David Duty / Common Sense Candlesticks

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Course

  • Course

Following Common Sense Commodities and Common Sense Option it was it was time for this course on Japanese Candlesticks. I've read and studied all the other well-known educators teaching Japanese Candlesticks. I even did a seminar with Steve Nison who is known as the man to introduced Candlesticks to the West and I think the world of Steve. I decided to write this course which is detailed yet easy to understand.

Introduction

  • Introduction To Japanese Candlesticks
  • Welcome To the Course
  • Required Government Disclosure
  • David's Journey
  • What's In This Course?

The HIstory of Japanese Candlesticks

The History of Japanese Candlesticks

The Greatest Trader of All Time Is Probably Not Who You Think It Is.

I'm show you the man who invented the candlestick chart, candlestick trading patterns, and whom I consider to be the “father” of technical analysis. This article is about one incredible man who was known as the “God” of the markets in his day; Japanese rice trader Munehisa Homma. He lived from 1724 to 1803 and even if half of the legends about him are true, he was by far one of the most amazing traders in history and we can learn a lot from the stories that surround him. Homma is rumored to have made the equivalent of $10 billion in today’s dollars trading. You should probably listen to a “Samurai trader”

Homma is rumored to have made the equivalent of $10 billion in today’s dollars trading in the Japanese rice markets. In fact, he was such a skilled trader that he served as an important financial advisor to the Japanese government at the time and was later raised to the rank of honorary Samurai. I don’t know about you, but I think it’s pretty safe to say we can learn something from a guy who was such a great trader that he become a Samurai because of it, to me that is really cool. Rumor has it that he once had 100 profitable trades in a row/ Granted there’s a bit of an advantage when you are basically the “inventor” of technical analysis and no one else really knows about it yet but clearly Homma was a force to be reckoned with in the markets and his legend lives on today.

Homma began recording price movements in the rice market on paper made out of rice plants. He laboriously drew price patterns on his rice parchment paper every day, recording the open, high, low and close of each day. Homma began seeing patterns and repetitive signals in the price bars he was drawing and soon started to give them names, including some of the popular Japanese Candlestick Patterns you are probably already familiar with like Spinning tops, Stars, Doji, Hanging Man and others, each pattern clearly conveyed a specific meaning and Homma began using these patterns to predict the future direction of rice prices.

The discovery of the price action patterns left behind by the movement of rice prices gave Homma a huge advantage over other traders in his day, and combined with his passion and skill for trading, this advantage is what allowed him to become one of the most successful traders ever, if not thee most successful trader ever.

To any of you reading this who may still be “on the fence” about the relevancy and effectiveness of Japanese Candlesticks, consider the fact that it was used centuries ago by Homma and others and it’s still effective in today’s markets. I cannot think of any other trading method, system, indicator or robot that has been effective for that long and stood the test of time as pure candlesticks have. Whether or not Homma knew the term “technical analysis” in his time is irrelevant, he was clearly trading from the pure price movement of the market and he was the first person who realized the advantages of focusing one’s attention on a market’s price movement to predict its direction using his candlestick patterns. Homma realized Candlestick patterns reflects market psychology, and used it to his advantage.

In Homma’s book “The Fountain of Gold – The Three Monkey Record of Money”, which he wrote in 1755, he says that the psychological aspect of the market is critical to trading success and that traders’ emotions have a significant influence on rice prices. He notes that this can be used to position oneself against the market when all are bearish, because at that time there is cause for prices to rise (and vice versa).

In other words, Homma was the first trader to realize that by tracking the price in a market he could actually “see” the psychological behavior of other market participants and make use of it. As it relates technical analysis, this could mean for example that after a large run up or down in a market a long-tailed pin bar signal can give rise to a large move in the opposite direction. I imagine that Homma was the first person to trade a Blip pattern and I’m sure when he realized the power of the signal, he got goose bumps all over his body.

Homma also probably took advantage of false break trading strategies by the sounds of what he wrote in his book. I'm calling them traps from now on because that's what they are, a trap. I’m sure that he quickly identified patterns similar to what I teach.

In essence, Homma was the first true “contrarian” trader, and this is why he is one of my heroes to this day. Using the price action of the market and logical thinking, we can often find high-probability entries into the market while most other market participants are stuck in a cycle of trading mainly with their emotions and from what makes them feel good. Homma would definitely agree that what “feels” like the “surest” trade is often the wrong one, and once he could start to see the emotion of market participants via candlestick price patterns, this likely became very obvious to him. The trend has been your friend or over 250 years, so stop fighting it!

Homma described the rotation of Yang (bull market), and Yin (bear market) and claims that within each type of market is an instance of the other type.

I can only imagine the amazement that Homma must have felt when he started to see price trends emerge over his years of drawing price patterns on his rice parchment paper. It must have instantly set off a euphoric feeling in him because he likely realized very quickly that trading with the trend would be the easiest way to make money in the rice markets. To this day, trading with the trend is still the easiest way to trade. Traders try to fight it by continuously trying to pick tops and bottoms, but trend-trading has long been the easiest way to make a lot of money in the markets. Simply put, there’s a reason for strong trends, so it’s illogical to fight the trend. Homma was the first trader to be able to identify high-probability entry points in a trending market via simple price action patterns. This method has worked for literally over 250 years, and why so many traders still try to fight it and over-complicate it is beyond me.

Homma wrote several books in his time, which are apparently out of print now, but the candlestick patterns he described in his books became known as the “Sakata Rules”. These Sakata Rules became the basis of modern candlestick charting and thus most of what Homma wrote about is still relevant today. The fact that the first person to trade from a price chart and arguably the most successful trader of all time was a price action trader, is really not surprising to me. What Homma discovered, and what many of us now know, is that the price movement on a “naked” price chart reflects everything about a market.

