Illuminating Trends: An Intro to Japanese Candlestick Charting
Bar charts are the mainstay of security charting for most investors. However, over the past few years we have introduced some of the more popular alternative chart types, including equivolume (January 2002 AAII Journal) and point & figure (August and November 2000 AAII Journal; all available at AAII.com).
This article focuses on one of the oldest chart types in existence, Japanese candlesticks, and shows how they can be used to shed light on future price activity.
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A brief history
The roots of candlestick charting can be traced to the rice markets of Japan in the 1700s. During this period, the foundation of this type of technical analysis was laid and evolved into candlestick charts that began being used in the 1800s.
Candlesticks were not introduced to mainstream Westerners until Steve Nison published his book on candlestick charting in 1991, “Japanese Candlestick Charting Techniques” (Prentice Hall Press). The advent of personal computers, along with technical analysis software and Web sites, served to fuel their popularity.
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