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Japanese candlesticks guide

CA Beginner ? s Guide to Japanese Candlestick Charting By Kent Kofoed Gecko Software Inc History of Candlestick Charts Candlestick charts which are believed to be the oldest charting style date all the way back to the early s and were originally used for the prediction of future rice prices Munehisa Hommaa a rice merchant from Japan is considered to be the father of the candlestick charts because he is said to be the inventor of candlestick charts In addition to being the creator of candlestick charts he also wrote a book on market psychology which is called The Fountain of Gold The Three Monkey Record of Money where he claimed that the psychological aspect of the market is critical to trading success and that traders' emotions have a signi ?cant in uence on rice prices He also made the observation that when all are bearish there is cause for prices to rise which is in essence a contrarian view that easily can be applied in either direction Another historical and rather interesting piece of information about the history behind candlestick charting is that the various candlestick patterns were originally given names by Japanese traders such as counter attack lines and advancing three soldiers which was in large part due to the overwhelming in uence that the military had during that era Technical Analysis Overview Technical Analysis is the process of analyzing historical market data with the primary focus typically being on price and volume data in order to forecast the future price of an asset and candlestick charting is simply one of the many tools that are used in technical analysis by technical analyst's Technical analysis relies on multiple assumptions with one of the main assumptions of technical analysis being that market prices are fundamentally e ?cient This means that whenever new fundamental information reaches the market prices will immediately adjust in order to re ect that information in the market price however technical analysis also recognizes that the current mood of the market can have an impact on market prices For example traders can become overwhelmed by the many emotions that are inherent in trading or any other risky activity and end up making investment decisions that would have in a majority of circumstances typically been deemed irrational Greed for example is viewed as one of the main reasons why so many traders tend to pile into the market right before a top while fear on the other hand is another common emotion that causes many traders to act irrationally and stampede out of the market right before it reaches a bottom If ignored both of these emotions can quickly bankrupt traders of any skill level so it is extremely important to learn how to e ?ectively manage these emotions The current mood of the market can and will distort prices in the short-term mostly due to fear greed or one of the myriad of other emotions that impact trading decisions however prices have a tendency to adjust