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Japanese Candlesticks Beginning

 

Well, you sure must be interested in learning about candlesticks and I know just the person you need to be introduced to - Mr. Homma and the Sakata's Five Methods.

The Japanese Candlestick trading technique was created in the 14th century by a man named Sokoyu Homma. Mr. Homma was adopted, at a young age, by a fairly wealthy family who grew rice in the city of Sakata. At the time, rice was, and still is, a very important part of the Japanese culture.

When Mr. Homma was a young adult, he began interacting with and tracking the activities of the local Wet Market where all types of goods were sold and traded, including rice baskets. He soon realized that if he to identify the price increases and decreases of the markets local goods, he could make money buying, selling and trading the goods at the wet market.

Mr. Homma began tracking the related prices of the goods that were being sold, purchased and bartered at the local market. Over time, he created his first charting method to track these prices called the Anchor Chart. The Anchor chart is believed to have been an adaptation of a style of chart developed in Europe. The Anchor chart was the predecessor to the candlestick chart. The Anchor chart reflected the open, high, low and closing price of a respective trading session, but was somewhat difficult to read, Homma revised the chart and developed what is now the candlestick chart from the anchor chart.

Mr. Hommas original conception of the candlestick pattern formations is now called the Sakatas Five Methods. The Sakatas Five Methods technique consists of five (5) individual pattern groups as well as the Samni No Den. All of the patterns included within this group are based on the number three (3). The number three (3) is believed to be a very powerful number and the cultural belief in Japan is that this number has a divine power. This original group of patterns consists of the following types of patterns:

The Patterns within the Sakata's Five Methods

Three Mountains
- This pattern formation is similar to the Western Head and Shoulders formation and the inverted Head and Shoulders formation.

Three Gaps
- This pattern formation describes the belief that if a market generated three (3) price gaps within a defined trend, the market is believed to have reached the exhaustion point.

Three Parallel Lines
- This pattern formation describes the ability of a market to show its intention to continue trending. When three (3) candles of the same color and of large size appear side-by-side, the belief is that the market is growing in strength in the direction of the side-by-side lines.

Rising and Falling Three Methods
- This pattern formation is again an illustration of the markets ability to continue trending. This pattern is created when three (3) small opposite colored candles fall within the range of the first and last primary colored candles with the last candle closing higher, or lower, than the first.

Three River Morning & Evening Stars
- This pattern formation is a classic bottom (BUY) or top (SELL) formation. The actual term Three River refers to a battle for farmland between three farmers where a forked river separated the three farmlands. When one farmer was able to takeover one of the others farmland, that farmer now had the advantage in the battle. Thus, the Three River Star formations represents a shift in the advantage of the two (2) forces of the market (buying and selling).

More information on this subject can be found in a book titled The Japanese Chart of Charts authored by Seiki Shimizu.


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