In part 18 we looked at alternative concepts in technical analysis. In part 19 we turn our attention to the world of Japanese charting. In fact, this and the next three parts (Renko, Kagi and Line Break) will all focus on the Eastern approach to technical analysis. We start with Heikin Ashi – an often forgotten and very effective way to use Japanese candlestick charts. Understanding this ancient method of candlestick charting can certainly reap dividends for your trading! [Read more…]
Last week in Part 3, we looked at line charts and bar charts. This week, we take charting a step further by looking at a concept introduced by the Japanese: Candlestick charts.
A Brief History
It is debatable who developed the candlestick concept. Many attribute Munehisa Homma, a Japanese rice trader, as the inventor of the candlestick charting approach. Others say it was more probable that candlestick charts arose from general trading activity and practices in the early part of the Meiji period in Japan (in the late 1800’s) and the need to disseminate information. What can’t be argued though, is that during this period, it was discovered that there was a relationship between price, traders’ emotions and the supply and demand of rice. Adding in emotions to the equation added a whole new dimension to the analysis of the rice market. Traders, like Homma, appreciated that raw supply and demand factors weren’t the only driving force behind the price of an asset and that human interaction had a big influence on the shape of the rice market at any given time.
Candlestick charting methods only really hit the Western world in the mid to late 20th century. As technology and computers also developed, it allowed this style of charting to spread more easily and become more widely understood. Candlestick charting is now globally used as a highly effective approach to analysing financial price data, for both the trader and investor in the short and longer term. [Read more…]
Welcome to a new Technical Analysis blog series. This series will comprise 25 introductory articles covering all aspects of technical analysis, from the very basics through to some more advanced theory. Hopefully, these articles will whet your appetite for the subject and inspire you to take up technical analysis (if you haven’t already) and use it in your trading and investing. My aim is to enhance your existing knowledge and give you an insight into how technical analysis can be used as an effective trading tool, both to make and save you money and give you new roads to follow. This is a vast, often misunderstood subject, so the aim of this blog series is to make it more accessible by breaking down a few of those boundaries.
In this first article we explore the roots of technical analysis. It is vitally important for you to understand where technical analysis has come from and the thinking behind it, if you’re ever going to successfully use it in practice. [Read more…]
An often forgotten and very effective way to use Japanese candlestick charts: Heikin Ashi candles. Understanding this ancient method of candlestick charting can certainly reap dividends for your trading! [Read more…]