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August 11, 2005

The Interaction In The Dynamic Stock Exchange Field And The Visual Impact Of The Charts In Trading

MIHAELA POPA CHRAIF

Graduate master - DAFI (Financial Management and Capital Markets) - A.S.E. ( Bucharest )
Student at the University of Psychology-Bucharest

"When we perceive any object of a familiar kind, much of what appears subjectively to be immediately given is really derived from past experience. When we see an object, say a penny, we seem to be aware of its' real' shape: we have the impression of something circular, not of something elliptical. In learning to draw, it is necessary to acquire the art of representing things according to the sensations, not according to the perception. And the visual appearance is filled out of what the object would be like to touch, and so on."

(Bertrand, Russell, The Analyses of Mind)

Abstract

We behave in multiple ways, in multiple roles in the context of multiple groups regarding multiple value and norms. The dynamic psychological field defines our personality and states. We are integrated in a socio-cultural matrix which is the basic passageway between the dynamic field and our socio-cultural context and environment (R.J.Rummel, 1975). Chapter1 is delimitating the Stock Exchange and Financial fields as parts of socio-cultural field and defining the actors, components and interactions in this new and dynamic fields. Here we meet the brokers as orders executants who transact business with the general public and as people with feelings, emotions, desires and unique personality. Chapter2 is analyzing the most important Candlestick patterns in trading, underlining the necessity of utilizing in Stock Exchange trends prediction because this method tells in what direction the investor is moving prices, as ancient Japanese investors said: "Let the market tell you what the market is going to do."

Chapter 1. The Interaction in the Dynamic Stock Exchange Field

A specific meaning is but a socio-cultural manifestation, reflecting fundamental common and unique properties, causes, conditions, and interactions underlying these complexes. Unique latent meanings are those resulting from wholly individual cultural experiences, such as a flood, an invasion, or based on cultural relationships to a unique environment, dominated say by a high mountain, floods, or surrounding ocean or desert. Society is the structure of their interaction, and social space defines the location of an individual (or group) in this structure. It is very important knowing that social position indicates a person's meanings-values (R. J. Rummel, 1975), his position among the major super-cultural systems (whether sensate, ideational, or idealistic), cultural systems (whether French, Indian, Japanese), and subculture. Our material culture is inseparable from our society and meanings-values, and constitutes no independent environment.

Outside this material culture, however, there is a physical realm of dispositions and powers profoundly influencing our mentality, our society, and our culture, and being transformed in turn.

There are also the biological space, the ecological space, the environmental space and also the financial space, the stock exchange space. Our environment is our external reality. It consists of the stars and planets, the geophysical surface and properties of earth, and the micro phenomena that underlie the visible world. Within our context here, and leaving vehicles aside, the most salient aspects of the environment are those that influence or affect us in our socio-cultural meanings-values, in our behavior, in our biological existence. First we have the psychological space consisting of our personality components and our will, our behavioral potential and expectation and of our perceived situation. The meaning-value (Rummel, 1975) components of cultural space are also the components of our psychological space in the sense that all the stimuli that become percepts are loaded with meaning-value and orientation on the components.

We are a dynamic field of needs, attitudes, sentiments , expectations, and perceptions; a subjective field within which the world is given a unique interpretation; a perspective through which reality is transformed. Yet in our daily rounds we-as-field relate to other separate fields. We interact with our family at breakfast, have coffee with our co-workers, we attend a college, we work in a trading stock exchange place and so on. We are also a member of overlapping or coexisting fields. In purchasing lunch or buying shares we are a member of a market economy; in our attitudes and beliefs we are a member of a cultural field; in our duties and behavior we are a member of a social field. And in our citizenship we are a member of the international field .

These are all fields that are not abstract, but with substance, meaning, and force. A field is felt concretely experiencing its power. Let's consider we are reading the daily "stock exchange magazine" and we are reading about the company X specialized in antibiotics that its shares went up on the market quotation. We become integrated emotionally and cognitively with the others; we raise as one to cheer a crucial play; we buy shares, we tell our friends about it! Finally we interact in this dynamic psychological field. We are part of a crowd polarized in a specific direction, propelled by forces beyond our control. Sharing the meanings and values of the event, we cannot remain detached observers and also the others will not remain still!

