Interview, Podcast
The Man Who Introduced Candlestick Charting to the West · Steve Nison
- Steve Nissen, widely recognized as the individual who introduced Japanese candlestick charting to the Western financial world, began his research in the late 1980s while working for a Japanese brokerage firm where he first encountered candlestick charts.
- Prior to Nissen's work, candlestick analysis was virtually unknown in the West, with Bloomberg being the only charting service offering them due to Japanese clientele.
- Nissen's initial exposure occurred when a Japanese broker explained the charts were a traditional form of analysis used in Japan prior to 1900.
- Following a two-page article in Futures magazine in early 1990, Merrill Lynch received over 10,000 requests for copies of the educational material.
- Nissen funded the translation of approximately 13 to 14 rare Japanese books on the subject, a project that took roughly one year and required finding a translator fluent in both Japanese and trading terminology.
- The Nippon Technical Analyst Association, connected through Nissen's membership in the U.S. Market Technicians Association (MTA), provided significant assistance with research and verification.
- Nissen utilized candlestick patterns to generate trading recommendations at Merrill Lynch without disclosing the methodology, resulting in the highest performing track record at the firm at the time.
- This successful performance provided the financial incentive and drive required to continue the research and eventually publish the book Japanese Candlestick Charting Techniques.
- The book was published after Nissen sent a two-page overview to three publishers who all expressed immediate interest, a rarity in the publishing industry.
- The text was subsequently translated into 21 languages and has generated royalties for over 30 years.
- Candlesticks originated from the Dojima Rice Exchange in the 1600s, predating Western bar charts, with early analysis focusing on opening and closing prices.
- Terminology within the system is heavily influenced by Japanese military history and cultural context, including references to the "Three Monkeys," "Three Black Crows," and "Three White Soldiers."
- Nissen noted that direct translation was insufficient due to cultural context, requiring him to interpret metaphors like "windows" (gaps) and "hangman" lines within Japanese cultural frameworks.
- In the 1980s, candlesticks were not color-coded; green and red candles became standard in the West, whereas traditional Japanese charts used white and black.
- Nissen posits that his book may be the most technically significant in the world due to the universal adoption of candlesticks across all modern trading platforms.
- He developed a proprietary "Trading Triad" combining three elements: candlestick signals, confirming Western technical signals, and disciplined risk management.
- Nissen advises against using candlestick patterns in isolation, emphasizing that patterns like the Doji indicate a potential trend change to neutral rather than an immediate reversal.
- He distinguishes between fundamental prediction and market reaction, arguing that traders should analyze how the market reacts to news rather than predicting the news itself.
- Nissen maintains that once capital is deployed, emotion takes control, making pre-trade risk management and stop-loss placement critical for survival.
- In 1996, after leaving institutional firms, Nissen launched his own company to offer seminars and consulting, initially targeting institutional clients before expanding to retail.
- His early presentations to NYSE specialists were initially poorly received until he adjusted his approach to respect the specialists' expertise rather than offering direct instructions.
- Nissen believes the number three is auspicious in Japanese culture (e.g., Three White Soldiers, Three Black Crows), while the number four is associated with death.
- He asserts that candlestick charting has no disadvantages over bar charts other than the initial educational effort required to understand them.
- Nissen's company, CandleCharts.com, currently serves students and traders in 85 countries.
- He warns that relying solely on internet definitions of patterns without understanding broader context and risk management is dangerous for traders.
- Nissen credits a combination of perseverance, serendipity, and deep cultural research for his success in introducing the methodology to the West.
- He notes that while he was the first to introduce the charts, the global standard of candlestick usage now makes him less recognizable to younger generations compared to his peak visibility in the early 1990s.