By Tom Girard

US traders who interpret Japanese candlestick price charts say the ancient method is more visual and faster at portraying market turns than familiar Western techniques.

No emotion brings true signal," declares New York futures trader Oscar Carboni. This aphorism echoes wisdom worthy of a Zen master. However, the subject here is not searching for enlightenment, but reading an Asian style of price chart that traces back to 1700s trading at the Dojima Rice Exchange in Osaka, Japan. More than two centuries later, Japanese Candlestick charting finally has made the Pan-Pacific Journey onto the computer screens of Western traders. Few here had even heard of candles before the 1990s, but now they're available on most computer programs, with books and specialized software guiding devotees through a maze of patterns.

The candles offer an alternative to traditional bar charts simply by linking each period's open and close to form what is known as a "real body." High and low ranges can extend beyond the body but are considered just "shadows" of the more important open-to-close journeys. Price moves up and down are depicted by white versus black bodies, with some traders substituting red and green.

Vivid Portraits of Market Activity
Candlesticks render vivid portraits of what transpired during one period while a distinctive lexicon characterizes market behavior. A Rickshaw Man, Inverted Hammer, Spinning Top and Star are among the dozens of terms for individual candles. And then there are hundreds of patterns.

A Morning Star, for instance, is a major bottom reversal formed by three candlesticks. Some candles and patterns have Japanese names. A Long Opening Bozu Black Line occurs when the market makes its high on the open and closes much lower. It is also called a Yorikiri — a Sumo wrestling term describing how an opponent is pushed out of the ring while his belt is held.

Steve Nison is probably most responsible for bringing this intriguing approach to the West. His books, "Japanese Candlestick Charting Techniques" and "Beyond Candlesticks," are de rigueur reads for the initiate.

" I think we're going to do away with bar charts," he boldly predicted recently, but Nison would not go so far as to say when such a stunning prophesy might come true. As if to hasten that day, he frequently proselytizes. This fall, he is conducting seminars at the International Federation of Technical Analysts in San Francisco; the Milan, Italy, Technical Analysts Society; and at the Chicago Board of Trade.

And he also showcases candles for the general public through appearances on CNBC. At the end of July, he went on camera to review that month's six point plunge in the T- Bond futures — showing TV viewers "the eight lower lows" that took the market from a Life of Contract High of 116-06 to 109-27.

Tipped Off July Break
Nison's friend Bruce Kamich, who trades bond futures as senior vice president of New York-based MoneyWatch, told FT that the Japanese charts tipped off the July break with a "high-wave candle," which has long shadows but a small real body. That July 7 candle showed trading across three handles, with the high printed at 116-06 and a low at 114-09. The real body was formed between the open of 115-16 and the lower close at 115-10. Shadows extend above for 22 ticks and below for 33 ticks.

Kamich says that candles often illustrate market turns "faster than Western techniques" but this Chartered Market Technician still uses familiar technical gauges. He does watch candles intraday but not for periods shorter than 15 minutes, with 30 and 60 minutes preferable so the unique patterns "have a lot more time to develop." He notes that five- minute candles frequently have a lot of Dojis — where the open and close are identical or nearly so — that aren't necessarily significant.

Jonathan Lin, a Smith Barney Research Associate in New York, finds that 15-minute periods work well for such contracts as bonds, with five-minute candles suitable for very active periods. "It all depends on the instrument and the volatility," he concludes. Veteran T-Bond local Gino DiNuzzo now DiJNuzzo now utilizes candles in "his search for a methodology to to get off the floor" where he's been since 1980. He'll study candles — in periods as short five minutes — on the CBOT library computers and then slip out to place orders.

"For me it's so much more visual. It hits you right away," he says. "If you make higher highs but on down days (a real body showing the close below the open) you would see that instantly with candles, but on a bar chart that would not be as obvious." DiNuzzo combines candles with such other indicators as stochastics and the Commodity Channel Index.

Drawing on Artificial Intelligence
To assist traders in accurately identifying candle formations. Pacific International Trading Company of San Clemente, Calif., developed "The Candlestick Forecaster" computer program. It draws upon artificial intelligence to meld pattern recognition with such well-known technical indicators as stochastics and Williams %R. The program not only signals trades but tutors its users in candlestick terminology. Company co-founder Brad Matheny, who wrote the software, also incorporated analysis by Nison.

Bear Steams retail broker David Adier, a 30-year veteran of the futures and equity markets, has been routinely taking Forecaster signals for nearly two years. Describing himself primarily as a trend follower, Adier keys in a daily search of all futures markets for buy and sell recommendations. He then determines his own precise entry and stop loss points. The Chicago-based trader likes the software a lot but doesn't study the esoterica of candles.