short and I like to sell, rather than long,
283
An Interview with Japanese trader. Mr. Takehlro Hlklta
Appendix
which has a false start often, compared to going short. Not only that,it will be only one third of time needed for movement to gain the sameprice difference in case of short, against in case of long.7. Have you found that candles work better with stocks, futures, ordoes it matter?Again, the candles chart and candles pattern analysis should be separated. The candlestick is only the chart itself, but the candlestick patterns are the analysis based generally on the Sakata's Five Law, orsomehow originating from it. There are two applications in the law,one for daily and the other is for weekly chart which has a differentdefinition. The daily candlesticks pattern works better on the futures. Itis again because of speed, the futures has a short trend cycle while the
stocks is longer.8. Which candle patterns seem to work best for you? Can you listyour ten favorite patterns?Your question is too straightforward even though it might be scientificapproach to research, so it is awfully difficult to answer it. You have tounderstand that the candle patterns analysis is originating from man'sexperience in trading, and that is a mix of market tendency with thehuman psychology expressed in the pattern. There is no scientific logicat allApproaching from a statistic viewpoint and supposing there were100% perfect patterns, if it comes once a year, or about one everythree years, nobody can keep watching to see it and catch it. It must bebased on such a daily analysis, repeating tedious business. There is,also, no guarantee that a pattern showed 100% successful in the past,will work well repeatedly in future. In statistical speaking, the numberof the sample is the important factor and so it can not be comparedwith other in a different number of sampling.I would like to see a research report that will be able to do by yoursoftware, or will be done by somebody else. Again, it will be all differ-
ent results by each software even though using exactly the same databecause of the definition used by every software program. They willeach be a little bit different in defining the patterns, along with definition of filtering to define it. So any such research report should be witha note within this program and within that program, not as a candlepattern itself. It is the matter of the pattern quality inside softwareother than the system quality.
In conclusion, I should say it always depends on how used, in conjunction with others and market condition such as how many counts in newhigh or new low included, but not by candlestick pattern itself. Again,the candle pattern is one of the analysis tools.9. Which candle patterns do you think are not very good? How abouta list?
Again, my answer will be the same as the above explained. It dependsupon the market condition and the price level and so on.10. Do you trade or make timing decisions based solely on candlepatterns or do you use them in conjunction with other technicalindicators?Of course I use the candles pattern in conjunction with other technicalindicators. As you know there is no perfect technical analysis methodby itself, and again the candlestick pattern is also one of them coveringsome part of the 360 degrees that must be defended. The daily candlestick pattern analysis is, however, good with futures as one of thetiming tools. Again, there is nothing that covers all the degrees neededfor technical analysis.
It is my intention to make an accent in trading by number of contractsin opening a position, depending upon the market condition, that requires the guts, too, which is another of the factors required. Onecontract each time without the accent will never let you make money.This is one reason why I am not interested in any of the valuablefactors of optimized automated trading systems. They seem to be only
Appendix
playing the game for fun, so I don't like it. Everybody who wants tomake money should be aware of no easy money anywhere in the world,unless you are lucky or originated from a son of a king.Author's Note: Mr. Hikita is referring to trading multiple contractswhen the candle signals are supported. Also, he stressed the importance of using the candle pattern signals to assist in opening and closing of positions, not necessarily for reversing positions only.11. Which indicators have you found that work well with candle patterns?/ have to emphasize, this time, that it depends upon the market condition and the price level which indicator is good to use with the candlepatterns. I feel, however, that stochastic %D works fairly good ingeneral, if you can correctly count the cycles and confluence/convergence on different cycle generated by %D. And, pinpointing tops andbottoms using a combination of the stochastic oscillator seems good.
12. Candlestick analysis is growing rapidly in the United States. Doyou think that it is just a fad or do you think candle analysis ishere to stay?
/ suppose it is a not fad and will stay long in the States. Because thisway of expression of the market has much advantage in comparing itto the bar chart, so that it is easier to understand the daily pricechange. There is also another good point, for instance it has a openprice mark, that we understand important factor to read the market.Also, it is easy to know by one quick look at candle which way themarket moved during the day. Since each pattern has a deep meaningsimilar to Gann analysis, it will last a long time within traders who areinterested in the philosophy behind the patterns.13. What advice would you offer to Western traders about candlestickanalysis?
