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Steve Nison published the first book, Japanese Candlestick Charting Techniques: A Contemporary Guide to the Ancient Investment Techniques of the Far East, in 1991 and added another book a few years later, Beyond Candlesticks: More Japanese Charting Techniques Revealed. Greg Morris’ book, Candlestick Charting Explained, in 1992 thoroughly described and quantitatively tested candlestick patterns, reporting that many were highly reliable. Since then, a number of other authors have written books on candlestick chart analysis.

Early Japanese rice producers and traders became wealthy using candlestick charts, applying some of the rules that are familiar to traders today: trade with the trend, prices that go up require more force to maintain an uptrend than falling prices, when in doubt about a trend, stay out . . .  

East Meets West

The quick acceptance of candlestick charts in the West, once they were introduced, is due their similarity with bar charts that traders in the West had been using for years. Any Western techniques that traders used to identify chart patterns could also be applied directly to candlestick charts. Today most computer programs can construct candlestick charts as easily as bar charts.

Candlestick advocates contend that candlestick charts can provide trading signals ahead of traditional Western bar charts. When you look at a series of candlesticks, the trends stand out more clearly on a candlestick chart, and the turns are usually more evident with fewer time periods than bar charts, giving candlestick analysis an edge in timing.

Of course, one candlestick or one candlestick pattern is not a perfect indicator of future price action, and the major trend is more important than short-term price action, no matter what type of chart you are using. Successful trading still requires a combination of sound money management, trading discipline, technical analysis skills to identify trends and patterns, ability to interpret chart patterns and optimal position sizing.  

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