Japanese candlesticks have been used by Japanese rice traders since the 1700s. The father of Japanese candlesticks, Munehisa Homma, a rice trader from Sakata(Japan), developed this method of reading charts that was unique and incredibly successful. It was so successful that made Homma and those who followed his method, legendarily wealthy. In the 1800s the system was further refined and improved. Three hundred years later, candlestick charts are still used by traders and investors around the world. What are Japanese candlesticks? Japanese candlesticks are the visual illustration of the collective knowledge and decision making of all investors during a specific period of time. They show us the full picture of all information reflected in the price action as it is developing right now.
Candlesticks don’t tell us why the price action is happening (news release, earnings, reports etc). They tell us about the investor sentiment of emotions and decision making. Candlesticks reveal a unique type of information that no other indicator does. Think of candlesticks as market psychology indicators. Investors’ sentiments are a huge factor in their decision making process. The emotions of fear and greed are major contributors that cause investors to be exuberant and buy at the top or to panic and sell at the bottom. Candlestick charts give the visual illustration of the decision making process of major market players and highlights the emotions influencing their decisions.
The visual illustration provided by candlestick charts gives candlestick traders the ability to see when the overall market sentiment is changing and to quickly act upon that change. Candlestick traders can position themselves on the right side of a trend and profit from a price action. Knowledge of candlestick analysis combined with technical analysis, support and resistance, trend channels and moving averages gives candlestick traders the ability to identify the current market trend, recognize a change in market direction and place trades with greater confidence and greater results. Also the visual illustration allows candlestick traders to recognize trades that are not working and to get out of them with minor or no losses, before suffering greater losses. Moreover, candlestick analysis will help candlestick traders and investors to trade and benefit from uptrend markets as well as downtrend markets.
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