Japanese Candlesticks
The Dragonfly Doji
I love Japanese candlesticks charts, but why (!?) you may wonder. Well, let me explain. When I was about 16-years old, I wanted to be a trader on the Amsterdam Stock Exchange. Not because of the lure of money and power, no I wanted to be a trader because of my abstract romantic perception of the ‘Bourse’. This may sound a bit counterintuitive, but there are a couple of reasons why I viewed the merciless dog-eat-dog world of Haute Finance as romantic.
Courtyard of the Amsterdam Stock Exchange by Job Adriaensz. Berckheyde, circa 1670.
First there was the venerated position of the Exchange itself. Founded in 1602 by the Vereenigde Oostindische Compagnie (VOC or Dutch East-India Company), the Amsterdam Bourse (now Euronext Amsterdam) was the first incarnation of what we recognise today as a modern securities exchange. Over the next 400 years, the black-robed calvinist VOC merchants gradually evolved into today’s flashy options and futures traders. Juxtaposing the paintings of 17th century traders to glossies about the yuppies of the 1980s — magnificently depicted in Oliver Stone’s 1987 movie Wall Street — that’s what I wanted to be. A high-flying trader living in a stunning apartment, eating delicious food, courting beautiful women and driving fast cars; again not because of the money in itself but because of the life-style it would allow.
The Japanese Candlesticks
Another more abstract romantic reason for my attraction to the trader’s world were Japanese candlesticks. I was first introduced to candlestick charts when I was in business college. The visual representation of the market through Japanese candlesticks in combination with a Fibonacci retracement analysis hit me as pure visual poetry. Candlestick charts were developed by Japanese rice trader Munehisa Homma way back in the 18th century and introduced to the West in the early 1980s. Compared to the bar charts traditionally used in the West, the Japanese charts, to me, were more attractive to look at and easier to interpret as each ‘candle’ clearly summarised the action on the trading floor. In one glance I could compare open and close prices as well as the stock’s highs and lows and predict its future development. This visual attraction combined with utterly enchanting pattern names like: Shooting Star, Dark Cloud Cover, Three Black Crows and the Abandoned Baby, made my mind spin. Staring at my computer screen, I’d envision myself in ancient Japan negotiating with samurai.
Comparison of Japanese candlesticks and Western bar charts
The final attraction for me when it came to trading was the concept of making something out of nothing. In the option and futures markets you didn’t trade in actual goods. Instead you’d buy the right to buy something in the future against a price set at the day of purchasing the contract. As the contract’s expiration day drew closer, its price would rise or fall. Depending on the gamble you’d made as a trader you’d sell on the contract and either make or lose money. What fascinated me about this was that it was a pure paper transaction. Yes, I might be buying a thousand heads of cattle or ten tons of coffee, they would never materialise. I’d be buying and selling the idea not the actual goods, it was all very Platonic.
Sadly enough, as I learnt more about the business, I realized that the world of trading wasn’t romantic at all. It turned out to be a cut-throat selfish world completely consumed by greed. Not being obsessed with the money part of trading disqualified me as a trader. I never became one.
[T]here you are.
References:
Stockcharts.com. (2015). Introduction to Candlesticks [ChartSchool]. [online] Available at: http://ow.ly/GmEB3084hpz [Accessed 17 Jan. 2017].
Farley, A. (2016). The 5 Most Powerful Candlestick Patterns. [online] Investopedia. Available at: http://ow.ly/KjNJ3084hvF [Accessed 17 Jan. 2017].
En.wikipedia.org. (2017). Amsterdam Stock Exchange. [online] Available at: http://ow.ly/LFxW3084hWO [Accessed 17 Jan. 2017].
