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Early October 2018 was quite painful for the average investor. Today, we are seeing the same problem with the Covid-9 pandemic.
The major indices fell out of the sky. The tech-heavy NASDAQ fell from 8,100 to 7,300. The S&P 500 dropped from 2,925 to 2,725.
To the average trader, candlestick patterns are a bunch of crosses and odd shapes with bizarre names, like the three black crows, or the abandoned baby bottom.
But as odd as they may sound, they can provide powerful insight into direction.
If you pull a rubber band too far, too fast, what happens?
It snaps back, right? The same thing happens with stocks, indexes, and currencies. If they’re pulled too far in one direction, eventually they’ll snap back and revert to back to the mean. In fact, we see it happen all the time.
It’s not about having the perfect strategy.
It’s about the rule you abide by with each trade.
One of the biggest issues facing all walks of traders is a severe lack of discipline and structure in stock buying habits. Many fail to use stop losses, or even protect gains with a simple trailing stop loss strategy. Others risk far too much.
Way back in the 1700s, Munehia Homma first created candlestick charts for rice trade.
Oftentimes, he would record the opening day’s price of rice, the low and the close.
Over time, he’d begin to see price patterns in his recordings, mapping out repetitive signals in the price bars.
“Why would I want to touch a stock that just plummeted?”
My answer, “Why not?”
What many traders don’t understand is that many pullbacks create opportunities, especially when it happens to a well-known stock.
But that doesn’t mean you should run out and buy any stock because it pulled back.