The long white candle signaling an uptrend

Check out Figure 5-3, where you can see a few days where the price action is lower than the high of the long white candle. After seeing this bullish signal, you have several days to buy.

Sometimes signals don't work, and it's critical that you recognize this. With long white candlesticks, the low price on the candlestick is a good support level.

Support is a level where if market conditions are consistent, buyers are expected to support the price of a security. If this support doesn't hold, whatever buy signal you're dealing with has changed, and the signal shouldn't be acted on. In that case, you should exit your position fairly quickly. You may take a small loss, but getting out before prices fall even lower prevents you from taking a much larger loss later on.

Look again at Figure 5-3, where I point out the low of the day on the long white candle and also note that the price doesn't trade below that support level over the next few days. If you watch that stock and see that the support level is broken, you should consider that the bullish signal failed and no longer valid.

I can't stress enough that when a signal is no longer valid, any trades based on that signal should be exited, and no new positions based on it should be undertaken. Many small losers turn into big losers when the small loss isn't quickly realized and corrected.

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