In our previous article, we mentioned how candlesticks in general, are the most important “tools” that a trader or investor needs to keep an eye on and follow. You’re probably wondering what’s the big deal.
Well, each Japanese candlestick represents the financial instrument’s buying and selling price action during a specific time frame. Interestingly, Japanese candlesticks flourished in the rice market back in the early 1700s, and they are believed to be the oldest price charting technique. Today, we use them in trading as they also reflect the market’s psychology.
But when did this whole thing start? Let us take you back in time, and more specifically in the 1700s.
That was when a rice merchant and rice coupon (futures) trader by the name Honma Munehisa from Sakata, Japan studied historical prices and applied the candles successfully in the local rice market.
His trading success earned him the title of the “god of the markets”, and later, he went to become a financial advisor for the government. Honma believed that market psychology and more specifically, investors’ emotions played a pivotal role in rice prices.
He drew the Open, High, Low and Close price of each day on rice paper in a quest to find repetitive patterns.
The recurring patterns gave him an advantage as he could gauge the market participants’ sentiment. Rumour has it that he had 100 consecutive winning trades!
His trading technique proved to be the forerunner of the Japanese Candlesticks. He was given the honorary title of Samurai. Honma Munehisa is considered to be the father of the Japanese Candlesticks.
Later on, and more specifically in the 1980s, Steve Nison introduced the Japanese Candlesticks to the West through his book “Japanese Candlesticks Charting Techniques” which revolutionized chart analysis.
Despite the late introduction to the West, Japanese Candlesticks are considered as the most popular price charting technique today!
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