History of Japanese Candlesticks

Candles history dates back to 16th century. Candlestick charting was developed by Japanese traders in 1600's, to trade rice contracts. Until about 1710, only physical rice was being traded. Later a futures market emerged where 'coupons', were issued, which were records of promising delivery of rice at a future time. This is the beginning of futures trading.

At this juncture Homma Munehisa (1724-1803) a rice trader from Sakata, Japan, organized this ancient wisdom, developed and used Japanese candlestick charting very successfully. He traded rice contracts in the Ojima Rice market in Osaka during the Tokugawa Shogunate - a feudal regime of Japan established by Tokugawa Leyasu and ruled by the shoguns of the Tokugawa family. This period is known as the Edo period and it gets this name from the capital city, Edo, which now is called Tokyo.

Homma Munehisa is often referred as the father of the Japanese Candlestick charting and his trading success reputedly led to him becoming an honorary Samurai. His methods are the oldest example of technical analysis documented.

Stories claim that Homma established a personal network of men about every 6 km between Sakata and Osaka (a distance of some 600 km) to communicate market prices.

In 1755, he wrote (San-en Kinsen Hiroku, The fountain of Gold - The Three Monkey Record of Money), the first book on market psychology. In this, he claims that the psychological aspect of the market is critical to trading success and that traders' emotions have a significant influence on rice prices. He notes that this can be used to position oneself against the market, when all are bearish, there is cause for prices to rise (and vice versa).

He describes the rotation of Yang (a bull market), and Yin (a bear market) and claims that within each type of market is an instance of the other type. He appears to have used weather and market volume as well as price in adopting trading positions. He is considered the most successful market trader in history, generating over $100bn in profits at today's prices, some years earning over $10bn a year.

Some sources claim, he has authored two other books, - 'A Full Commentary on the Sakata Strategy' and 'Tales of a Life Immersed in the Market'.

The Japanese candle charts became very popular due to the level of ease in reading and understanding the graphs. The Japanese rice traders also found that the resulting charts would provide a fairly reliable tool to predict future demand.

The method was picked up by Charles Dow around 1900 and it remains in common use by today's traders of financial instruments.

Steve Nisan, understood the startling power of candlestick charts and popularized this method to the Western Hemisphere. He is acknowledged as the leading authority on the subject. Articles written by Steve Nison that explain Candlestick charting appeared in the December, 1989 and April, 1990 issues of Futures Magazine. He has written a definitive book on the subject, by name Japanese Candlestick Charting Techniques.

Because Candlesticks display the relationship between the open, high, low, and closing prices, they cannot be displayed on securities that only have closing prices, nor were they intended to be displayed on securities that lack opening prices.

Thanks to Wikipedia

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