Using technical analysis to trade rice in Japan began in the early 17th century. This early version of technical analysis was different from the version of analysis that was used in the US. That beings said, the guiding principals were very similar.
Candlestick charting first was seen sometimes after 1850. Much of the credit for developing candlestick charting can be attributed to a rice trader named Homma from the Japanese town of Sakata. It is probable that the original ideas have been modified over the years eventually coming to the system of candlestick trading that exists today.
Homma noticed that there was a link between price and the supply and demand of rice. He understood that when emotions played into the equation there was a vast difference between the value and the price of rice. The difference between the value of rice ad price is applicable to the stocks today as it was the rice in Japan centuries ago. The principals that Homma Munehisa established is the basis for the candlestick chart analysis that is used to measure the emotions surrounding a stock today.
This charting technique is very popular among traders in today’s stock market. One reason for this is the charts show the short-term outlook. Candlestick carting is very complex and it can be difficult to understand. Candlestick charts show the markets opening high, low and close for a given day. Candlestick charts have something called the real body. The real body represents the range between the open and the close of that days trading. When the real body is filled in black it means the close was lower than the open. If the real body is empty, it means the opposite.
Above and below the real body are the shadows. Chartists refer to this as the wicks of the candle. Shadows show the highs and the lows of that day of trading. If the upper shadow on the filled in body is short it means that the open that day was closer to the high of that day. A short upper shadow on a white of unfilled in body means that the close was near the high that day. Shadows can be long or short.
Charts from North America place more emphasis on the progression of the day’s closing price from yesterday’s close. In Japan the chartists are more interested in what happens between the closing price and the opening on the same trading day. Compared to traditional bar charts many traders fined the candlestick charts are easier to interpret and more visually appealing.