are essential skills you must develop. Some of you will already have these
skills, while others will have to do some homework on it. My teaching is not
about just show and tell, but having homework so that you really learn
something. This is more work for me, but just telling you the answers or
recommending a stock is never going to make you successful. Instead it makes
you dependent upon that service.
Last week I asked you
to review the charts once more to see if a reassessment of the candlesticks
would help you see the flaws in those candles that failed to provide excellent
stock runs for decent gains.
Anyone can snatch a
.10 cent gain. That’s easy. HOWEVER, that is not trading profitably because by
the time you calculate ALL of your expenses as a trader, you actually would be
taking a loss at the meager gain. Trading costs are more than broker fees and
minimal charting software costs. It is your time, computer expenses, office
space, electricity, and so on that most traders forget to factor into every
trade.
Here is the
Spatial Pattern Recognition Skills Are An Essential Trading Skill Set ANSWERS
INDEPTH EXPLANATIONS:
1. Chart example is First Solar Inc. (FSLR:
NASDAQ)
Choosing this stock
is a common mistake most traders make, because they are eager to trade and
eager to find stocks. Frustrated because it seems so hard or because they
cannot truly READ charts, they grab anything that looks remotely like the
continuation patterns taught in most candlestick books and courses. Alas, the
problem is simple.
FSLR Engulfing White
formed in the WRONG trendline and trend area. Also it does not engulf
sufficiently. It is NOT a reversal or a continuation pattern sufficiently
strong enough for a true BUY Entry Signal. Now take another look at the chart
example below.
Buy Entry Signals are not the
same as reversal or continuation candles. To be a Buy Entry Signal it has to be
STRONG. This example is weak. Sure it engulfs but the location, the size, and
the placement of it in the pattern are all wrong for a Buy Entry. This should
have been an immediate stock pick discard.
2. Chart example is OceanFirst
Financial Corp. (OCFC: NASDAQ)
This chart has plenty
of problems. First of all again is the location of the Engulfing White. Sure it
is an Engulfing White candle, however it is weak and not a STRONG Buy Entry
signal. The run gain per day is miniscule. The stock is creeping upward. There
is no momentum energy, no strong runs PRIOR to this candle. The action is
choppy being more sideways than up, and the prior runs have no good gains. Now
take another look at the chart example below.
What happens prior to
a Buy Entry Signal is important, as price behaves much like the trajectory of
any momentum action. Something in motion stays in motion, and accelerates as
momentum increases. Think of a jet. This stock barely moves. It has no momentum
behind the price action. So gains are miniscule and not worth your time or
effort.
3. Chart example is Simpson
Manufacturing Company, Inc. (SSD: NYSE) This was the third chart and it
had an excellent set up to move with momentum, to provide a trader reasonable
gains on a 3 day run during the SUMMER. First of all, the stock had plenty of
momentum runs prior to this setup which were nice ones. Secondly what did the
price do prior to the Engulfing White? It COMPRESSED. Take another look at the
chart example below.
Compressions are perhaps one of
the most critical patterns you must learn to instantly see. Compressions of
anything that has energy do what? They create internal pressure that builds,
and then suddenly breaks out to move upward. Think of a compressed metal
spring. Once the metal spring is compressed tightly then released, what does it
do? What MUST it do?
Summary
Even during tough
markets as we have right now, you can find excellent trades with solid gains
that will provide profits you can be happy to take to the bank. It is all about
recognizing specific DETAILS in the charts that are usually missed, simply
because you have not been taught to look for them.
Buy Entry Signals are
NOT reversal candles or continuation patterns. They are very specific.
Current Buy Entry Signals in the Stock Market today are Springboards, Resting
Day, Nesting, Hurdles, Pole Vaults, and Sandwich Candlesticks which are just a
few that TechniTrader teaches its Students.
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Trade Wisely,
Martha Stokes CMT
TechniTrader technical analysis using a StockCharts chart, courtesy of StockCharts.com
Chartered Market Technician
Instructor & Developer of TechniTrader Stock and Option Courses
TechniTrader DVDs with every course.
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Disclaimer: All statements are the opinions of TechniTrader, its instructors and/or employees, and are not to be construed as anything more than an opinion. TechniTrader is not a broker or an investment advisor; it is strictly an educational service. There is risk in trading financial assets and derivatives. Due diligence is required for any investment. It should not be assumed that the methods or techniques presented cannot result in losses. Examples presented are for educational purposes only.