JAPANESE CANDLESTICK CHARTING TECHNIQUES

1 JAPANESECANDLESTICKCHARTINGTECHNIQUESA Contemporary Guide to the AncientInvestment TECHNIQUES of the Far EastSTEVE NISONNEW YORK INSTITUTE OF FINANCENew York London Toronto Sydney Tokyo SingaporeJAPANESE CANDLESTICKCHARTING TECHNIQUESu-v 7 ("Candles Exhaust Themselves to Give Light to Men"Library of Congress Cataloging-in-Publication DataNison, CANDLESTICK CHARTING TECHNIQUES : a contemporary guide tothe ancient investment technique of the Far East / Steve bibliographical references and 0-13-931650-71. Stocks Charts, diagrams, etc. 2. Investment 1991 '22 dc20 CIPThis publication is designed to provide accurate and authoritative infor-mation in regard to the subject matter covered.)

2 It is sold with theunderstanding that the publisher is not engaged in rendering legal,accounting, or other professional service. If legal advice or other expertassistance is required, the services of a competent professionalperson should be a Declaration of Principles Jointly Adopted bya Committee of the American Bar Associationand a Committee of Publishers and Associations 1991 by Steve NisonAll rights reserved. No part of this book may be reproduced in anyform or by any means without permission in writing from the York Institute of FinanceSimon & SchusterA Paramount Communications CompanyPrinted in the United States of America10 98765432 IVAcknowledgementsLike having ice cream after a tonsillectomy, this section is my treat afterthe book's of those who deserve recognition for their help are addressedin Chapter 1 in my discussion of my CANDLESTICK education.

3 There aremany others whom I would like to thank for their help along my candle-stick path. Candles might help light the way, but without the assistanceand insights of many others it would have been almost impossible to dothis book. There were so many who contributed in one way or anotherto this project that if I have forgotten to mention anyone I apologize forthis Market Technicians Association (MTA) deserves special was at the MTA's library that I first discovered CANDLESTICK materialwritten in English. This material, albeit scant, was extremely difficult toobtain, but the marvelously complete MTA library had it. This informa-tion provided the scaffolding for the rest of my CANDLESTICK the two English references on candlesticks I mention inChapter 1, I also obtained a wealth of information from books publishedin JAPANESE .

4 I would like to thank the following JAPANESE publishers andauthors for these books that I used as references:Kabushikisouba no Technical Bunseki (Stock Market Technical Analysis) byGappo Ikutaro, published by Nihon Keizai ShinbunshaKabuka Chato no Tashikana Yomikata (A Sure Way to Read Stock Charts) byKatsutoshi Ishii, published by JiyukokuminshaKeisen Kyoshitsu Part 1 (Chart Classroom Part 1), published by Toshi RaderHajimete Kabuka Chato wo Yomu Hito no Hon (A Book for Those Reading StockCharts for the First Time) by Kazutaka Hoshii, published by Asukash-uppanshavi AcknowledgementsNihon Keisenshi (The History of JAPANESE Charts), Chapter 2 by KenjiOyama, published by Nihon Keisai ShimbunshaShinpan Jissen Kabushiki Chart Nyumon (Introduction to Stock Charts)

5 ByOkasan Keisai Kenkyusho, published by Diamond-shaSakata Goho Wa Furinkazan (Sakata's Five Rules are Wind, Forest, Fire andMountain), published by Nihon Shoken ShimbunshaYoshimi Toshihiko no Chato Kyoshitsu (Toshihiko Yoshimi's Chart Classroom) byToshihiko Yoshimi, published by Nihon ChartThen there's the team at Merrill Lynch who were so helpful in look-ing over the manuscript, making suggestions, and providing ideas. JohnGambino, one of the best colleagues anyone can work with provided allthe Elliott Wave counts in this book. Chris Stewart, Manager of FuturesResearch, not only read the entire manuscript but provided valuablesuggestions and finely dissected the many, many charts I used. I alsowant to thank Jack Kavanagh in compliance who also read the manu-script. Yuko Song provided extra insights by conveying some of my can- dlestick questions to her JAPANESE customers who use have included hundreds of charts in this book from various I thank all the services that have generously provided use of theircandlestick charts, I want to give plaudits to bloomberg and CQG(Commodity Quote Graphics).

