Thursday, February 10, 2011

Japanese Candle stick Method

The Japanese were the first to use technical analysis to trade one of the world's first rice futures markets in the 1600s. A Japanese man by the name of Homma who traded the futures markets in the 1700s discovered that although there was link between supply and demand of the rice, the markets were alsostrongly influenced by the emotions of the traders.

Homma realized that he could benefit from understanding the emotions to help predict the future prices.        He understood that there could be a vast difference between value and price of rice.

This difference between value and price is as valid today with stocks, as it was with rice in Japan centuries ago.

The principles established by Homma in measuring market emotions in a stock are the basis for the Candlestick Chart analysis, which we will present in this seminar.

Candlestick vs. Western Charts

The Western bar chart is made up of four parts components, open, high, low, and close.The vertical bar depicts the high and low of the session, while the left horizontal line represents the open and the right horizontal line represents the close.

The Japanese Candlestick Line uses the same data (open, high, low, and close) to create a much more visual graphic to depict what is going on with the Securities.The thick part of the candlestick line is called the real body. It represents the range between the session’s opening and closing prices of the securities.If the real body is red, it means that the close of the session was lower than the open Price.

If the real body is green, it means that the close price was higher than the open Price.The lines above and below the body are the shadows. The shadows represent the session’s price extremes. The shadow above the real body is called the upper shadow and the shadow below the real body is called the lower shadow.  The top of the upper shadow is the high of the day, and the bottom of the lower shadow is the low of the day.

One of the main differences between the Western Line method and the Japanese Candlestick line method is the relationship between open and closing prices.  The Westerner places the greatest importance on the closing price of a securities in relation to the prior periods close.The Japanese place the highest importance on the close price as it relates to the open price of  the same day.