The fundamental theory and concepts behind Japanese Candlesticks were invented over three hundred years ago by a Japanese rice trader named Sokyu Honma (1716 -1803). Sokyu lived in Sakata, Japan and was also known as Sokyu Homma and Munehisa Homma.
He made extensive studies of the price movements of stocks and commodities, especially rice, which enabled him to identify traits and patterns from daily trading formations. He was then able to produce a very viable trading strategy that made him a very wealthy man. In fact, he eventually developed a very fearsome reputation for diligent and accurate trading which he gained from exploiting his enhanced knowledge of the rice markets and candlestick strategies.
Such was his success that Sokyu Honma achieved the rank of honorary Samurai as well as attaining the government rank of financial advisor. He compiled a book in 1755 called the ‘Fountain of Gold – the Three Monkey Record of Money’ in which he detailed his findings and observations on the psychology of trading. Even before the birth of candlesticks, Sokyu produced his famous Sakata’s Constitution which detailed the methods and rules behind his successful trading techniques.
Despite a great deal of uncertainty, many experts now acknowledge that Candlestick charts were introduced into Japanese trading circles at the start of the rice markets in 1750. They have also credited Sokyu Homma for much of the pioneering and maturing behind the main principles of Japanese Candlesticks. This remarkable individual was years ahead of his time and is still considered the principle figure of this trading methodology.
As the popularity of candlesticks grew, Sokyu produced his famous Sakata’s Five Methods by merging his Constitution with the new concepts of candlestick charts. Both his Constitution and Five Methods bear the name of his birth place, i.e. Sakata.
You should also be very interested to know that the number three was regarded as a mystical symbol in Japanese cultural history because it was considered to be blessed with divine power. Both the Sakata Constitution and the Sakata Five Methods were intensely based about this number and this is why they have been so heavily revered over history.
You can gain a deeper understanding about the power of three if you study the main components of the Sakata Five Methods. They were:
1. The ‘Three Mountains’ or ‘Sanzan’ depicted trading patterns similar to the modern day ‘Head and Shoulders’.
2. The ‘Three Rivers’ or ‘Sansen’ was indicative of the shift in power between the two market forces of selling and buying.
3. The ‘Three Gaps’ or ‘Sanku’ identified saturation or exhaustion points in the direction of the current trend and, as such, was consider as a forecaster of potential reversals.
4. The ‘Three Parallel Lines’ or ‘Sanpei’ represented a continuation pattern that strongly suggested that the current trend was most likely to continue in its present direction.
5. The ‘Three Methods’ or ‘Sanpo’ indicated again that the current prevailing market force was strong enough to maintain the direction of the present price trend.
As the presence of the number three was so prevalent throughout the Sakata’s Five Methods, this technique was often prefaced by the term ‘San’, which is Japanese for the number ‘three’.
Well, you have to admit that this is a fascinating story, but how does it impact the modern day and can it enhance your own trading performance? In the first place, you must realize that Sokyu Honma was an extraordinary individual, if not a trading genius. His concepts and techniques have withstood the test of time and are now revered by many modern-day experts.
Hundreds of years later trader Steve Nison has been credited with bringing candlesticks into prominence in the western world and into modern technical analysis study. Nison wrote the book “Japanese Candlestick Charting Techniques” in 1991 and is considered one of the leading authorities on candlestick research and trading strategy.
Modern-day interest in Japanese Candlesticks has intensified because so many of its principles blend very well with present-day western technology. As such, you will discover that obtaining a good understanding of Japanese Candlesticks can definitely increase your ability to trade the current markets better. This is because, just as in the same way as Sokyu Honma, you can gain great insights into trading Forex, Stocks or Futures by using this methodology.
Finally, you also have the benefit of advanced technology that can help simplify many of the concepts behind Japanese Candlesticks.
TABLE OF CONTENTS
Chapter 1 – Introduction
Chapter 2 – The History of Japanese Candlesticks
Chapter 3 – Construction of a Japanese Candlestick
Chapter 4 – Comparison of Chart Types
Chapter 5 – Candlestick Reversal Patterns
Chapter 6 – Candlestick Continuation Patterns
Chapter 7 – Candlestick Trading Strategies
Chapter 8 – Summary
