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Candlestick Introduction

Welcome to the Candlestick Introduction section this web site. If you are new to Candlesticks, this section will begin to teach you what they are and what they can do for you. Well, if you are ready, let's get started...

Japanese Candlesticks were created over 300 years ago to aid a trader in predicting the future price of "Rice Bushels" in Osaka, Japan. This gentleman's name is Mr. Sokoyu Homma. He began the Japanese candlestick trading technique to assist him in tracking the prices for items that were being traded in the local "Barter Market". His intent, of course, to gain an advantage over the others trading and bartering for goods and services.\

Mr. Homma eventually became a very wealthy man - as the story is told - and the local people actually wrote songs about him and his prowess in trading and making profits. Mr. Homma's original work details the "Sakata's Five Methods", the "Sakata's Constitution" and the "Market's Sanmi no Den" which represent the foundation of Japanese Candlesticks. We will teach you about these fundamental Candlestick basics as well as the groups of patterns that make up the "Sakata's Five Methods".

The Sakata's Constitution consists of a series of simple rules by which to trade. These rules, in a broader term, can be applied today to the markets for profitable trading. Although created hundreds of years ago, the underlying moral of each rule is to know one's limit and to attempt to prevent failure. Take a look at the "Sakata's Constitution" below...

1. Without being greedy, think about the time and price ratio by looking at past price movements.

In other words, study the past price movements over time in an attempt to become a better and more objective trader.

2. Attempt to sell at the top and buy at the bottom.

This one seems pretty simple in principle, but tough to execute.

3. One should increate one's positions after a rise of 100 bags from the bottom or a fall of 100 bags from the top.

In other words, add to a profitable position after a specified price move or percentage move has been achieved. This rule attempts to provide a "compounding", or scale trading, to the candlestick technique.

4. If one forecasts the market incorrectly, one should attempt to identify the error as soon as possible. As soon as the error is discovered, one should liquidate one's positions and rest on the side for forty to 50 days.

If this wre only the rule we could all follow. This one simply states "if you take a loss, exit the trade and stay out of the market untill you can identify the emotional, physical or technical inpulse that got you into the trade. Remember hind-sight is always 20/20!

5. One should liquidate seventy to 80 percent of one's profitable positions, liquidating the remainder after changing directions once the price has reached its ceiling or bottom.

In other words, if you feel concerned about a current market position and are considering exiting the trade, liquidate seventy to 80 percent of the trade and then wait to confirm the market reversal before actually liquidating the remainder.

Do you understand this so far? I hope so because here we go the the next portion...



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