This is a lengthy interview, so this article will be the first half, followed next week by the second part. Mr. Takehiro Hikita has graciously provided me with a large amount of insight into the candle pattern philosophy. I have never met anyone so devoted to the detailed study of a concept as he. He started using candlestick analysis many years ago, in fact, all of his charting was done by hand until personal computers became available.
During a trip to Japan in January 1992, I studied the candle philosophy and interpretation with Mr. Hikita. I also maintained a log of our conversations, from which I have selected appropriate questions for this interview. There is a great deal of wisdom in this interview.
Occasional editing was done to assist in clarifying his answers, definitely not to change the meaning. It became quite obvious to me, that using English as a second language resulted in a completely honest and direct response; with no effort to be clever or entertaining. I did not attempt to correct any English that didn’t pass a grammar test. I found this to be quite refreshing and decided that you might also.
1. How and when did you first become interested in investing and trading?
I believe it was when I was around 31 years of age, that is over 25 years ago. It was, however, once terminated and I stayed out of the market for about 2 years losing money, more than enough at that time.
2. When did you realize that a form of technical analysis was better that fundamental analysis?
It was when I started trading again and I was around 41 years of age, after leaving the company for some reason. Beginning with candlestick pattern analysis, I studied and researched all different kinds of Japanese analysis techniques with real trading and was extended later on the method available in the States. My starting to trade again was with the policy to do so based on the technical analysis and no more guesses and fundamental analysis to make a living. I am fortunately still in the business of trading.
Speaking of this story a little further I started subscribing Commodities (now called Futures) and purchased many publications such as Commodity Trading Systems and Methods written by Kaufman and Wilder’s publications. My first use of a calculator was the programmable Texas Instruments product on Wilder’s method. Then the Casio’s programmable calculator for me to build in my own method, as I became serious. Then to make the daily analysis much easier, I purchased the IBM-5100 with 32K memory; it was 1977.
In 1979, I learned the Apple II came out on the market which has a graphic capability. I then immediately purchased it by importing direct from the States. In 1980, I joined CompuTrac and attended their first TAG Conference in New Orleans. My Stock & Commodities magazine subscription started since then.
3. Did you always use candle charting for your analysis? If not, when did you start suing candle charts?
It was from the very beginning, as far as taking a look at the market in general, to know how the market is acting. Since the candlestick charting method is the only one available in Japan to record the history of the price activity in graphic form. It is just like the bar chart in the States. Regardless whether I liked it or not, it was what was used then.
But the candlestick pattern analysis is another subject, rather than the charting itself. My interest on how to read the pattern better was probably few years later. I first started trading after reading the first issue of Seiki Shimuzu’s book in 1965, the original of The Japanese Chart of Charts translated by Nicholson.
4. Are candles used in Japan today as widely as bar charts are used in the USA?
As already mentioned in the above, there is no other method than candlestick charting to show a market record and activity in Japan. Yes, it is being used just like the bar chart in the States. The pattern recognition is another subject within the chart analysis.
5. Is the word candlestick a Western term? If so, what is candle charting and analysis called in Japan?
There is generally nothing but the candlestick charting to show the trend and market activity, and any other are classified as the analysis since they are rather clear to know the pinpoint to take an action, like the Point and Figure chart. Speaking of the chart, we generally call it Hi Ashi / Daily Charts, Shu Ashi / Weekly Chart, and Tsuki Ashi / Monthly Chart. The Japanese word for candle is roshoku.
For your information, Ashi means Leg or better say Foot, and the foot has an inside meaning of the past record, that is probably from the foot stamp that shows the past movement and activities, not only as a market term but in general. I then feel the Candlefoots is better to be called in English. It is, however, alright as long as understandable and sounds smooth to you people’s ears.
6. Do you trade stocks, futures, or both?
Yes, I trade both, I trade actively the futures but not the stocks. My trading stock is a long-term basis, never sale, this is in order to hedge from inflation, while trading the future is to make money in the short term.
There is other reasons, it is easier to find a pivot in the futures, especially to find out a pinpoint to short and I like to sell, rather than long, which has a false start often, compared to going short. Not only that, it will be only third of time needed for movement to gain the same price difference in case of short, against in case of long.
7. Have you found that candles work better with stocks, futures, or does it matter?
Again, the candle charts and candle 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, or somehow originating from it. There are two applications in the law, one for daily and the other is for weekly chart which has a different definition. The daily candlesticks pattern works better on the futures. It is again because of speed, the futures has a short trend cycle white the stocks is longer.
8. Which candle patterns seem to work best for you? Can you list your ten favorite patterns?
Your question is too straightforward even though it might be scientific approach to research, so it is awfully difficult to answer it. You have to understand that the candle patterns analysis is originating from man’s experience in trading, and that is a mix of market tendency with the human psychology expressed in the pattern. There is not scientific login at all.
Approaching from a statistic viewpoint and supposing there were 100% perfect patterns, if it comes once a year, or about one every three years, nobody can keep watching to see it and catch it. It must be based 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 number of the sample is the important factor and so it cannot be compared with other in a different number of sampling.
I would like to see a research report that will be able to do by your software or will be done by somebody else. Again, it will be all different results by each software even though using exactly the same data because of the definition used by every software program. They will each be a little bit different in defining the patterns, along with definition of filtering to define it. So, any such research report should be with a note within this program and within that program, not as a candle pattern itself. If is the matter of the pattern quality inside software other 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 new high or new low included, but not by candlestick pattern itself. Again, the candle pattern is one of the analysis tools.
My old friend Hikita-san contributed greatly to my Candlestick Charting Explained book.
Part 2 of this interview will be published next week.
Dance with the Trend,
Greg Morris
