Well,
you sure must be interested in learning about candlesticks
and I know just the person you need to be introduced
to - Mr. Homma and the Sakata's Five Methods.
The
Japanese Candlestick trading technique was created in
the 14th century by a man named Sokoyu Homma. Mr. Homma
was adopted, at a young age, by a fairly wealthy family
who grew rice in the city of Sakata. At the time, rice
was, and still is, a very important part of the Japanese
culture.
When
Mr. Homma was a young adult, he began interacting with
and tracking the activities of the local Wet Market
where all types of goods were sold and traded, including
rice baskets. He soon realized that if he to identify
the price increases and decreases of the markets local
goods, he could make money buying, selling and trading
the goods at the wet market.
Mr.
Homma began tracking the related prices of the goods
that were being sold, purchased and bartered at the
local market. Over time, he created his first charting
method to track these prices called the Anchor Chart.
The Anchor chart is believed to have been an adaptation
of a style of chart developed in Europe. The Anchor
chart was the predecessor to the candlestick chart.
The Anchor chart reflected the open, high, low and closing
price of a respective trading session, but was somewhat
difficult to read, Homma revised the chart and developed
what is now the candlestick chart from the anchor chart.
Mr.
Hommas original conception of the candlestick pattern
formations is now called the Sakatas Five Methods. The
Sakatas Five Methods technique consists of five (5)
individual pattern groups as well as the Samni No Den.
All of the patterns included within this group are based
on the number three (3). The number three (3) is believed
to be a very powerful number and the cultural belief
in Japan is that this number has a divine power. This
original group of patterns consists of the following
types of patterns:
The
Patterns within the Sakata's Five Methods
Three
Mountains
- This pattern formation is similar to the Western Head
and Shoulders formation and the inverted Head and Shoulders
formation.
Three Gaps
- This pattern formation describes the belief that if
a market generated three (3) price gaps within a defined
trend, the market is believed to have reached the exhaustion
point.
Three Parallel Lines
- This pattern formation describes the ability of a
market to show its intention to continue trending. When
three (3) candles of the same color and of large size
appear side-by-side, the belief is that the market is
growing in strength in the direction of the side-by-side
lines.
Rising and Falling Three Methods
- This pattern formation is again an illustration of
the markets ability to continue trending. This pattern
is created when three (3) small opposite colored candles
fall within the range of the first and last primary
colored candles with the last candle closing higher,
or lower, than the first.
Three River Morning & Evening Stars
- This pattern formation is a classic bottom (BUY) or
top (SELL) formation. The actual term Three River refers
to a battle for farmland between three farmers where
a forked river separated the three farmlands. When one
farmer was able to takeover one of the others farmland,
that farmer now had the advantage in the battle. Thus,
the Three River Star formations represents a shift in
the advantage of the two (2) forces of the market (buying
and selling).
More
information on this subject can be found in a book titled
The Japanese Chart of Charts authored by Seiki Shimizu.
CONTINUE
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