An interview with Japanese trader, Mr. Takehiro Hlklta
To understand the candle patterns you should understand the philosophy inside and behind each pattern. Since it is not a perfect technique,as is the same case with others, it is also important not to dependsolely on the patterns itself, but use it in conjunction with others basedon a logically established method. The candle pattern analysis is oneof the analysis methods that was built up by human impression andexpressed by image from the combination of the pattern based onhistory. Beyond a maximum possible technical analysis there is another world of discipline of the mental power, that is to establish yourphilosophy.The candle patterns must be believed in if you get signal, you mustexecute or follow the market very closely. Stay in touch with eachcandle signal. If you become disconnected, the psychology behind thecandle pattern will not work well.Once you establish your trading policy, whatever you can believebased on the above explanations, you will not make a big mistake. Youwill be aware of mistakes in advance within an acceptable level ofdamage, as long as employing a proper trend analysis. If you had thispolicy you will be then not disappointed by any accident, and will beable to understand this way the market is wrong, instead of you andyour policy, in the case of the market being against you.
Final NoteAs you can see from this interview, Mr. Hikita thinks that the separation ofcandlestick charting and candle pattern analysis is important. Also, onecannot forget the underlying psychology behind each candle pattern. Theseare insights into the minds of the traders and speculators that move themarket every day.Mr. Hikita always referenced his trading analysis to dancing with thetrend. This concept is not new to technical analysts, however, many tradersmust graduate from the school of bitter experience before they realize itsimportance.
Analysis of Stock Price in Japan. Tokyo: Nippon Technical Analysts Association, 1988.
Hikita, Takehiro. Shin Shuu-Ashi Tohshi Hoh~Tohkei to Kakuritsu deToraeru (New weekly chart method — based on statistics and probability). IOM Research Publications, 1977.Hikita, Takehiro. Daizu no Sekai—Yunyu Daizu no Semekata Mohhekata(The world of Soybeans —attacking methods on imported soybeansand how to profit from it). IOM Research Publications, 1978.
Kaburagi, Shigeru. Sakimono Keisen — Sohba Okuno Hosomichi (Futurescharts — explained in a detailed way to be an expert in trading). TohshiNipoh Sha, 1991.
Kisamori, Kichitaro. Kabushiki Keisen no Mikata Tsukaikata — Tohshikano Tameno Senryakuzu (How to read and apply charts on stocks —Strategies for the investor). Toyo Keizai Shinpoh Sha, 1978.Lane, George C. Using Stochastics, Cycles, and RSL Des Plaines, IL,1986.
BibliographyBibliography
Murphy, John J. Technical Analysis of the Futures Markets. New York:New York Institute of Finance, 1986.N-Squared Computing. CandlePower 3 Software Manual. Silverton, OR,1992.
Nison, Steve. Japanese Candlestick Charting Techniques. New York:New York Institute of Finance, 1991.
Obunsha's Essential Japanese-English Dictionary. Japan, 1990.Ohyama, Kenji. Inn-Yoh Rohsoku-Ashi no Mikata—Jissenfu ni Yoru (Howto read a black and white / negative and positive candlefoot —In viewof the actual record). Japan Chart Co., Ltd., 1986.
Sakata Goho wa Fuurin Kazan—Sohba Keisen no Gokui (The SakataRules are wind, forest, fire, and mountain): 2nd updated 3rd ed. NihonShohken Shimbun Sha, 1991.Author's note: The above reference was an excellent source formany of the candle patterns. The name Fuurin Kazan may be translated as Fu — the speed like wind, Rin — that quietness like forest,Ka — that battle like fire, and Zan — that immobile position likemountain. This idiom originated from the Chinese battle strategythat Honma was said to have read.
Shimizu, Seiki. The Japanese Chart of Charts. Tokyo: Toyko FuturesTrading Publishing Co., 1986.
Wilder, J. Welles, Jr. New Concepts in Technical Trading Systems.Greensboro, NC: Trend Research, 1978.Yasui, Taichi. Kabushiki Keisen no Shinzui—Nichi Bei Keisen Bunseki noSubete (A picture of the stock chart). Tokyo: Toyo Keizai ShinpohSha, 1981.
Yatsu, Toshikazu. Tensai Shohbashi "Honma Shohkyu Hiden»-KahmsshohJyutsu (A genius trader Sohkyu Honma into his sec'et-TcSconfident of victory on stock investments). Diamond Sha, W0.Yoshimi, Toshihihko. Toshihiko Yoshimi no Chato Kyoshitsu (A classlroom on charting). Japan Chart Co., Ltd., 1991.
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