What is a field?

First, the terminology often means a continuum of energy spread through some medium and comprising potential forces. Electromagnetic and gravitational fields are of this kind, where electricity, magnetism, or gravitation generates the field, and physical objects are the elements in the field. Our needs generate the field within which our potential activities and goals become manifest. Following Lewin, Edward Tolman (1951) considered sensory and cognitive psychological elements as affected by need-push forces activated in an energy system. A field defined as a region of potential forces is called a dynamic field, whether physical, psychological, or social. And it is also a balance or equilibrium between diverse elements, interests, or forces. The energy in the field results from the interpenetration of life spaces, overlapping role segments, and changing power. We organize our cognition and perception of reality in terms of cultural meanings, values, and norms . In total, the whole that is our intentional space consists of our bio-psychological, social, and cultural spaces, and the spaces of our environment and vehicles . The intentional space (Rummel, 1975) is used in our componential structure (which defines our motivations, temperaments, abilities, moods, and states) and in addition, there are the meanings, values, and norms components of science, language; the status components of wealth, power, and prestige. At the center, there are our dynamic nature, our motives, attitudes, and above all our super-ordinate striving for self-esteem and self-actualization.

Whatever stimuli, however transformed, that reach the mind go through an unconscious investiture process. They are imbedded in a cultural matrix which invests them with basic meanings and values and an orientation. In the very act of directing our gaze towards another we infuse the stimuli thus bearing on us with meaning, values, and orientation. We see a "man," dressed in white so, automatically, unconsciously; all this is transformed into the perception of a doctor.

Moreover, through the cultural matrix stimuli are given orientation for us. Another may be seen as close or distant, as high or low, as north or south, or behind or in front, and so on. The stimuli also become oriented with regard to our cultural conventions , the rules or norms that provide meaning to perceived reality. Stimuli of two people moving towards each other with hands outstretched become "shaking hands"; stimuli of a piece of paper turn into "money", stimuli of a chart bar in trading turn into "loss and gain money" and so on.

Finally, the cultural matrix endows stimuli with values , an immediate evaluation of their goodness or badness, rightness or wrongness. This is not a conscious weighing, but an unconscious investiture, intrinsic to perception and evolving from our acculturation and socialization into the family, group, society, culture and subcultures .

Introducing the dynamic stock exchange field

What is perceived? The person behaving is a complex of space-time potentialities, dispositions, powers, and manifestations. Which of these potentials become actualized and which dispositions become manifest or specific is partly a function of the perspective brought to bear on it.

Now, the percipient's perspective transforms the reality of the other's behavior through four aspects. First is the physical point-of-view, the station of the percipient. Second are his sensory receptors which select and transform incoming stimuli. Third is the cultural matrix which endows sensations with orientation, meaning, values, and norms. And fourth is the percipient's dynamic psychological field which forces perceptible-interpreted sensations--into conformity with his belief structure, personality and self-esteem.

Through this transformation the other's behavior is seen as a situation , being itself a cluster of dispositions, powers, and manifestations. A social act is a perceived field of expression consisting of individual meanings, and orientation. The meaning of a social act is the unity it is given by the underlying intentions, causes, or reasons. This unity is a dynamic gestalt, an integration of the field of expression constituting the act.

Kurt Lewin and Edward Toleman developed and expanded the concepts of "dynamic psychological field", "psychological interface between roles and culture". So, Lewin defines the field in terms of tension, forces, interaction and goals (Rummel1975). The behavior of a person depends on his total subjective situation being a change in the field of tensions and forces being always goal directed. Toleman is projecting the behavior in the belief – value matrix which points to behaviors, objects and move a person to a need sati sfaction. People tend to interact different in different situations so, the behavior is a function of the situation also!

