copyrighted Material

JAPANESE CANDLESTICK
GUIDE TO THE ANCIENT *

JAPANESE CANDLESTICK
CHARTING TECHNIQUES


Candles Exhaust Themselves to Give Light to Men

JAPANESE CANDLESTICK
CHARTING TECHNIQUES
A Contemporary Guide to the Ancient
Investment Techniques of the Far East
STEVE NISON
NEW YORK INSTITUTE OF FINANCE

New York London Toronto Sydney Tokyo Singapore

Library of Congress Catalogingin-Publication Data

Nison, Steve.

Japanese candlestick charting techniques : a contemporary guide to the ancient investment technique
of the Far East / Steve Nison.
Includes bibliographical references and index. ISBN -13-931650-7 1. StocksCharts, diagrams, etc.
2. Investment analysis. I, Title, HG4638.N57 1991 90-22736 332.6322dc20 This publication is designed to
provide accurate and authoritative information in regard to the subject matter covered. It is sold with the
understanding that the publisher is not engaged in rendering legal, accounting, or other professional
service. If legal advice or other expert assistance is required, the services of a competent professional
person should be sought.
From a Declaration of Principles Jointly Adopted by a Committee of the American Bar Association and a
Committee of Publishers and Associations
1991 by Steve Nison All rights reserved. No part of this book may be reproduced in any form or by any
means without permission in writing from the publisher.
New York institute of Finance Simon & Schuster
Printed in the United States of America 10 9 8 7

Acknowledgements
Like having ice cream after a tonsillectomy, this section is my treat after the
books completion.
Some of those who deserve recognition for their help are addressed in
Chapter 1 in my discussion of my candlestick education. There are many others
whom I would like to thank for their help along my candlestick path. Candles
might help light the way, but without the assistance and insights of many others it
would have been almost impossible to do this book. There were so many who
contributed in one way or another to this project that if I have forgotten to mention
anyone I apologize for this oversight.
The Market Technicians Association (MTA) deserves special mention. It was
at the MTAs library that I first discovered candlestick material written in English.
This material, albeit scant, was extremely difficult to obtain, but the marvelously
complete MTA library had it. This information provided the scaffolding for the rest
of my candlestick endeavors.
Besides the two English references on candlesticks I mention in Chapter 1, I
also obtained a wealth of information from books published in Japanese. I would
like to thank the following Japanese publishers and authors for these books that I
used as references:
Kabushikisouba no Technical Bunseki (Stock Market Technical Analysis) by
Gappo Ikutaro, published by Nihon Keizai Shinbunsha
Kabuka Chato no Tashikana Yomikata (A Sure Way to Read Stock Charts) by
Katsutoshi Ishii, published by Jiyukokuminsha
Keisen Kyoshitsu Part 1 (Chart Classroom Part 1), published by Toshi Rader
Hajimete Kabuka Chato wo Yomu Hito no Hon (A Book for Those Reading Stock
Charts for the First Time) by Kazutaka Hoshii, published by Asukashuppansha

vi

Acknowledgements

Nihon Keisenshi (The History of Japanese Charts), Chapter 2 by Kenji

Oyama, published by Nihon Keisai Shimbunsha

Shinpan Jissen Kabushiki Chart Nyumon (Introduction to Stock Charts) by

Okasan Keisai Kenkyusho, published by Diamond-sha
Sakata Goho Wa Purinkazan (Sakatas Five Rules are Wind, Forest, Fire and

Mountain), published by Nihon Shoken Shimbunsha

Yoshimi Toshihiko no Chato Kyoshitsu (Toshihiko Yoshimis Chart Classroom) by
Toshihiko Yoshimi, published by Nihon Chart
Then theres the team at Merrill Lynch who were so helpful in looking over the
manuscript, making suggestions, and providing ideas. John Gambino, one of the
best colleagues anyone can work with provided all the Elliott Wave counts in this
book. Chris Stewart, Manager of Futures Research, not only read the entire
manuscript but provided valuable suggestions and finely dissected the many,
many charts I used. I also want to thank Jack Kavanagh in compliance who also
read the manuscript. Yuko Song provided extra insights by conveying some of
my candlestick questions to her Japanese customers who use candlesticks.
I have included hundreds of charts in this book from various services. Before I
thank all the services that have generously provided use of their candlestick
charts, I want to give plaudits to Bloomberg L.. and CQG (Commodity Quote
Graphics).
Bloomberg L.. was among the first on-line services to provide candlestick
charts on the American markets. Its too bad I didn't discover this earlier. I was
drawing candlestick charts on my own for years before I found out about
Bloomberg. CQG, an on-line futures charting service, was also among the first to
see the potential of candlestick charts. Within a few weeks of my first candlestick
article, they sent me an alpha test (this is a hightech term for the very early
stages of software prototype testing) of their candlestick software for my CQG
System One. Once I had this software, my candlestick research progressed
exponentially. Most of the charts in this book are courtesy of CQG.
Besides Bloomberg L.. and CQG, other services that were kind enough to
provide charts are:

Commodity Trend Service Charts (North Palm Beach, FL), Computrac" (New
Orleans, LA), Ensign Software (Idaho Falls, ID), FutureSource" (Lombard, Ill, and
Quick 10-E Financial Information System (New York, N..
I want to thank those who took time from their busy schedules to review the introductions for Part Two
of the book. These are: Dan

I w.w .