6 bloomberg was among the first on-line services to provide can- dlestick charts on the American markets. It's too bad I didn't discoverthis earlier. I was drawing CANDLESTICK charts on my own for years beforeI found out about bloomberg . CQG, an on-line futures CHARTING service,was also among the first to see the potential of CANDLESTICK charts. Withina few weeks of my first CANDLESTICK article, they sent me an alpha test(this is a high-tech term for the very early stages of software prototypetesting) of their CANDLESTICK software for my CQG System One . Once Ihad this software, my CANDLESTICK research progressed of the charts in this book are courtesy of bloomberg and CQG, other services that were kindenough to provide charts are:Commodity Trend Service Charts (North Palm Beach, FL), CompuTrac (New Orleans, LA), Ensign Software (Idaho Falls, ID), Future-Source (Lombard, 111), and Quick 10-E Financial Information System(New York, ).

7 I want to thank those who took time from their busy schedules toreview the introductions for Part Two of the book. These are: DanAcknowledgements viiGramza for the chapter on Market Profile ; Jeff Korzenik for the chapterson options and hedging; John Murphy for the chapter on volume andopen interest; once again, John Gambino for the chapter on Elliott Wave;Charles LeBeau for the chapter on oscillators; Gerard Sanfilippo andJudy Ganes for the chapter on hedging; and Bruce Kamich for theEnglish language Nippon Technical Analysts Association (NTAA) deserves utmostpraise for their assistance. Mr. Kojiiro Watanabe at the Tokyo InvestmentInformation Center helped me to contact NTAA members who havebeen especially helpful. They are: Mr. Minoru Eda, Manager, QuantativeResearch, Kokusai Securities Co.

8 ; Mr. Yasushi Hayashi, Senior ForeignExchange Trader at Sumitomo Life Insurance; and Mr. Nori Hayashi,Senior Analyst, Fidelity Management and Research (Far East). When Iasked them questions via fax I expected just brief answers. But thesethree NTAA members took their valuable time to write pages of explana-tions, complete with drawings. They were wonderful about sharing theircandlestick experiences and insights with me. I also want to thank themfor reading over and providing information for Chapter 2 on the historyof JAPANESE technical analysis. If there are any mistakes that remain, theyare those that I failed to want to thank again "idea a day" Bruce Kamich. Bruce is a friendand a fellow futures technician. Throughout our 15-year friendship hehas provided me with many valuable ideas and suggestions.

9 Probablytwo of the most important were his suggestion that I join the MTA andhis constant haranguing until I agreed to write a book about there's the publishing staff of the New York Institute ofFinance. They were all great, but those with whom I worked mostclosely deserve extra praise. Susan Barry and Sheck Cho patiently, skill-fully and affably guided a neophyte author through the labyrinth of thebook publishing 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 aboutcandlesticks, I came close to calling him Candlesticks Nison). Try writing abook with a newborn and a rambunctious four-year-old daughter, Rebec-ca, and you start to get an idea of how much my wife, Bonnie, contributedto this book.

10 She cared for the children while I maladroitly pummeled awayat the keyboard . Obviously, she had the harder each chapter's heading, and throughout the book, I used Japa-nese proverbs or sayings. Many times proverbs in the United States areconsidered trite and are rarely used. This is not so in Japan where prov-erbs are respected. Besides being enjoyable to read, the JAPANESE prov-erbs offer insights into JAPANESE beliefs and perspectives. I would like toviii Acknowledgementsthank the following publishers for the use of their material for the prov-erbs and sayings used in this book: University of Oklahoma Press,Charles E. Tuttle, and Kenkyusha , I must give proper and legal acknowledgements to many ofthe services I relied upon during my writing and research. Tick VolumeProfile is a registered trademark of CQG.