The stock exchange space is the subspace of the socio-cultural space and bio-psycho-logical space is a part of the social matrix where we are living. The stock exchange field is a field of interaction between its actors manifesting their behavior having specified goals. The main actors of this field are : the issuers, represented by the companies, corporations, banks, having the goal of increasing the profit of the company ; the investor, represented by the buyer or seller of shares and bonds which is interested in gaining money through financial investment; and the dealer or broker represented by those who many times but not always trade for the investors.

There is a triadic interaction between these three actors, which could work in the dynamic field of interaction of the stock exchange market as dyadic interactions only between each of them.

Each one of these actors of the stock market perceives the others differently.

The dyadic interaction: INVESTOR – ISSUER

In the dyadic relation between the INVESTOR ------ ISSUER the investor is perceiving the issuer through the interface he meet: the balance sheet of the company, the income statement, the cash-flow statement which has to be presented legally and highly transparent by each ISSUER of shares, bonds; the image of the ISSUER created by the marketing industry and seldom by rumors, public opinion, cultural mentalities and so one. The INVESTOR is highly influenced visual in his action of buying and selling shares, by the daily quotations of the shares in the trading sector the value of the shares being represented by numbers, symbols, indexes and point. The ISSUER is represented by the companies, corporation and government institutions leaded by the goal of gaining returns by expecting growing value of the shares traded in the market. In reality the ISSUERS mean also people ! People interacting cognitive and affective with the INVESTORS in different situations! The situation is the key of understanding the behavior of both parts in interaction! As Bales conceptually defined the necessity of the interpersonal personality existence, there is an interpersonal personality revealed by different situations in the interaction field of the stock exchange. So, the ISSUER is offering to the INVESTOR a very"cosmetic image" using marketing strategies to determine him buying his shares, bonds.

What the investor perceives in the dynamic field? In the stock exchange dynamic field is very important the perception of the stimuli, because they are often in the sensory overload, exposed to far more information than they are able or willing to process.

Buying and selling shares mean much more than the action buying and selling: it is also mean the study of how having or not having a portfolio of shares is affecting the investor life; it mean the emotions (fear, loss aversion, greed) and the most important the meaning of the concepts composing the financial stocks world: shareholder, shares, bonds, equity, assets, cash-flows, balance sheet, income statement of a company, indexes, the return rate of income and so one. The actors (investor, issuer, and broker) of this financial field perceive different the stimuli because they are different under many aspects : their level of knowledge and information in finance, stocks and trading; the cultural space they belong to and th eir unique personality.

The colors are reached in symbolic value and culture meaning; so powerful cultural meaning make the color a central aspect of many marketing strategies. Also a great influence has the web-pages designs of the companies (ISSUERS) quoted on the stock exchange markets: it directs a viewer's eye across the page, separates visual areas, organize contextual relationships, create mood and capture attention-so, the ISSUER could manipulate mental the investors before to buy or sell shares from his portfolio of shares.

It is important for the traders, issuers and investors how the objects and interactions are perceived, mental represented and interpreted. Interpretation refers to the meaning that people assign to phenomena, whether these come from stimuli of the stock field or the ideas and concepts from the person's own mind. Each one of the actors in this dynamic field assigns meanings to stimuli based on their mental representation of their beliefs to which the stimulus assigns. A basic role is playing the memory, thinking and learning in the interaction processes of trading and perceiving the others in this dynamic field. Memory involves a process of acquiring information and storing it over time so that it will be available when needed.

The dyadic interaction: INVESTOR--BROKER

Analyzing the dyadic interaction INVESTOR-BROCKER (DEALER) is obviously necessary to delimitate them first of all by the quantity, quality of the information they have and the levels of knowledge. The INVESTOR perceive the BROKER(DEALER) as an entity who must bring him high percent of money return from trading shares. A BROKER (DEALER) in fact is a human being with feelings, emotions desires, motivations and many times is leaded in his goals by greed and vanity.

