Candlestick chart patterns are visual representations of price movements in financial markets, typically stocks, commodities, or currencies, during a specific time period. Each “candlestick” shows four key pieces of information:
- Open price: The price at which the asset started trading during the period.
- Close price: The price at which the asset finished trading during the period.
- High price: The highest price the asset reached during the period.
- Low price: The lowest price the asset reached during the period.
The candlestick’s body represents the range between the open and close prices, while the “wicks” or “shadows” represent the high and low prices.
Candlestick patterns are widely used by traders and analysts to identify potential market trends and reversals. Common patterns include:
- Doji: Indicates indecision in the market.
- Hammer: Suggests potential reversal in a downtrend.
- Engulfing patterns: Signals strong reversals when one candlestick completely engulfs the previous one.
- Head and Shoulders: A reversal pattern signaling a change in trend.
Who Invented Candlestick Patterns?
Candlestick patterns were invented by Munehisa Homma, a Japanese rice trader from the 18th century. He is credited with developing the earliest version of candlestick charts to analyze the price of rice in the markets of Sakata, Japan. Homma’s insights formed the foundation for modern technical analysis, and he documented his methods in a book titled “Sakata’s Five Methods.”
How Were Candlestick Charts Brought to the United States?
Candlestick charting was introduced to the United States in the late 20th century by Steve Nison, a financial analyst and technical trader. Nison is often referred to as the “father of modern candlestick charting” in the Western world. He popularized these techniques through his seminal book, “Japanese Candlestick Charting Techniques,” first published in 1991.
Nison’s work bridged the gap between Eastern and Western trading philosophies, and his efforts made candlestick charting a standard tool for traders and technical analysts worldwide. Today, candlestick patterns are a cornerstone of technical analysis, integrated into virtually all trading platforms and educational materials.
Here are our top lessons on candlestick patterns, enjoy!
Understanding Candlestick Patterns: A Key Tool for Market Analysis