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When Munehia Homma first created candlestick charts in the 1700s, he had no idea it’d change the way we look at stocks 300 years later.
To him, candlestick charting was meant for the rice trade.
Now, when applied to technical analysis, it can help give us a clear picture of trader emotion.
Imagine jumping off a bridge with a bungee cord.
As you begin to reach the end of the cord’s pull, you’re quickly yanked in the other direction.
That very same thing happens with stocks when they become far too extended in overbought or oversold territory. And we judge exactly where that’s likely to happen with two key indicators.
Unbelievably, technical analysis is still written off as useless.
In fact, some denounce it as a laughable study of charts, patterns, and squiggly lines without any concrete or profitable results. Others argue it’s only good for short-term trading.
However, none of that is true.
Fear can destroy a stock in seconds.
But it can also create a wealth of opportunity if you know when to buy it. In fact, it’s how investors like Warren Buffett, Sir John Templeton, and Baron Rothschild made their money.
Each of them subscribed to fundamental analysis to do so.
Markets are a fickle beast.
Even with the U.S. and China nearing a trade deal, markets began to pull back in March 2019.
While many shifted blame to the President for the move lower, we had to consider that markets were technically stretched. We were overdue for a pullback.