The side that the investor is interested in this dyadic relation is that the BROKER is highly qualified in financial analyzes, in stocks management, financial investments and portfolio management, the fact that several times he gets confidential in formations that no one else could get about indexes fluctuation, portfolio of stocks quoted on market and the companies issued its; about the political situation and how deep could influence it the stock market evolution for the time being. What the investor forgets is the emotional side of the BROKER because he is in fact a human being an active participant in real life, an interactive participant in the dynamic psychological field. It is basically important in perceiving him analyzing his personality structure his will and finally his behavior not only his knowledge by his highly scientific education. The BROKER social, emotional and moral education must be well known to be able to predict his future behavior and to secure the relationship established with him. The investors don't have to forget that the brokers have also a unique structure of personality, sentiments, attitudes, they play different roles in the socio-cultural matrix ,they belongs to different social groups formal and informal which could deeply affect the positive dyadic relation INVESTOR-BROKER. Several times the brokers (dealer) were strongly influenced by informal groups to cheat the investors worked with and also the brokerage company employed them.

The CORE of self-sentiment is a goal of enhancing and maintaining self-esteem. This a future-oriented superordinate goal around which comprises the superego, the moral dictates unconsciously and consciously directing practical behavior and underlying attitudes the self-sentiment and superego form the integrated self and equilibrium among motivation and goals. Besides needs and sentiments the motivation is associated with the roles of the BROKER, INVESTOR and ISSUER in the socio-cultural matrix, roles that are latent dispositions mainly learned from the culture and giving content and direction of the behavior in the dynamic field of stock exchange. The mood and state latencies constitute a final aspect of the personality affecting the dyadic positive equilibriums emotional-affective and also informational-cognitive. So, every external shock referenced in finance and trading is in fact an internal social speaking. Trends in the stock market, interest rates, the trade balance, economic performances are all ultimately products of collective human mental creation. Human minds create this trends as abstract concept an change them, all social events whether a rise in the interest rates, a drop in the stock market or even an economic boom is a human mental creation.

 

Perception and culture in finance and stocks

Perceptible are what reaching the brain, but they are not what may be perceived. Rather, perceptible reach intuitive awareness through the cultural schema and the cultural system of meanings-values (Rummel, 1975). The schema consists of the fundamental culture-given categories for making the perceptible intelligible and the cultural framework for their interpretation. Cause and effect, relation, space, and time are such categories as are, more specifically, up-down, right-left, and north-south. The schema provides orientation toward the perceptible. The cultural system of meanings-values gives the perceptible their significance, invests them with meaningfulness for us, informs them with design, assigns them purpose, and bestows them with value. The perceptible are given their interpretative importance through the meanings-values system and oriented through the schema for our practical judgment and behavior. So if there is not any information stocked in the memory about the objects and interactions in the stock exchange field there will not be any signification of it!

While our perceptual consciousness or awareness begins with percepts , we add to percepts a structure, a sculptured body that enables us to cognitively deal with them and make them intelligible. This conceptual stage of perception involves our fitting percepts and language together. This is the naming level, where percepts are turned into concepts connoting specific invariant properties (dispositions). So, we know about a company that has a good reputation in the market only if we consult its income statement, balance sheet and other financial reports about it. We know how to read a chart bar only if we have knowledge about technical market analysis.

Chapter 2. The visual impact of the charts in trading (part two)

A market is an institution or a field of interaction which brings together buyers and sellers of products (shares, bonds, commodities in our case) and services; it is the field where the DEMAND meets the SUPPLY of shares, bonds and commodities. According to the law of demand, buyers will buy attracted by a low price and sellers by a high price. First of all in the stocks market we must know how the equilibrium price and price quoted of shares are established.

What are the equilibrium price and the quoted price?

Every trading day is a new challenge between demand and supply in establishing the equilibrium price . So, there is going to be buying orders on one side and selling orders on another side for the shares each Company traded. Under competition, the interaction of market demand and market supply will adjust price to the point where quantity demanded and quantity supplied are equal. A change in either demand or supply will cause equilibrium price and quantity to change.

The broker execute the orders for clients of buying and selling, so is going to be a demand of orders for buying shares and supply of .orders for selling chares. At the equilibrium price it will be executed:

- The orders for buy/sell at the price quote of that day;

- The orders for buy at the price quoted higher or equal than the equilibrium price;

- The orders for selling at the price quoted lower or equal with equilibrium price.

