V.15:3 (136-139): Market Timing and Candlesticks by Gary S. Wagner and Bradley L. Matheny

Market Timing and Candlesticks by Gary S. Wagner and Bradley L. Matheny

When to buy and what? Those are the questions that have plagued market participants the world over. Here's a proposal on how to use candlesticks to time the market.

To be successful, you have to be in the right place at the right time. There are two parts to that adage, both equally important; the first refers to location, while the second relates to timing. For stock traders, this saying is especially apropos if you consider the location in question to be the selection of which stocks to buy, and the timing in question to be when to buy. A sound market timing strategy incorporates the two. Traders using this technique can forecast the market direction and increase the number of stocks in their portfolio when the market is on an upswing or reduce the number of stocks when the market is headed down.

Here’s an approach that we developed for selecting stocks using market timing. Our method measures the pace of the security markets to give an over all sense for the current direction. The goal of our method is to forecast the market trend, then adjust the portfolio based on the results of this information. Before the specifics of the approach are presented, though, let’s look at the basis of the approach — candlestick patterns.