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Health, Wealth, and Wisdom Web PagesFINANCIAL REALITY!
Japanese Candlesticks Psychology
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It is a cliché that stock prices go up when there are more buyers than sellers, and that stock prices go down when there are more sellers than buyers.
WRONG! Every share transacted changes hands between a buyer and a seller. The number of buys and sells is equal.
Now it could be that one buyer buys from a number of sellers or one seller sells to a number of buyers. That is not what is commonly meant by "more buyers than sellers" or "more sellers than buyers". In either case, the stock price could go either way.
What does make a stock price go up is that the number of traders getting greedy (confident?) increases. They want the stock NOW! So they have to raise the amount they are willing to pay in order to persuade reluctant stock sellers to part with some of the shares they were not willing to part with at a lower price.
What does make a stock price go down is that the number or traders getting scared / fearful (pessimistic?) increases. They want to dump their stock NOW! So they have to lower the amount they are willing to accept in order to persuade reluctant stock buyers to take some shares off their hands.
So, you can see that it is pressure by greedy buyers (buying pressure)
that makes stock prices go up.
And, you can see that it is pressure by fearful sellers (selling pressure)
that makes stock prices go down.
Looking at daily candlesticks and candlestick patterns will tell you what is winning -- greed or fear.
If a candle is "hollow" (white) or "green", that means the close was above
the open, which then indicates that greed (confidence) won the battle that
day.
If a candle is "filled" (black) or "red", that means the close was below the
open, which indicates that fear (pessimism) won the battle that day.
Be aware, though, that one battle does not indicate the tide of the war. You have to look at which side is winning more battles, and at the patterns.
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It is not that there are more buyers than sellers or sellers than buyers that move a stock up or down. It is buying or selling pressure -- by the group (potential buyers or potential sellers) that has more COMMITTED participants at the moment.
As you have noted, this is NOT, by far, a treatise on Japanese candlesticks. For complete information on interpreting and using Japanese Candlestick patterns, look up these books:
There are thousands of books concerning trading the stock, options, and futures/commodities markets. They cover all areas of interest, ranging from technical analysis to risk management and money management.
To see some of the most highly recommended of these,
visit the following pages:
http://www.bean-d.com/finance/top5-technical-analysis-books.php
http://www.bean-d.com/finance/technical-analysis-books.php
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