Everything you need to know to find high-probability entry signals into virtually any market is available on a natural price chart. If you want to see what a market is doing, you simply need to look at the chart.

Munehisa Homma discovered this simple truth about markets over 250 years ago, and to this day many other traders, including myself, are still using pure technical analysis to trade the markets, because there is simply no better way to trade.

  • A little history of Candlesticks
  • The Greatest Trader of All Time Is Probably Not Who You Think It Is.

The Basics

  • A Basic Understanding of Candlesticks
  • Why Don't More People Use Candlesticks?
  • Rational vs Emotional Decisions
  • The Camel
  • Trend Reversals Take Time
  • What Can We Learn From A Lion?
  • Blips

Constructing Candlesticks

  • Constructing Candlesticks
  • Let's Look at Some Candles

The Mighty Doji

  • The Doji Star
  • Gravestone Doji
  • Dragonfly Doji
  • Several Doji on a Chart
  • Summary Questions

Windows

  • Windows - Rising and Falling
  • Windows - Rising and Falling - Quiz

Bullish Reversal Patterns

In this Chapter, I will show you what the following Bullish Reversal Patterns look like. Each one of these will have an individual lesson with text explanations, graphics, video(s), and quizzes when appropriate.

Gravestone Doji


Dragonfly Bottom


Long Legged Doji (Rickshaw Man)


Morning Star


Star Reversal


Spinning Tops


Umbrella Lines


Hammer


Inverted Hammer


Engulfing Patterns


Piercing Pattern


Abandoned Baby


Hamari Cross


Fry Pan Bottoms


Belt Lines


Tweezer Bottoms


Three Advancing White Soldiers


Three Rivers


Inverted Three Buddhas


Doji Star Bottom


Counter Attack Lines


Bottom Group or Clusters


High Price Gapping Play


Rising Three Methods

  • Gravestone Doji
  • Dragonfly Doji
  • Long Legged Doji AKA Rickshaw Man
  • Morning Star - Bottom Blip
  • Southern Star
  • Spinning Tops
  • The Hammer
  • Inverted Hammer
  • Umbrella Lines
  • Umbrella Lines Quiz
  • Engulfing Patterns
  • Piering Pattern
  • Harami Cross
  • Frypan Bottom
  • Belt Hold Lines
  • Tweezer Bottoms
  • Three Advancing White Soldiers
  • Three Advancing White Soldiers - Quiz
  • Three Rivers Bottom
  • Inverted Three Buddhas
  • Counter Attacks Lines
  • Bottom Grouping / Cluster
  • Summary Questions

Bearish Reversal Patterns

In this Chapter, I will show you what the following Bearish Reversal Patterns look like. Each one of these will have an individual lesson with text explanations, graphics, videos, and quizzes when appropriate.


Dragonfly Top


Gravestone Doji


Evening Star


Doji Star


Long Legged Doji (Rickshaw Man)


Shooting Star


Star Reversal


Spinning Tops


Umbrella Lines


Hanging Man


Engulfing Patterns


Abandoned Baby


Hamari Cross


Dark Cloud Cover


Tweezer Tops


Dumpling Tops


Tower Tops


Belt Hold Lines


Breakaway Three New Price Top


Upside Gap - Two Crows


Three Black Crows


Three Buddha Top


Three Mountain Tops


Counter Attack Lines


Top Group (Cluster)


Low Price Grouping Play


Falling Three Methods

  • Dragonfly Doji
  • Dark Cloud Cover
  • Dark Cloud Cover Quiz
  • Gravestone Doji
  • Hanging Man
  • Hanging Man Quiz
  • Evening Star
  • Evening Doji Star
  • Long Legged Doji AKA Rickshaw Man
  • Shooting Star
  • Spinning Tops
  • Umbrella Lines
  • Engulfing Patterns
  • Abandoned Baby
  • Harami Cross
  • Tweezer Tops
  • Dumpling Tops
  • Tower Tops
  • Belt Hold Lines
  • Breakaway Three - New Price Top
  • Upside Gap Two Crows
  • Three Black Crows
  • Three Buddha Top
  • Three Mountain Top
  • Counter Attack Lines
  • Top Group or Cluster
  • Summary Questions

Continuation Patterns

Not all Candlestick patterns are reversal signals. Many as you will see in this section are continuation patterns that are equally as important as reversal signals.


The Japanese say "There are times to buy, times to sell, and times to rest.

  • Rising Three Methods
  • Rising Three Methods Quiz
  • Falling Three Methods
  • High-Priced Gapping Play
  • Low-Priced Gapping Play
  • Separating Lines

Targets

Candlesticks don't give you targets but I'm going to should you some ways to set targets.


I covered each of these lessons in my other courses. There is no reason to have to rewrite them here.


So I'm just going to add a few of those lessons here in this course as a bonus. Even if you have seen them in the other courses it's good to review them again.


ANYTIME IN THESE LESSONS THAT FOLLOW, ALWAYS LOOK FOR ONE OF THE CANDLESTICKS OR CANDLESTICKS PATTERNS THAT WE HAVE ALREADY COVERED IN THE COURSE.

  • About This Section
  • Fibonacci
  • Boxes / Trading Ranges / Rectangles
  • Triangles
  • Wedges
  • Support & Resistance
  • Common Numbers
  • Pennants & Flags
  • Pennants & Flags
  • Summary Questions