How to Trade the Piercing Candlestick Pattern

Written on 04-07-2007 8:35 am by Craig

Independence Day

Today we celebrate our freedom.

The Congress reworked the text of the Declaration until a little after eleven o'clock, July 4, when the twelve colonies voted for adoption and released a copy signed only by John Hancock, President of the Congress, to the printers.

Today I will have my share of hot dogs and hamburgers on the grill. I will spend time with friends and family. I might even light off some fireworks.

But don't think that for one second that I will forget just how damn lucky I am to live in this great country.

Nor will I forget the men and women fighting for it.

Take a look at this...

The American Flag

Beautiful isn't it?

Written on 08-07-2007 10:19 am by Craig

Want to use Stochastics? Better read this first.

Richard over at Move the Markets posted a great article today on using stochastics.

The stochastic isn't telling you something you can't see in the candles themselves (which is basically that it's coming off the top or bottom of its recent range). In fact, I claim you can usually eyeball a stock's recent cycle highs and lows, no matter how many candles ago they were. This means any off-the-cuff "stochastic" you estimate is likely more accurate than a fixed-cycle stochastic drawn on your chart.

Like Richard, I tried to like Stochastics. I really wanted them to work! And they did - sometimes. But it is just so easy to look at chart and see the times when it "worked" and ignore the times when it didn't.

Like most technical indicators, Stochastics doesn't tell you anything more than what is right there on the chart.

What are your thoughts? Do you know of any technical indicators that can provide a trader with some useful information?

Written on 12-07-2007 6:50 pm by Craig

Remember the First Time You Shorted a Stock?

I was terrified of shorting stocks!

There was something so mysterious about selling a stock first and then buying it later! It just didn't make sense to me and I was scared to do something wrong. So I just avoided it.

But I realized that if I wanted to be a stock trader, I just simply had to learn how to do it. There was no getting around it anymore. I had to put my fears aside, suck it up, and try it.

So one day, I woke up and said to myself, "Craig, you are going to short a stock today if it kills you". So I found a stock to short, brought it up on the computer screen, and just stared at it for what seemed like an eternity!

Finally, with hands trembling, I shorted a whopping 20 shares - and it was a 3 dollar stock! I figured that if I did something wrong, at least I wouldn't lose much. Looking back, I wonder why I was so nervous! The stock began to move up and I was really disappointed but then it began to come back down. I just freaked out and covered!

I did it!

I was jumping around the room, screaming, "Hell yeah!", "You da man!".

I shorted a stock and actually made money when a stock went down! With commissions, I really didn't make anything, but I was just so excited that it was possible to "sell high and buy low"!

That was one of the most exciting days in my trading career. I'll never forget it!

Remember the first time you shorted a stock? I'd love to hear your story!

Written on 22-07-2007 8:40 pm by Craig

How to Trade the Piercing Candlestick Pattern

This candlestick pattern is becoming one of my favorites.

It's funny that you don't hear traders talking about it very often. It is the piercing candlestick pattern.

This pattern shocks traders into thinking the stock is headed one way - but then it completely reverses direction. This can trap traders on the wrong side of the move causing a powerful reversal.

Here is a chart:

piercing candlestick pattern

Steve Nison defines this pattern as "...a long black candlestick is followed by a gap lower open during the next session. This session finishes as a strong white candlestick that closes more than halfway into the prior black candlestick's real body."

There are three keys to making good trades with this pattern.

  1. You want to see consecutive down days. This paints a very bearish picture of this stock. Most traders are thinking that the stock is headed lower.
  2. The last candle of the down day should look the most bearish. Look for a really nasty looking candle that closes near the bottom of the range. It scores a few more points if it gaps down on higher volume. By now, almost every trader is convinced that this stock is going to $0!
  3. Surprise! An up day. Now, just about every trader is questioning the future direction of the stock. This candle should close at least halfway into the prior days range.

This candlestick pattern is not as significant as the bullish engulfing pattern. But it is still a nice one to look out for when you are running your scans.

The "shock factor" of this pattern is what makes it work. It can lead to powerful reversals that any trader can profit from.

Written on 23-07-2007 9:52 pm by Craig

Confessions of a Stock Market Book Addict

Hello. My name is Craig and I'm a stock market book addict! I'm finally down to a little less than 50 books...

stock market books

I had to get rid of some of them! They were taking up too much room and I knew that I would never read them again. Know what the funny thing is? After you have been trading for a while, it's hard to find anything new in a "book".

It is just the same stuff repeated over...

...and over

...and over

...and over

...and over again.

That is because the stock market never changes because human nature never changes. You can read a book that was written in the 1920's and it will be just as relevant today as it was back then.

Will I ever buy another stock market book? Yes. The allure of discovering a new "stock market secret" is too powerful.

Even if I know that there isn't one.

Written on 29-07-2007 9:40 am by Craig

How to Tell When the Market is Going to Reverse

The stock market sold off hard in the last few trading sessions. So what do you do? Look for short setups? Nope. Too late for that. You want to be looking for long positions on stocks with relative strength.

How can you tell when the market is going to reverse?

Look for the first candle that closes positive at halfway or more into the prior days range.

market reversal

It doesn't work every time. But it does give you a very good indication that the bulls have regained control.

Better than any technical indicator could ever dream of.

Beginners: Learn the Basics

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