Most traders will use one type of technical analysis, while others will combine different techniques when trading on the stock market today. The kind of analysis used will depend on which school the analyst adheres to. When a trader is stock picking, he will try to find out in which direction the stock picks are moving so that he can get in at the best time to maximize profits. One of the methods used in the stock market is technical analysis. This technique involves looking a historical data on a stock pick. Normally the volumes and price are the main focus, but other data is used as well.
Stock charts will be used to look at historical data; this chart analysis will generally be viewed looking at candlestick patterns. The patterns that are formed by the candlestick charts will show where trend reversals may occur. Trend lines may also be used in conjunction with the candlestick patterns. There are many patterns that can form, and each pattern combined with other patterns will indicate a certain condition at a given time period. This information will help with market prediction, which in turn helps when trading stocks.
Some candlestick patterns that signal changes are the “morning star”. This pattern follows a time where investors have been panicky and have been selling out of fear over a period of time. The morning star appears and is noted by three candles, with the first day’s candle being black and long, showing that there has been a strong down trend with the stock closing lower than it opened. The second day shows a white short-bodied candle signaling indecision, and shows that the trading range was low. The gap between the first day and second day further indicates that there is the probability that a reversal is occurring. The third day is a long white candle and this signals the bulls have taken control.
This pattern is a good indication of a reversal and can be considered part of the market prediction. Traders will then give out advice and stock tips to investors so they they can buy in to the stock while it is increasing in price. This is just one method of using candlestick patterns to determine the direction things will move. There are actually 12 important candlestick patterns that can be used in market prediction, and traders should familiarize themselves with them.