Munehisa Homma: The ‘Father’ of Price Action trading

Filed under: Learn Forex Trading |

Screen shot 2013-04-22 at 10.41.27Munehisa Homma is sometimes referred to as the father of the candlestick chart. It might have been Steve Nison who brought candlestick charts to the West from Japan, but in the end, Nison was merely a researcher, a translator, and an interpreter of the Japanese art of trading developed from Homma.

 

Munehisa Homma was a rice trader from Sakata in Japan, and he traded the Ojima Rice market in Osaka in the eighteenth century. Until the early eighteenth century, only physical rice was traded, but then the futures market began to develop, and coupons were traded which promised the delivery of rice at a future time. As such, coupon trading emerged and developed as a separate market. Homma exploited this and created a system whereby he created a network of workers to communicate market prices to him.

 

In 1755, Munehisa Homma wrote what is thought to be the first ever book on market psychology – entitled ‘The Fountain of Gold’. He proposed that the emotions of traders had a big impact on the price of rice, and that the psychological element of trading is crucial to any success as a trader. Other factors that Munehisa Homma considered when making trading decisions was the weather, and market volume, although the former would certainly not be a factors in today’s global market (as weather is variable all around the world whereas Munehisa Homma was trading in a market in just one specific area of Japan). However, this has parallels with the fundamentals of today’s market, and perhaps an extreme weather event that could affect the economy (such as the recent tsunami and earthquake in Japan) could be compared to this. Moreover, volume of course is something that many traders still use today in making trading decisions, so in this respect, Munehisa Homma was well, well ahead of his time.

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