Knowing all above is easy for understand why the people has such a great influence in daily trends evolution, and why in the trading life the psychological factor is the most important to analyze .

Technical Analyses versus Candlestick Analysis

Technical analysis is the study of patterns for the evaluation and projection of price movements based upon the previous characteristics of price patterns. I is important to underline that Technical analysis utilizes the historic movement of prices and disregards any fundamental characteristics related to a trading entity. What ever parameters that are utilized, moving averages, trend lines, volume, advance/declines, Fibonacci numbers, Elliott wave analysis, stochastic, or anything else that you might consider, it all boils down to one basic premise. Technical analysis evaluates investor sentiment past data.. In addition with it candlestick analysis goes right to the core of what makes a price move – the study of investor sentiment. It could be the best Company, Corporation in the world but if the investors do not like it, that price is not going to go up . Thus could be the worst company in the world, and if investors think it has potential it can make you a fortune . Candlestick analysis does nothing more than show you do what the investors are thinking. Technical Analyses use also modern portfolio theory and investment analysis's, it use: the correlation structure of security returns as single-index models, multi-index models and grouping techniques, portfolio selection models, the standard capital asset pricing model, empirical tests of equilibrium models, option pricing theory, evaluation techniques of portfolio performance and so on.

Stock market analysis is accomplished by many methods in the investment arena. Technical analysis provides a better format for analyzing overbought and oversold conditions in the market, much better than trying to do a fundamental analysis of the markets. The Japanese traders say "let the market tell you what the market is going to do." The utilization of Candlestick signals makes stock market analysis and price trend evaluation relatively easy. It becomes difficult, at times, to sort out what the stock market indexes intentions are when listening to the many scenarios from the so-called "market experts." Watching the financial news stations will always provide a multitude of opinions on where the market is going. Using Japanese Candlestick signals will circumvent all that noise.

Being able to do a relatively accurate stock market analysis provides the Candlestick investor with a huge advantage when positioning a portfolio. Candlestick analysis allows investors to project trend reversals of the stock market indexes with a relatively high degree of accuracy. Stock technical analysis is made much easier when applying Candlestick analysis. Stock technical analysis is merely applying reoccurring chart patterns that have statistically worked in the past. Whether using trend lines, support levels, resistance levels, or a number of other indicators that have revealed trend reversals in the past, stock technical analysis is greatly enhanced when Candlestick signals are utilized. Candlestick signals reveal investor sentiment changes. Having the knowledge of what the signals reveal provides much more concise information for analysis of a trend. If a Candlestick "buy" signal is occurring on what other investors perceive to be a support level, the Candlestick analyst will have much more confidence that a reversal has occurred. Additionally, the analysis of that reversal can be visually recognized much earlier than other technical investors who need further confirmation.

Stock technical analysis , using Candlestick signals, also can make analyzing a non-trending market much easier to evaluate. The benefit of Candlestick signals is that they can be applied to evaluating the general market trends as well as individual stock technical analysis. Big profits can be made with Candlestick signals even in a sideways market. The signals reveal immediately when buyers or sellers will are coming into individual stocks. When the market is not showing a trend, the Candlestick signals will clearly reveal which stocks are acting well and which ones should be sold. This allows the Candlestick investor to quickly find stocks that are moving, even in a flat market.

Working off the premise that the Candlestick signals are the cumulative knowledge of everyone who is buying or selling during a specific time frame, the evaluation of technical trends becomes better formatted when understanding what the signals are telling you. The effectiveness of Candlestick signals in stock market technical analysis is more clearly evident in the past couple of weeks when experiencing world events such as terrorist attacks. Stock market technical analysis using Candlestick analysis allowed for a trading strategy on the morning of the bombings. The Candlestick signals indicate what investor sentiment is doing during any particular time frame. What were the market conditions on the morning of the London bombings? The stochastic were in the oversold condition. A example could be how the stock market technical analysis in mind, upon hearing the news of the London bombings, an event that dramatically influenced investor sentiment and turn the trend evolution in going down direction The Japanese Candlestick investing signals have to be considered one of the most tested, proven technical trading programs in history because the Japanese Candlestick trading signals have been successful for over 400 years with Japanese rice traders . There is one dynamically powerful aspect of these reversal signals. They are created by the "change" in investor sentiment being the percept of the investor.

