Today’s Review is Steve Nison’s Candlecharts.com
Who’s Steve Nison? Steve Nison is regarded as the first westerner to present the idea of candlestick charting into the western world. His first publication,”Japanese Candlestick Charting Techniques: A Contemporary Guide to the Ancient Investment Techniques of the Far East” was initially released way back in 1991. This was an immediate feeling. The basic story line is that early Japanese rice dealers would utilize this kind of graph making to translate current rates, which this interpretation could then forecast future price moves. There’s a little bit of controversy over whom really invented the thought and theories behind Japanese candlestick graphs, some say it was a samuraiothers say that it was a super secret and historical culture of Western mystics that lived up high on Mt. Fuji. And after a year, these mystics would travel down from their key mountaintop lair, and speculate on the purchase price of rice. They’d carry with them early rice paper scrolls with markers which non besides the mystics could translate. Their interpretation of these key symbols let them control the purchase price of rice, and if you understand the Japanese, whomever controls that the rice is are quite strong indeed.
Of course, all of this mystical and mythical rice trading samurai stuff is entertaining to read and contemplate. Us westerners, when we think of anything Japanese, we tend to think of something well engineered, and a society that is very old. If you search on the internet, where all of the truth in the world currently resides (that was supposed to be funny), you can find hundreds of variations on how candlestick trading came into existence. And whom actually introduced it to westerners. Steve Nison claims to be “the guy”, there are some other guys as well, that claim that Steve wasn’t the first guy, etc. But really, who cares whom was first? The real issue is whether any of this candlestick charting stuff is statistically valid.
All Things Japanese
How did Japanese candlestick charting become such a popular concept? All popular modern charting packages now include Japanese candlestick charting. This inclusion leads us to assume that it must be a valid idea simply because it is included as a standard charting feature. But why? And how did it become such a powerful concept? The Japanese candlestick, is really just a pop culture phenomenon that was born out of the 1980’s. Many of you reading this were perhaps not even born in the 1980’s, and many more were not even introduced to financial trading until the 2000’s. So what gives? Let me explain…during the 1970’s and 1980’s, the Japanese completely revolutionized industrial manufacturing. They introduced ancient concepts of group cooperation, lean and highly efficient manufacturing methods, as well as the concept of “kaizen” which means constant improvement by monitoring results. In short, they completely kicked our asses at making stuff. They made better cars, better radios, better TV’s, better toys, better everything. During this period, they completely kicked the Americans asses at manufacturing everything. After they kicked our asses at manufacturing, they began flexing their little Japanese muscles and began buying up real estate in the US. They went on a massive buying spree and began buying just about everything in sight. Rockefeller Center, major hotels, large swathes of commercial real estate. They were considered our superior, it become such a problem that during the late 1980’s a number of US politicians even wanted to limit the amount of real estate that Japanese nationals could purchase. And the real kicker was that the Japanese stock market was essentially doubling every 12 months, their economy was exploding while ours languished and our manufacturing base shrank.
All of this created a cultural phenomenon where anything Japanese was considered to be comparatively better than its American counterpart. American society became fascinated with all things Japanese. We craved to learn everything we could about the Japanese. In US universities, international business degrees that emphasized Japanese were highly popular. This fertile ground, during the 1970’s and 1980’s set the stage for other areas of Japanese culture and learning to take root. Some of these things include Karate, Japanese as a second language, Sushi Restaurants, Ninja’s, and yes…even candlestick charting for the financial markets.
Steve Nison captured a cultural wave at just the right moment. He awakened that social zeitgeist to its entire effect. He also published his first publication in 1991 that enabled western dealers to embrace a supposedly superior kind of technical evaluation that was proven over hundreds of years of usage by the samurai and the mystics. In summary, he had impeccable timing.
After he released his first book, traders obviously wanted . And they desired a deeper and better understanding and practical application to contemporary markets. Published 1994. This book took matters to another level.
After 1994, the trading community of educators, guru’s, advisories, applications suppliers, etc. all captured on the proceeds that Steve had been banking. They immediately flooded the marketplace with their own variations of Steve’s unique publication. All kinds of permutations of all Steve’s theories exploded on the scene. All of Steve can do was hinting he was the very first, the first, and he had been the ideal.
No Back Testing Software
Its important to note that during the release of Steve Nison’s books, and the ensuing avalanche of promoters looking to cash in on candlestick charting, there was no commercially viable back testing software available for the general public. There was no TradeStation, Ninja Trader, Multicharts, Trade Navigator, or any of the other 50+ trading platforms that now allow back testing of trading ideas. If modern back testing software were available at the time that Steve Nison released his books, then his ideas would of come under much closer scrutiny, and it would of happened quickly. Instead, the idea of Japanese candlesticks had instead been allowed to run free from scrutiny and establish itself as a valid and reliable trading concept. To date, there are literally hundreds of published books, articles, training courses, software, advisories, trading systems, ebooks, websites…all focusing on Japanese candlestick charting.
Diffusion Of Innovation
Most of my readers are not familiar with a scientific concept described as “Diffusion Of Innovation“, which was published back in 1962. The basic concept is that anytime something new and innovative is introduced into a culture, then the rate of that innovation and its practical application will quickly expand to a saturation level, and then the original concept begins to lose whatever benefit was enjoyed by the innovator and the early adopters.
