The Greatest Trader of All Time Is Probably Not Who You Think It Is.

He lived from 1724 to 1803 and even if half of the legends about him are true, he was by far one of the most amazing traders in history and we can learn a lot from the stories that surround him.

I'm show you the man who invented the candlestick chart, candlestick trading patterns, and whom I consider to be the “father” of technical analysis. You should probably listen to a “Samurai trader”

Homma is rumored to have made the equivalent of $10 billion in today’s dollars trading in the Japanese rice markets. In fact, he was such a skilled trader that he served as an important financial advisor to the Japanese government at the time and was later raised to the rank of honorary Samurai. I don’t know about you, but I think it’s pretty safe to say we can learn something from a guy who was such a great trader that he become a Samurai because of it, to me that is really cool. Rumor has it that he once had 100 profitable trades in a row/ Granted there’s a bit of an advantage when you are basically the “inventor” of technical analysis and no one else really knows about it yet but clearly Homma was a force to be reckoned with in the markets and his legend lives on today.

Homma began recording price movements in the rice market on paper made out of rice plants. He laboriously drew price patterns on his rice parchment paper every day, recording the open, high, low and close of each day. Homma began seeing patterns and repetitive signals in the price bars he was drawing and soon started to give them names, including some of the popular Japanese Candlestick Patterns you are probably already familiar with like Spinning tops, Stars, Doji, Hanging Man and others, each pattern clearly conveyed a specific meaning and Homma began using these patterns to predict the future direction of rice prices.

The discovery of the price action patterns left behind by the movement of rice prices gave Homma a huge advantage over other traders in his day, and combined with his passion and skill for trading, this advantage is what allowed him to become one of the most successful traders ever, if not thee most successful trader ever.

To any of you reading this who may still be “on the fence” about the relevancy and effectiveness of Japanese Candlesticks, consider the fact that it was used centuries ago by Homma and others and it’s still effective in today’s markets. I cannot think of any other trading method, system, indicator or robot that has been effective for that long and stood the test of time as pure candlesticks have.

Whether or not Homma knew the term “technical analysis” in his time is irrelevant, he was clearly trading from the pure price movement of the market and he was the first person who realized the advantages of focusing one’s attention on a market’s price movement to predict its direction using his candlestick patterns.

In Homma’s book “The Fountain of Gold – The Three Monkey Record of Money”, which he wrote in 1755, he says that the psychological aspect of the market is critical to trading success and that traders’ emotions have a significant influence on rice prices. He notes that this can be used to position oneself against the market when all are bearish, because at that time there is cause for prices to rise (and vice versa).

In other words, Homma was the first trader to realize that by tracking the price in a market he could actually “see” the psychological behavior of other market participants, and make use of it. As it relates technical analysis, this could mean for example that after a large run up or down in a market a long-tailed pin bar signal can give rise to a large move in the opposite direction. I imagine that Homma was the first person to trade a Blip pattern and I’m sure when he realized the power of the signal he got goose bumps all over his body.

Homma also probably took advantage of false break trading strategies by the sounds of what he wrote in his book. I'm calling them traps from now on because that's what they are, a trap. I’m sure that he quickly identified patterns similar to what I teach.

In essence, Homma was the first true “contrarian” trader and this is why he is one of my heroes to this day. Using the price action of the market and logical thinking, we can often find high-probability entries into the market while most other market participants are stuck in a cycle of trading mainly with their emotions and from what makes them feel good.

Homma would definitely agree that what “feels” like the “surest” trade is often the wrong one, and once he could start to see the emotion of market participants via candlestick price patterns, this likely became very obvious to him.

Homma described the rotation of Yang (bull market), and Yin (bear market) and claims that within each type of market is an instance of the other type.