This is the final part of an interview with Takehiro Hikita; see the first part here.
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 (decades) 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 Hikita-san. 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.
9. Which candle patterns do you think are not very good? How about a list?
Again, my answer will be the same as the above explained. It depends upon the market condition and the price level and so on.
10. Do you trade or make timing decisions based solely on candle patterns or do you use them in conjunction with other technical indicators?
Of course, I use the candles pattern in conjunction with other technical indicators. As you know there is no perfect technical analysis method by itself, and again the candlestick pattern is also one of them covering some part of the 360 degrees that must be defended. The daily candlestick pattern analysis is, however, good with futures as one of the timing tools. Again, there is nothing that covers all the degrees needed for technical analysis
It is my intention to make an accent in trading by number of contracts in opening a position, depending upon the market condition, that requires the guts, too, which is another of the factors required. One contract each time without the accent will never let you make money. This is one reason why I am not interested in any of the valuable factors of optimizes automated trading systems. They seem to be only playing the game for fun, so I don’t like it. Everybody who wants to make money should be aware of no easy money anywhere in the world, unless you are lucky or originated from a son of a king.
Note: Mr. Hikita is referring to trading multiple contracts when the candle signals are supported. Also, he stressed the importance of using the candle pattern signal to assist in opening and closing of position, not necessarily for revering positions only.
11. Which indicators have you found that work well with candle patterns?
I have to emphasizes, this time, that it depends upon the market condition and the price level which indictor is goof to use with the candle patterns. I feel, however, that stochastic %D works fairly good in general, if you can correctly count the cycles and confluence/convergence on different cycle generated by %D. And, pinpointing tops and bottoms using a combination of the stochastic oscillator seems good.
12. Candlestick analysis is growing rapidly in the United States. Do you think that it is just a fad or do you think candle analysis is here to stay?
I suppose it is not a fad and will stay long in the States. Because this way of expression of the market has much advantage in comparing it to the bar charts, so that it is easier to understand and the daily price change. There is also another good point, for instance it has an open price mark, that we understand important factor to read the market. Also, it is easy to know by one quick look at the candle which way the market moved during the day. Since each pattern has a deep meaning similar to Gann analysis, it will last a long time within traders who are interested in the philosophy behind the patterns.
Note: It wasn’t until about 1991 that stock data became available with Open price. Futures have always had it, but stock data was only High, Low, and Close.
13. What advice would you offer to Western traders abut candlestick analysis?
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 depend solely on the patterns itself but use it in conjunction with the others based on a logically established method. The candle pattern analysis is one of the analysis methods that was built up by human impressions and expressed by image form the combination of the pattern based on history. Beyond a maximum possible technical analysis there is another world of discipline of the mental power, that is to establish your philosophy.
The candle patterns must be believed in if you get signal, you must execute or follow the market very closely. Stay in touch with each candle signal. If you become disconnected, the psychology behind candle pattern will not work well.
Once you establish your trading policy, whatever you can believe based on the above explanations, you will not make a big mistake. You will be aware of mistakes in advance within an acceptable level of damage, as long as employing a proper trend analysis. If you had this policy you will be then not disappointed by any accident and will be able to understand this way the market is wrong, instead of you and your policy, in the case of the market being against you.
As you can see from this interview, Mr. Hikita thinks that the separation of candlestick charting and candle pattern analysis is important. Also, one cannot forget the underlying psychology behind each candle pattern. These are insights into the minds of the traders and speculators that move the market every day.
Mr. Hikita always referenced his trading analysis to dancing with the trend. Sound familiar? This concept is not new to technical analysis; however, many traders must graduate from the school of bitter experience before they realize its importance. Takehiro and I maintained contact often via fax; he passed away in the late 1990s.
My old friend Hikita-san contributed greatly when I wrote my book, “Candlestick Charting Explained.”
Dance with the Trend,