The Truth about Japanese Candlesticks

The truth about Japanese candlesticks is very simple. ‘Japanese candlesticks’ refers to the method that has guided the success of Japanese traders for centuries. Orig-inally, Japanese traders made no use of Japanese candlesticks. They used another method.

From time to time, a contemporary author mentions it briefly, without making it part of his trading or giving it the prominence that it deserves. This method, which was used prior to candlesticks, is not explained in any book. What method was employed by the Japanese traders, who had no use for Japanese candlesticks? We will come to that soon, but first let us trace its history.

THE ORIGIN OF JAPANESE CANDLESTICKS OR HOW KNOWLEDGE OF THEIR HISTORY COULD TURN YOU INTO A SUCCESSFUL TRADER

Kosaku Sato was born in 1716 during the Tokugawa period in the city of Sakata in the Yamagata prefecture. It was the eighth shogunate. Kosaku Sato was adopted by the Honma family and became known as Sokyu Honma.

Sakata was then one of the main ports and centres for rice distribution. This is where Sokyu Honma built a fortune founded on his study of fluctuations in the price of rice. He developed tactics and strategies that made him an awe-inspiring man in Osaka, Kyoto, and Edo. His personality was charismatic. He was thought of as a ‘man of knowledge’ and a ‘market magician.’ His reputation was such that the Emperor bestowed the title of ‘bushi’ or ‘samurai’ on him. Sokyu Honma was a strategist and a market warrior1 whose exploits were celebrated by a popular song of the time:

When it shines in Sakata, its cloudy in Dojima                                                                and in Edo it rains.
Nobody could ever be a Honma,
But everyone would like to be at least a lord.

Sokyu lived to be 87 years old and died in Edo. His trading had been based on a secret method that he had created. This method, passed down from generation to generation, is the subject that we will explore in this book.

SOKYU HONMA’S METHOD

Honma’s method has two parts. Neither mentions candlesticks. These two parts are:

(a) the Samni No Den of the Market;
(b) the Sakata strategies.

These will be explained, but a question remains: ‘At what time do Japanese candle sticks make their appearance, since the master makes no mention of them?’ Japanese candlesticks made a late appearance – near the end of the nineteenth century. They were developed at the beginning of the Meiji era in Japan, although their exact origin is unknown. However, there are many hypotheses. One hypothesis suggests that candlesticks were a kind of bar chart that was used by some American traders and was subsequently taken over and developed by the Japanese. What really matters is that Japanese traders using candlesticks, whatever their origin or power, must use Sokyu Honma’s method, above all. Japanese candlesticks exist for one reason – to refine and give added precision to Sokyu Honma’s method. However, the true method belongs to Sokyu Honma. This method is so simple, so logical, and so powerful in its simplicity that it can perform without Japanese candlesticks. As William of Occam, a Western fourteenth century master logician, said, ‘entia non multiplicanda,’ or ‘let’s keep it simple.’ The Spirit of Sokyu Honma’s Method: The Master and the Disciple

As we learned in the previous chapter, Sokyu Honma developed his method in two
parts:

(a) the Samni No Den of the market (the subjective part of the method);
(b) the Sakata strategies (the objective part of the method).

All great traders possess the same spirit and the same reflexes. Both parts of Sokyu Honma’s method prove that he understood the immutable principles of a savvy speculator.

The Samni No Den of the market concerns the subjective point of view – the trader’s attitude. The Sakata strategies relate to an objective point of view – the market’s basic structures. Both perspectives constitute an indivisible whole, because to operate in the markets implies a knowledge of the market and a knowl- edge of oneself. What role does theory play in all of this? It is here that we must make a distinction between Western and Eastern atti-tudes. For a Japanese trading master, the acquisition of knowledge is practical and not theoretical. Theory only plays a preliminary role. The passage to practice is immediate. It is practice that will answer the pupil’s questions.
A bad habit that is often prevalent among Western students bothers Eastern masters. This habit is asking questions without any real purpose. This is the Western critical attitude. To ask questions is normal when acquiring knowledge, but often questions reveal unattractive aspects of the student – impatience and lack of maturity.

For the Eastern master, true knowledge appears when mental agitation ends. In order to learn, one must concentrate on only one thing and let reality bring its own answers. The practice of any discipline will bring the answers to most questions. These answers will arrive when they should arrive – at the right time. When the student is ready, he will receive the answer.

The market has its own language. Only intensive practice will enable us to know it. We must become familiar with hundreds of cases, until the market becomes part of us – second nature to us.

If the student adopts the opposite approach, he is bound to fail. No wishful thinking is permitted here. Intensive and conscientious practice is the only possible path to success. We say this because Sokyu Honma’s two methods must be studied, but, above all, practicing them will give us true knowledge.

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Author: David Wilson