The Candlestick trading signals are the refined interpretation of fear and greed.
The Japanese rice traders added an important element to the function of charting. The development of Candlestick trading formations produced a clear visual description of investor sentiment during specific time periods. The elements of the high, low, open, and close are the functions for depicting the formation of a Candlestick. What was going to be the Candlestick formation that day? What should become the investment strategy? There are 12 major signals, patterns in candlestick charts to be analyze and evaluated, to be able to know this specific patterns, obtaining with high probability profit when appear on shares trend. The Candlestick investor uses the stock market chart to put the probabilities in his/her favor. A stock market chart incorporating Candlestick signals as well as other technical indicators produces the visual map for correctly identifying the direction of the markets. These signals were developed through simple observation. As years of successful utilization of the signals progressed, they even were able to analyze the psychology behind forming the signals. This provided a very powerful tool for projecting future price movement.

The most important patterns are: Morning Star, Evening Star, The Hammer, The Hangman, Harami and Kicker top and Bottom Formation.

1. The Evening Star

The evening star is a top reversal signal. It is opposite the Morning star signal and like the planet Venice, the evening star, it foretells that darkness is about to set or that prices are going to go lower. It is made by a long white body occurring at the end of an up-trend, when the confidence has built up. The third day is a black candle day and represents the fact that the trend is establishing going down. The optimal Evening Star signal would have a gap before and after the star day. The buyers can't imagine anything going wrong and it has now reached the prices where sellers start taking profits or think the price is fairly valued. The next day all the buying is being met with the selling, causing for a small trading range. The bulls get concerned and the bears start taking over . The third day is a large sell-off day. The following day gaps down and is expressing the sentiments of fear and panic for loosing the money invested in the shares. If there is big volume during these days, it shows that the ownership has dramatically changed hands. The change of direction is immediately seen in the color of the bodies: white turn to black.

It's necessary to specify that the BULL market is based on going up trends and BEAR market on going down trends because in trading the trends orientations are called: BULL and BEAR.

1. EVENING STAR PATTERN 2. MORNING STAR PATTERN

2. The Morning star

The Morning Star in one of the 10 majors signals that occur at the reversal at the majority of the time The Japanese rice traders described it as the planet Mercury , the morning star which foretells that brighter things, sunrise, is about to occur, meaning that prices are going to go higher. It is formed after an obvious downtrend. The three day signal consists of a long black body, usually one produced of the fear induced at the bottom of a long decline. However, the magnitude of the trading range remains small for the day. This produces an indecision type – day. The third day is a white candle day. The white candle represents the fact that the bulls have now stepped in and seized control. The optimal Morning Star signal would have a gap before and after the star day. The make up of the star, an indecision formation, can consist of a number of candle formations; however a Doji or a spinning top is usually the predominant formation in a Morning Star signal. The important factor is to witness the confirmation of the bulls taking control the next day. That candle should consist of a closing more than half-way up the black candle of two days prior. Identifying the Morning Star signal is relatively easy. It is visually apparent to the eye . The gaps between the candles are very important because adds the probability that the reversal is occurring.

3. The Harami

The Harami is one of the major candlestick signals in Japanese Candlestick analysis. There are approximately 50 to 60 signals in the Candlestick signal universe. The biggest deterrent for many investors trying to learn the candlestick signals is a large number of signals. The Harami is considered one of the major signals. The Bullish Harami is a two formation pattern. The first formation is usually a large black candle appearing at the end of a downtrend. The end of a downtrend is represented by stochastics being in the oversold area. The Bullish Harami is formed by the second candle opening above the previous day's close and closing below the previous day's open. In Japanese, Harami means pregnant woman. As you see in the following picture, the black candle is the woman's body; the white candle is her belly sticking out. The location and size of the second candle will influence the magnitude of the reversal. So, the longer the black candle and the white candle, the more forceful the reversal will be and the higher the white candle closes up on the black candle, the more convincing that a reversal has occurred despite the size of the white candle. The significance of a Harami is that it tells us that the selling has stopped. As far as a trend reversal, the Harami has excellent capabilities of indicating how strong the new trend to the up side will be.

