In one of Stephen Bigalow’s Candlestick Videos, he talks about the four possibilities of getting into a trade.

He breaks it down as follows:

1. Market Opens Higher, Stock Opens Higher

What to do: Buy immediately

2. Market Opens Higher, Stock Opens Lower

What to do: The Bullish sentiment isn’t there, or it could mean there has been some profit taking on the Open. Wait for the price to come back up through the previous day’s close. This is an indication that the Bulls have stepped in again.

3.  Market Opens Lower, Stock Opens Higher

What to do: We don’t have to buy immediately. We can wait a few minutes and work out what the overall consensus is with the stock. If it continues to show strength even though the market is weak, it can be bought because it tells us that the big money is buying it.

4. Market Opens Lower, Stock Opens Lower

What to do: Nothing. Don’t enter a trade in this situation

The Key

What we want to see is a close above the T-Line (i.e. the 8-day EMA) – and better still if that follows a Gap up.

If it closes lower than the T-Line, we stay out of the market.