Acknowledgements vii

Gramza for the chapter on Market Profile; Jeff Korzenik for the chapters on
options and hedging; John Murphy for the chapter on volume and open interest;
once again, John Gambino for the chapter on Elliott Wave; Charles LeBeau for
the chapter on oscillators; Gerard Sanfilippo and Judy Ganes for the chapter on
hedging; and Bruce Kamich for the English language glossary.
The Nippon Technical Analysts Association (NTAA) deserves utmost praise for
their assistance. Mr. Kojiiro Watanabe at the Tokyo Investment Information
Center helped me to contact NTAA members who have been especially helpful.
They are: Mr. Minoru Eda, Manager, Quantative Research, Kokusai Securities
Co.Mr. Yasushi Hayashi, Senior Foreign Exchange Trader at Sumitomo Life
Insurance; and Mr. Nori Hayashi, Senior Analyst, Fidelity Management and
Research (Far East). When I asked them questions via fax I expected just brief
answers. But these three NTAA members took their valuable time to write pages
of explanations, complete with drawings. They were wonderful about sharing
their candlestick experiences and insights with me. I also want to thank them for
reading over and providing information for Chapter 2 on the history of Japanese
technical analysis. If there are any mistakes that remain, they are those that I
failed to correct.
I want to thank again idea a day" Bruce Kamich. Bruce is a friend and a fellow
futures technician. Throughout our 15-year friendship he has provided me with
many valuable ideas and suggestions. Probably two of the most important were
his suggestion that I join the MTA and his constant haranguing until I agreed to
write a book about candlesticks.
Then theres the publishing staff of the New York Institute of Finance. They
were all great, but those with whom I worked most closely deserve extra praise.
Susan Barry and Sheck Cho patiently, skillfully and affably guided a neophyte
author through the labyrinth of the book publishing business.
Of course there is my family. At the time that I was writing this book, our
newborn son Evan entered the picture (with all the excitement about
candlesticks, I came close to calling him Candlesticks Nison. Try writing a book
with a newborn and a rambunctious four-year-old daughter, Rebecca, and you
start to get an idea of how much my wife, Bonnie, contributed to this book. She
cared for the children while Imaladroitly pummeled away at the keyboard.

Obviously, she had the harder job.

For each chapters heading, and throughout the book, I used Japanese
proverbs or sayings. Many times proverbs in the United States are considered
trite and are rarely used. This is not so in Japan where proverbs are respected.
Besides being enjoyable to read, the Japanese proverbs offer insights into
Japanese beliefs and perspectives. I would like to

viii Acknowledgements

thank the following publishers for the use of their material for the proverbs and
sayings used in this book: University of Oklahoma Press, Charles E. Tuttle, and
Kenkyusha Ltd.
Finally, I must give proper and legal acknowledgements to many of the
services I relied upon during my writing and research. Tick Volume Profile" is a
registered trademark of CQG. Market Profile" and Liquidity Data Bank are
registered trademarks of the Chicago Board of Trade. The CBOT holds exclusive
copyrights to the Market Profile" and Liquidity Data Bank" graphics. Graphics
reproduced herein under the permission of the Chicago Board of Trade. The
views expressed in this publication are solely those of the author and are not to
be construed as the views of the Chicago Board of Trade nor is the Chicago
Board of Trade in any way responsible for the contents thereof.

PREFACE
A clever hawk hides his claws

Would you like to learn a technical system refined by centuries of use, but
virtually unknown here? A system so versatile that it can be fused with any
Western technical tool? A system as pleasurable to use as it is powerful? If so,
this book on Japanese candlestick charting techniques is for you. You should find
it valuable no matter what your background in technical analysis.
Japanese candlestick charts are older than bar charts and point and figure
charts. Candlesticks are exciting, powerful, and fun. Using candlesticks will help
improve your market analysis. My focus will be mainly on the US. markets, but
the tools and techniques in this book should be applicable to almost any market.
Candlestick techniques can be used for speculation and hedging. They can
be used for futures, equities, options, or anywhere technical analysis is applied.
By reading this book you will discover how candlesticks will add another
dimension of analysis.
Do not worry if you have never seen a candlestick chart. The assumption of
this book is that they are new to you. Indeed, they are new to the vast majority of
the American and European trading and investing community.
If you are a seasoned technician, you will discover how joining Japanese
candlesticks with your other technical tools can create a powerful synergy of
techniques. The chapters on joining Japanese candlestick techniques with
Western technical tools will be of strong interest to you. If you are an amateur
technician, you will find how effective candlestick charts are as a stand alone
charting method. To help guide you, I