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| The
History of Candlesticks |
Throughout
Candlestick Analysis you are going to find
many war-like references. Between 1500 and
1600 the territories of today's Japan were
at constant war. Each daimyo (feudal lord)
was in constant contention to take over their
neighbor. This one hundred year period is
known as Sengoku Jidai or the "Age of
Country at War". This was a definite
period of turmoil. It slowly came to order
in the early 1600's through three dynamic
generals - Nobunaga Oda, Hideyoshi Toyotomi,
and Leyasu Tokugawa. Their combined leadership
prowess has become legendary folklore in Japan's
history. Their achievements are described
as: "Nobunaga piled the rice, Hideyoshi
kneaded the dough, and Tokugawa ate the cake."
All the contributions from these great generals
unified Japan into one nation. Tokugawa's
family ruled the country from 1615 to 1867.
This become known as the Tokugawa Shogunate
Era.
While the Candlestick methodology was being
developed, a military environment persisted
in Japan. Understandably, the Candlestick
technique employs extensive military terminology
for its explanations. Investing is correlated
to battle. It requires the same tactical abilities
to win. The investor has to prepare for winning
trades as a general prepares for battle. A
strategy is required, the psychology of coming
events have to be thought through. Competition
comes into play. Aggressive maneuvers and
strategic withdrawals are required to eventually
win the war - to achieve financial success.
As stability settled over the Japanese culture
during the early 17th centuy, new opportunities
became apparent also. The centralized government
lead by Tokugawa diminished the feudal system.
Local markets began to expand to a national
scale. The demise of local markets created
the growth of technical analysis in Japan.
Osaka became regarded as Japan's capital during
the Toyotomi reign. Its location near the
sea made it a commercial center. Land travel
was slow and dangerous, not to mention costly.
It became a natural location for the development
of the national depot system, assembling and
disbursing supplies and market products. It
rapidly evolved into Japan's largest city
of finance and commerce. Osaka, the "Kitchen
of Japan" with its vast system of warehouses,
eventually established an atmosphere of price
stability by reducing regional imbalances
of supply. Osaka became the profit center
of all Japan, completely altering the normal
social standards. In all other cities the
quest for profits was despised. Japan was
composed of four classes, the Soldier, the
Farmer, the Artisan, and the Merchant. It
was not until the 1700's that the merchants
broke down the social barrier. "Mokarimakka"
which means " are you making a profit?"
is still the common greeting in Osaka today.
Under Hideyoshi's reign, a man named Yodoya
Keian become a successful war merchant. He
had exceptional abilities to transport, distribute
and set the price of rice. His reputation
become so well known, his front yard become
the first rice exchange. Unfortunately, he
became very wealthy. Unfortunate because the
Bakufu (the military government lead by the
Shogun) relieved him of all his fortune. This
was done based upon the charge that he was
living a life of luxury beyond his social
rank. This was during a period in the mid
1600's when the Bakufu was becoming very leary
of the merchant class. A number of merchants
tried to corner the rice market. They were
punished by having their children executed.
They were exiled and their wealth was confiscated.
The Dojima Rice Exchange, the institutionalized
market that developed in Yodoya's front yard,
was established in the late 1600's. Merchants
were now capable of grading the rice, and
negotiated setting the market price. After
1710, actual rice trading expanding into issuance
and negotiating for rice warehouse receipts.
These become known as rice coupons, and were
the first forms of futures. The Osaka rice
brokerage became the foundation for the city's
wealth. 1,300 rice dealers occupied the Exchange.
Due to the debasing of coinage, rice became
the medium of exchange. A daimyo in need of
money could send his surplus rice to Osaka
and get a receipt from a warehouse. This receipt
(coupon) could then be sold. As with many
daimyo, cashflow problems could be eliminated
through this method. Sometimes many future
years of crops were mortgaged to take care
of current expenses.
With the rice coupon becoming an actively
traded entity, the Dojima Rice exchange became
the world's first futures exchange. Rice coupons
were also called "empty rice" coupons,
rice that was not in physical possession.
Rice futures trading became so established
in the Japanese marketplace, that in 1749,
110,000 bales (rice traded in bales) were
freely traded while there were only 30,000
bales in existence throughout Japan.
It was during this time period that Candlestick
trading became more refined. Candlestick analysis
had been developed over the years simply due
to the tracking of rice price movements. However,
in the mid 1700's they were really fully utilized.
"The god of the markets" Homna came
into the picture. Munehisa Homna, the youngest
son of the Homna family, inherited the family's
business due to his extraordinary trading
savvy. This at a time when the Japanese culture,
as well as many other cultures, thought it
common that the eldest son should inherit
the family business. The trading firm was
moved from their city, Sakata, to Edo (Tokyo).
Homna's research into historic price moves
and weather conditions established more concrete
interpretations into what became known as
Candlesticks. His research and findings, known
as "Sakata Rules" became the framework
for Japanese investment philosophy.
After dominating the Osaka rice markets, Homna
eventually went on to amass greater fortunes
in the Tokyo exchanges. It was said that he
had over one hundred winning trades in a row.
His abilities became legendary and were the
basis of Candlestick analysis.
Japanese Candlestick analysis was never a
hidden or secretive trading system. In was
successfully used in Japan for hundreds of
years. It has been only recently, about 25
years ago, that it first made its way into
the U.S. trading community. Until then, there
just wasn't any interest from Western cultures
to investigate the Candlestick Technique.
Even then, it was not noticed all that much.
The perception has been that it was difficult
to learn and very time consuming. That may
have been true until recently. The first books
introducing it into the U.S. trading arena
would describe how to make wooden boxes that
were backlit. Then the chart graphs could
be better viewed. Fortunately, the advent
of computers and computer programming has
taken Candlestick analysis ahead by leaps
and bounds.
Until recently, the investment community knew
about Candlesticks, they just didn't know
how to use them effectively. Interest has
been increasing dramatically now that the
roaring markets have collapsed. Investors,
new and old, are now trying to investigate
methods that protect them from the severe
losses that occurred from March 2000 until
now.
Hundreds of years of analysis and interpretation
can be much more easily extracted through
computer programming. Huge fortunes were amassed
with simple charting techniques. The same
will be true with all the benefits that computer
software provides the investor today.
The interest in candlestick signal analysis
in the United States has to be credited to
Steve Nison. Over three years of extensive
research produced Steve Nison's initial publication
"Japanese Candlestick Charting Techniques",
published in 1991. Much of the background
and historical information about candlesticks,
found in this site and many other sites, was
probably the results of Steve Nison's excellent
research.
Steve
Nison - Candlestick Investing History
Gregory
L. Morris - Candlestick Investing History
Next
- High Profit Candlestick Patterns And Conventional
Technical Analysis - A Beautiful Synergy |
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