Munehisa Homma | 1724-1803
It is widely believed that candlestick charts were developed in the 18th century by Munehisa Homma, a Japanese rice merchant who lived from 1724-1803 and traded in the Ojima Rice market in Osaka during the Tokugawa Shogunate. Osaka is historically the gateway to Japan and functions as the command center for the Japanese economy. Tokugawa Shogunate was a feudal regime of Japan that was abolished in the 1800’s by what is called the Meiji Restoration; a chain of events that restored imperial rule to Japan in 1868 and led to enormous changes in Japan’s political and social structure.
Some believe that candlestick charts were developed in the early Meiji period of Japan as opposed to the period in which Munehisa Homma lived. What is not disputed is the fact that Japanese rice traders experienced great success with candlestick analysis and Munehisa is of unmatched distinction and an important part of the history of Japanese Candlesticks.
Early on, only physical rice was traded and then a futures market was created using coupons that promised to deliver rice at a future date. This led to a secondary market of trading using coupons that is reported to be the precipitous to Munehisa Homma’s great success as a trader. One of Munehisa’s accomplishments was establishing a team of men who communicated market prices from Sakata to Osaka, a distance of about 375 miles. Munehisa used weather, price and market volume to determine his trading positions. He believed that there is a rotation between a bear market, which he referred to as “Yin, and a bull market, which he referred to as “Yang”.
Perhaps the feudalistic timeframe in which he lived is the foundation for his view of the market as a war-like environment with a constant battle between buyers and sellers. Munehisa also believed that understanding the psychological and emotional affects of the market on a trader is a key component to trading success. I find this to be fascinating given the current focus in this century on the critical importance of understanding the psychological aspect of trading and how the sentiment in the market drives trading decisions.
So when did western civilization adopt candlestick analysis and how come every trader doesn’t use this technique?
In 1989, Steve Nison wrote an article that introduced candlestick analysis to the western world and intrigued the trading community. Nison subsequently authored several popular books on candlestick analysis: Japanese Candlestick Charting Techniques, Beyond Candlesticks: New Japanese Charting Techniques Revealed and Strategies for Profiting with Japanese Candlestick Charts.
Candlestick charts provide a graphic depiction of price action better than any other chart type. Some believe that candlestick analysis is too complicated and a bit like “reading tea leaves”. There are successful traders around the globe that would dispute this claim.
Sources: Candlestick Charting Explained: Timeless Techniques for Trading Stocks and Futures, Gregory L. Morris, McGraw-Hill, 2006; Beyond Candlesticks: New Japanese Charting Techniques Revealed, Steve Nison, Wiley Finance, 1994