Spatial Pattern Recognition Skills Are An Essential Trading Skill Set ANSWERS INDEPTH EXPLANATIONS


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.

chart example for weak entry signal - technitrader


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
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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.