4. KICKER TOP AND BOTTOM FORMATION 3. HARAMI

4. Kicker top and bottom formation

The Kicker Signal is the most powerful signal of all. It works equally well in both directions. Its relevance is magnified when occurring in the overbought or oversold areas, but is effective no matter where it appears in a price trend. Consider the investment sentiment that formed this pattern. It is formed by two candles. The first candle opens and moves in the direction of the current trend. Investors are continuing with the established trend, closing the price further in the existing direction. Then, something has occurred to violently change the direction of the price. Usually a surprise news item is the cause of this type of move. The signal illustrates such a dramatic change from the current price direction that the new direction will persist with strength for a good while. The bodies of the candles are opposite colors. This formation is indicative of a dramatic change in investor sentiment. The candlesticks visually depict the magnitude of the change.

5. The Hammers

The Hammer signal revealed that investor sentiment was not in a massive selling mode. This provided the signal to buy aggressively upon seeing more strength the following day. The Hammer is composed of one candle. It is easily identified by the presence of a small body with a shadow at least two times greater than the body. Found at the bottom of a downtrend, this shows evidence that the bulls have started to step in. The color of the small body is not important but a white candle has slightly more bullish implications than the black candle. A positive day is required the following day to confirm this signal.

The following day needs to confirm the Hammer signal with a strong bullish day and a gap down from the previous day's close sets up for a stronger reversal move provided the day after the Hammer signal opens high.

5. THE HAMMERS 6. THE HANGING MANN

6. The hanging man

The Hanging Man is considered to be one of the major in signals and is also comprised of one candle. It is easily identified by the presence of a small body with a shadow at least two times greater than the body. It is found at the top of an up trend. The Japanese named this pattern because it looks like a head of a man with the feet dangling down. The real body is at the upper end of the trading range. The color of the body is not important although a black body should have slightly more bearish implications a gap up from the previous days close sets up for a stronger reversal move provided the day after the Hanging Man signal trades lower.

CONCLUSIONS

Mastering Candlestick analysis can be done very easily by learning the 10 major signals. Knowing the signals, and understanding how those signals are formed, provide investors with a tremendous insight into what goes on an investor sentiment at reversal areas in a trend. Being able to identify the major signals and understand the investor sentiment that created those signals allows an investor to project market reversals with a high degree of accuracy. This is based upon hundreds of years of actual observations by Japanese rice traders. Simple logic tells us that if these signals did not work, they would not be here for us to view after centuries of use.

Candlestick Analysis has behind hundred of years of practical analysis and it puts common sense investment practices into a visual graphic . It's easy to learn how to invest! Teach yourself before teaching the others and take advantage of this fact.

More and more investors in our day's stock market are feeling anxious, depressed or both and prolonged anxiety and depression inevitably lead to a pervasive pessimism where they discern a bleak future of the market evolution. Anxiety and emotional state affects negatively the way we think and first it stimulates a change in our thinking processes from one of connecting words and thoughts by logic to one in which words and thoughts are connected by emotions. When we think in emotions rather than logical connections, we are much more tempted to make judgments based on emotional stories in the mass-media field, rumors about stocks and friendly advice from our relatives rather than on any rational understanding of fundamentals. For avoiding the panic, stress of loss aversion there are some trading strategies proven successful over time: never invest the entire amount on the first trade; never place a market order when a stock gaps up or down at the open ; take a profit when a stock is making a dramatic move higher and use the strategy of splitting portfolio.

A perceived situation is a mixture between concepts and associated percepts. Situations define the configuration of dispositions and powers we project onto reality so we could anticipate from nature in our relation to it. In trading with stocks as much information and knowledge we have and as much as rationally, logical we think as good is the prediction about future trading is and the expected profit returns are coming. So, the concept and the associated percept of it comprise a set of dispositions about the trading, traders and the interactions between them.

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