Japanese Candlesticks

21 Feb at 12:46

Japanese candlesticks (or candlesticks) are considered to be the result of a collective and successive development, but none is certain in which time period they were actually invented. The Japanese have been using technical analysis from the seventeenth century, in rice trade and the idea of candlesticks is often linked to an eighteenth century, legendary trader, Homma Munehisa (born in 1724 in Sakata, Japan).

Homma Munehisa became one of the richest men in Japan using a graphical representation of, what we now know as chandeliers Japanese. Homma, known as the “god of the markets” was the son of a family of rich merchants, interested in selling prices of rice. As the price of rice varied greatly, Homma devised a system to identify changes in the price of rice.

He put men on the roof of the house between Sakata and Osaka (almost 500km apart), and they passed him information on price trends with the use of flags. This system allowed him to quickly earn large sums of money that enabled him to speculate on the price of rice at Dojima Rice Exchange in Osaka. He transformed his system to an easily understandable graphical configuration and the chandeliers were born …

This system allowed Homma to go speculate in Edo (today’s Tokyo) and build up a fortune so large that he was considered the richest man in Japan. A legend says one day he carried out 100 transaction in a row without losing a single one. He received the title of Samurai a few years before his death in 1803, and left behind two books on graphic technique: Sakata Senho and Soba Sani No Den.

In the1990s that traders rediscover Japanese candlesticks with the influence of by Steve Nison. Now they are used by a large proportion of investors in the world.

Candlestick representations:
The red candle represents a downward pattern (it is also often depicted in black), the green candle represents the up trend (often it is also represented by a white candlestick).

To draw a Japanese candlestick, it is necessary to know the opening price, closing price, the highest and lowest.

A candle is composed of a body (wide part) and usually two shadows (vertical line above and below the body).

A green or white candle means that the closure was made above the opening price, in contrast, a red or black candle means that the closure was made below the opening price.

Japanese candlesticks are graphical representation, permitting to visualise techniques such as the hammer, doji, shooting star, the hanged man and many other configurations.

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