How to Survive and Win in this Bear Market: Follow the Candlestick Patterns
The near-collapse of the entire financial system of the country unnerved most investors, and panicked some of them. Stock prices have been gyrating for days on end, pending a resolution or non-resolution of the Administration’s bailout proposal. Matters came to a head over this past weekend, and as of this writing we are being given some assurances that the contentious dispute has been resolved and that the effectuating legislation will be presented to the House today.
No doubt the recriminations will flare up again when many Members, who have not been parties to the negotiations, will have their chance to take the floor and voice their various outrages. The main difficulty is that the horse escaped from the barn long ago. As is typical with Government, it is much better at addressing past issues or problems which have come to a head rather than anticipating them and acting in time to prevent damage. Most legislation is enacted in order to address or correct past problems. This case is no different.
In the face of a developing bear market and chaotic price moves, what can an investor do in order to protect his portfolio, and indeed all of his assets, from the precipitous decline in stock prices which many observers expect? First of all, he or she should come to understand that ups and downs in market prices are perfectly normal, and are to be expected. In other words, it is a fact that price action moves in up-and-down waves; and by definition, up-and-down waves reverse and go in the opposite direction. It follows that if one can read the signals and anticipate a change of trend, he or she will be ahead of the game.
More and more, professionals and investors are using the Japanese Candlestick format of financial price information when analyzing market action. The great advantage of Candlestick presentation is that it deals in visuals – pictures – rather than raw numbers. The eye instantly recognizes the formations which are shown by the pictures, some of which have a remarkable capacity to predict reversals of trend.
The investor need not, and should not, simply stand idly by on the sidelines while the value of his or portfolio declines in an ongoing bear market. He should take an active stance in learning what the Candlestick patterns mean and the effect which they have on prices in the days which follow their appearance. If the investor can spot reversals of trend as they are happening or about to unfold, it is possible to capitalize on short-term upside reversals, while at the same time maintaining a basic plan to be on the “short” side, recognizing that the major underlying trend is Down.
In order to establish such a “short” plan, the investor should utilize one of the most valuable defensive tools ever invented – the Inverse Fund. There are many of them on the market, offered by reputable houses. Some of them operate inversely as to the Dow Industrials; some inversely as to the S&P 500; and some inversely as to the NASDAQ 100. The Exchange-traded inverse funds arrived later, and have achieved great acceptance in the market. Their great advantage is that they are traded exactly like stocks.
The intelligent investor owes it to himself or herself to learn about these tools. If he or she adapts them to his or her own particular investment situation, they – in combination with an understanding of Candlestick trend reversal patterns – will help one to weather the storm and come through intact.
