V.9:3 (105-108): Steve Nison On Candlestick Charting by Thom Hartle

Steve Nison On Candlestick Charting by Thom Hartle

Thanks to Steve Nison of Merrill Lynch, the Japanese candlestick formation method has become international. Nison's first article on the candlestick formation in December 1989 triggered a flood of interest about the ancient method. Since then, he has spoken on candlestick charting widely and has appeared on FNN and CNBC on the subject as well. Nison, a New Yorker and a Merrill Lynch vice president specializing in futures technical analysis/options strategies, provides investment and timing strategies and trade recommendations and market views to Merrill Lynch brokers around the world. STOCKS & COMMODITIES Editor Thom Hartle spoke with Nison on December 20, 1990, via telephone to get his views on the candlestick method.

"Within a few more years, more technicians will be using candlestick charts than bar charts". — Steve Nison

So how are Japanese candlestick charting and the bar charting that we know best different in your view?

The main difference between the bar chart and the candlestick chart is how they're drawn. The "real body" in the candles is the relationship between the opening and closing. The Japanese place a lot of emphasis on the opening and the closing, whereas the traditional Western tools really don't. If you think about it, though, the relationship between the opening and the closing are probably the two most important times of the period. For example, the opening includes all the rumors and news that are filtered into one price, the opening price. The opening is also where you get the first view of the battle between the bulls and the bears. The close, as we all know, is very important. Many moving averages are based on closes, and a lot of technicians will wait till the market closes above or below a technically significant area to confirm, so the close becomes very important.

How do the Japanese describe the system? Can you give me any examples?

The Japanese use colorful and very descriptive expressions to describe the markets; a lot of their technicals are based on military analogies. For example, if there's a large order to move the price on the opening, the Japanese traders refer to it as a "morning attack." If a large influx of orders occurs, if someone tries to affect the closing price of a particular market, the Japanese traders call that market activity a "night attack."