In practical terms, the concept of Japanese candlesticks is now a very old concept, in terms of its introduction into our modern markets. Knowing that financial markets are highly efficient, we can assume that whatever the initial benefit that Japanese candlesticks had, should now be diffused and no longer contain much of a market edge.
Getting Closer To The Truth
Within the previous ten decades, just about any back testing program application now includes the capability to just set an index on a graph, then immediately back test the index within various time frames. Especially, over the previous five decades, we’ve reached a significant level where many trading platforms have eliminated the programming aspect entirely in the ordinary consumer. Ninja Trader comes with an add on seller named Bloodhound that eliminates Caltogether and enables quick testing of each and every graph pattern in the candlestick world class. Nevertheless, the entire king of dumb simple trading platforms at Trade Navigator.
Trade Navigator has eliminated the programming language entirely . If you’re able to talk English, then it’s possible to write approaches. And because each the Japanese candlesticks are simple to explain, subsequently Trade Navigator is undoubtedly the simplest to use for rear testing pretty much any thought.
In reality, all Steve Nison’s candlestick trading thoughts and patterns have been programmed to Trade Navigator. You can read more about it here.
A number of my readers aren’t aware that I now use just Trade Navigator since its dumb simple and that I will program any thought at no cost, without needing to know a programming language and also cope with third party vendors for assistance. I managed to build out each Steve’s candlestick patterns in just a couple of hours.
Back Testing Steve Nison Candlestick Patterns
So what did I find? Well, actually not much. I found that the bullish candlestick patterns in the overall stock market were generally pretty good buy signals. However, the stock market has basically only gone up since 1852, and so all technical indicators have worked for buy signals, regardless of whatever form of analysis you had applied to a chart. You could of purchased the stock market every time your pet monkey took a crap, and it would of been as effective as a candlestick pattern. However, when applied individually to stocks, there is absolutely no edge whatsoever. In fact, I ran over 500,000 variations and permutations of Steve’s most bullish patterns, on individual stocks and it proved worthless. I couldnt even optimize my way into a winning strategy. Some of my favorites were the stocks that blew up post dot com bubble. Steve’s bullish patterns would of destroyed an account. Or some of the companies that blew up during the 2007-2008 financial crisis. In particular, I am still waiting for that bullish engulfing pattern to bail me out of that losing position in Washington Mutual, or Bear Stearns. What about intraday charts? Is there anything predictive about any of these patterns using a 5 minute, 15 minute, 3 minute, or tick chart? Nope. No edge. But of course, these are my results. And your results could be much different than my results.
What should you do? I recommend that you prove me wrong. Get your hands dirty. Grab your back testing platform, and start testing these ideas for yourself. You should not take my word for it. You should get your hands dirty and enjoy the satisfaction of uncovering that a concept is valid, or not valid. By testing your own ideas, it will set you free. Free from the non stop roller coaster of searching for the latest and the greatest indicator that someone sold you, and promised that this would be the last indicator package that you would ever need.
Empower yourself. If you have Tradestation and cannot understand Easy Language, and how to quickly test indicators and ideas…then dump it! If you are using Ninjatrader and you are tired of getting stuck attempting to backtest using C#…then dump it. I am not going to convince you to try one back testing software program over another, but I can tell you from experience that if you are not a programmer and you want to empower yourself, then look at the Trade Navigator platform. Its so stupid simple that one eyed orangutan can quickly back test an idea. Enough hammering you on learning to do your own research. Lets jump back to Steve Nison and the validity of his ideas.
What About Steve Nison?
Steve Nison has two websites. The Candlecharts.com website has been functioning and active since the year 2000. The CandlechartsAcademy.com website has been in operation since 2012. You will notice that on neither of these sites is any trading performance of Steve Nison. Sure, there is plenty of fancy stuff about how Steve lectured lots of big players: the Fed, the World Bank, Goldman Sachs, etc. But what does that really tell us? Nothing. It tells us nothing and it means absolutely nothing. It is nothing more than a red herring, a distraction to divert our attention to whether Steve Nison actually trades. Does he eat his own cooking? Has he ever been able to convert his knowledge of candlestick charts into a winning month or year? I was curious. And so I emailed him and asked.
Steve Nison reacted with the typical crap that long time ace’s appear to use. He responded that he doesn’t disclose any private trading details. This with his distinguished standing he no longer have to show himself. He informed me that he had been the very first to present the Japanese graphs to western dealers. Things have shifted. Folks want transparency. Can you trade Steve? No response. Can you have a trading accounts Steve? No response. In reality, the more you try to corner this man, the more quiet he or she becomes. He knew fairly quickly I wasn’t a buyer. Buyers do not ask the embarrassing questions. Searching for someone, anyone to help them locate the sacred fountain of unlimited trading gains. Steve knows it does not exist, and thus take action, but a lot of you reading this are still wondering whether it actually exists.
Occasionally these trading figures actually drive me nuts. How can anyone send one or more one of these men a cent without verifying what they’re offering has some type of statistical advantage, or provides any kind of trading edge.