WHY CANDLESTICK CHARTS
Although candlestick charts are nearly identical to typical Western bar charts,
there is one important distinction: candlestick charts are far more dramatic in their presentation. Instead of
the standard high-to-low vertical lines accompanied by horizontal ticks that identify the day's open and close,
candlestick charts employ two-dimensional bodies to depict the open-to-close trading range and upper and lower
stems (or shadows) to mark the day's high and low.
For over a century, the Far Eastern traders have used candlestick charts to track market activity. With the huge
set of market data, Eastern analysts have identified a number of patterns that, with differing degrees of reliability,
may accurately determine the future short-term trend for a particular investment.
These patterns (or indicators) are the premise for successful candlestick chart analysis. The theory, tested over
the decades, is that candlestick charts can be effective in revealing the psychology of the market at a certain
point in time. On occasion, a chart for a specific investment may meet the criterion for a candlestick indicator.
These are the events investors are most interested in as they can decode the emotion surrounding an investment.
Knowing this means that for short-term, an investor can make confident decisions
about buying, selling, or holding an investment.
WHERE DID CANDLESTICK CHARTS COME FROM?
Analysis based on trends in market psychology has its roots in Japanese rice trading
in the 1700's. One of the most famous traders of the day, a man named Homma, discovered that studying the emotions
of a market could be very useful in determining future trends.
Although it is not known whether Homma can be credited with developing candlestick charts as we know them today,
it is under the same principles that led to their evolution and wide-spread acceptance among Eastern traders since
the late 1800's. Candlestick charts have been a commonly practiced analysis technique ever since, and it is quite
clear that Eastern traders have long given great weight to how market psychology effects future trading.
Candlestick charts have only recently been introduced to Western traders with much thanks to Gregory L. Morris and Steve Nison. However, since the early 90's its support
has been captivating. The word has spread.