For the next interview in the StockTickr Interview Series (RSS feed), I spoke with Steve Nison. Steve is best known for introducing the now widespread Japanese candlestick charts to the western world. It’s hard to over emphasize the impact candlestick charts have had on many traders – I would imagine many would feel naked without them!
Steve is also the author of two popular books on candlestick charts:
In this interview Steve talks about what turned him on to candlestick charts, how many traders misuse the candles, and how money management (i.e., position sizing) is an important part of trading the markets. Read on for the entire interview.
StockTickr: Tell us a little about yourself and how you got involved with Candlestick Charts.
Steve: Back in the mid 80’s I was working for a firm in Manhattan and there was a Japanese broker working down the hall who dealt with Japanese clients. Although she was from the U.S. she was a broker and her clients would trade mostly Nikkei stocks. She had a book sent to her every week or month called “The Golden Charts Books”. I’m not sure if these books are still around or not, but essentially they were all the Nikkei stocks with Candlestick charts. I asked her what they were and she told me they were “Candlestick charts” and that piqued my curiosity.
I spent about 3 years researching them. I found a Japanese translator and I told him to buy every book he could on candlesticks. He spent about a year translating them and I spent about a year going over his translations. A lot of Japanese literature is based on metaphors and analogies so I had to learn a lot about Japanese culture before I could understand candlestick charts, believe it or not. It took me another year or so for me to write my first book so, in total, this was about a three year project.
StockTickr: What year did that book come out?
Steve: 1989 or 1990.
StockTickr: Candlestick charts have spread like wildfire since that time. Have you been surprised with their popularity and about what year would you say they really reached the tipping point?
Steve: Interestingly, when I did my first book I was working at Merrill Lynch in their futures research area – this was around 1990. Now remember, at that time there was no day trading like there is now and the savviest traders were all trading futures. There were in and out of positions very quickly and most technical analysis was being done on the futures side. This is where candlestick charts initially became very popular.
Then when short term trading became more popular on the equities side during the bull market, that’s when the explosion in candlestick charts really took off because candles are really used more for swing trading. There’s no clear-cut definition of “swing trading”, but by that I mean anywhere from intraday traders to those that trader for two to three weeks. Some people use candles for longer term investments, but I really suggest using them for shorter term trading and that’s when it became very, very popular. In fact, I revised my book around 2001 and left the candlestick formations the same but updated a lot of the charts to current examples (at the time) in the equities markets as opposed to futures.
I know your users focus on the equities side, but essentially, you can use candlesticks in all markets in all timeframes.
StockTickr: What advice can you give people who are using candlestick charting?
Steve: Well, a couple things. There is a lot of misuse of candlestick charts. As popular as candles have become (in fact, you can use them with just about every charting package out there whether its software or free charting services on the Internet) but most people are using them incorrectly. This, of course, is good for those who attend my seminars or get my DVDs!
Because they’re so widespread, a lot of people use them incorrectly. There are six major ways people misuse candlestick charts. For example, one of them is people see a “doji” (a doji is a session where the open and close are the same, or nearly the same). When the Japanese see a doji they will say the market is “tired”. So if we see a doji during a rally, it turns the trend from up to neutral. Now a lot of people see a doji during an uptrend and equate it with “sell short” and that’s completely wrong. A doji means the market has gone from up to neutral, not from up to down.
The way I like to look at it is technical analysis helps us give the odds in our favor, so if we see a doji during a rally the odds of the market continuing higher, the odds of the rally continuing are lower than if we see a tall, white candle. (By the way, those that are new to candlesticks can go to my web site (http://www.candlecharts.com) and I have a free introduction to candlesticks.) Using a doji as a reversal is one of the common misuses of candles. In fact, most of my seminars were, until recently, given just for institutional traders and one of the head traders from one of my seminars called me a few days later and said, “You’re right about a little knowledge being dangerous. All my traders are now going around yelling ‘Doji! Doji! Doji!’.”
I would strongly suggest for anyone that is considering using candles to study the information out there because a surprising number of people do misuse them, dangerously so, in fact.
StockTickr: Are there trading systems that use candlestick charts as signals or are they best used in conjunction with other indicators? What do you recommend?
Steve: I strongly recommend since I revealed them to the Western world in the 1980s, but I have more than 30 years of experience in Western technicals. What I recommend for my clients and seminar attendees is I show how to combine candles with Western technicals. Candles are a tool; they’re not a standalone system. I have what I call my trading triad (triad is Latin for “three”). (By the way, all my newest information is not in any of my books.) My trading triad is a three-legged approach to the markets. The first leg is candlestick charts because they give us early turning signals. Secondly, because candles are made using the same data as the regular bar chart (open, high, low, close), you can use all traditional western technicals on the candlestick chart. The third leg of the trading triad is money management, a topic that most people forget about.
But getting back to the second aspect of the trading triad: Western technicals. Because they use the same data as bar charts, that means one can use moving averages, volume, trend lines – whatever you can do in a bar chart you can also do in a candlestick chart and this is the power of the candles. (I use the word candle and candlestick interchangeably.) So if you get a western signal, say the market is at a major support area and you get a candlestick signal, say a bullish hammer confirming that support area, the odds of the market turning are much higher than they would be if a candlestick signal did not confirm the western signal.
So getting back to your question, Dave, candles are very powerful when combined with other technicals.
StockTickr: I understand you have a free newsletter and you’re offering a 2 week free trial to your market commentary. Can you tell us about each of those?
Steve: Right – we have a couple of free things. Every two or three weeks I do a free educational newsletter. For example, the next one I’m doing is about candlesticks and retracements. I talk about if you get a candlestick signal confirming a 50% retracement, the odds of a turn are much higher. So every two or three weeks I do an educational piece on candlesticks or candlesticks with western indicators and that is free and viewers can sign up for that on my web site (http://www.candlecharts.com). And, rest assured, all contact information is kept strictly confidential – we don’t sell contact information.
We have a daily newsletter called “Illuminations” where we do market commentary on the major indexes on the equities sides and we also have commentary on the forex markets, commodities, and interest rates. I’m happy to offer a two-week trial to your readers for any or all of these.
StockTickr: Thank you, Steve!
Steve: My pleasure.
Sign up for StockTickr Pro a copy of one of Van Tharp’s books while supplies last – quickly, though, I don’t have many more to give away!
Stay tuned – there are several interviews on the way. You can subscribe to these interviews via RSS feed.
- Dan Mirkin from Trade-Ideas
- Bruce Brotnov
- Eric Cahoon
- Ugly from Uglychart.com
- Alan Farley
- Declan Fallon
- Smita Sadana
- Bill Cara
- Van K. Tharp – Free autographed copies of Van’s book still available! Get yours now!
- Brett Steenbarger
- Eyal Maoz
- Gary B. Smith, the Chartman
- Nusair Bawla (alibawla on StockTickr)
- Dave Landry, Swing Trader
- Jeff White, the Stock Bandit
Do you have suggestions for other traders you’d like to see an interview with? Let us know!