By: Tom Gentile
on February 9th, 2023
When you look at a stock or ETF chart, whether it be an Open, High, Low, Close (OHLC) chart or a Japanese Candlestick you will have the inclination to decide if the day was a positive day or negative day.
When you think in terms of a positive move you might think in terms of the move being bullish. If you think in terms of a negative move you would likely think of that move being bearish.
I want to offer up a bit of perspective so you can enhance your power of observation when charting.
Look at this Image. It is a 1-period / 1-day Japanese Candlestick for Deere & Co. (NYSE: DE).
If I were to ask you if this is a bullish or bearish day just for the sheer fact the candle is red that would have you thinking its bearish.
Make no mistake that ON THE DAY itself that IS bearish. It is considered a bearish reversal day because the stock closed lower than its open price (comparing the top and bottom of the red candle body).
If I then ask you if this bearish day is negative for the stock you would still probably answer yes, but what I want you to get in the habit of doing is look at the prior trading day (then days) and then answer.
Look at the 5-day candle chart on DE below; Figure 2
When you look at a chart and want to see positive price action, you want to see higher closes/closing prices.
From that perspective today’s close is higher than the prior day’s close and that is positive.
The point that is being emphasized here is you can have a bearish day happen, but look at it with the view of more than just the one day and look to see if despite the bearish day, it at least made a higher close.
If it did that is a positive.
Things may eventually turn bearish, but don’t let one days price action fully determine your directional sentiment for the security.
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