{fullwidth}
The Power of Japanese Candlestick Charts by Fred K. H. Tam
1. Core Concept & Theoretical Foundation
Primary objective of this chapter: This is a practical, tools-focused chapter rather than a pattern-theory chapter. Its purpose is to solve a problem the book itself has been quietly building up since Chapter 4: with 10 single black/white candles, 7 doji, 4 Umbrella Group candles, 53 reversal patterns, and 14 continuation patterns (the author’s own running tally, restated directly in this chapter), manually spotting candlestick formations across multiple markets and multiple time frames is genuinely difficult — even for experienced practitioners. The chapter’s answer is software automation, specifically candle-pattern recognition tools developed by Steve Nison.
Historical context — completing the Nison narrative: This chapter gives the fullest biographical treatment of Steve Nison in the book. Nison revealed Japanese candlestick charting to the Western world in his 1991 book Japanese Candlestick Charting Techniques, after the technique had remained hidden outside Japan for over a century. He is credited with igniting Western interest in candlestick charting and is described as “the father of modern candlestick charting.” His credentials include an MBA in finance and investments, being among the first to receive the Chartered Market Technician (CMT) designation from the Market Technicians Association (MTA), and a nomination for the MTA’s “Best of the Best” award. His work has been featured in the Wall Street Journal, Barron’s, Institutional Investor, and Euroweek; he has spoken in 16 countries (including, by request, the World Bank and the Federal Reserve) and lectured at four universities. His early clients (via customized technical advisory and on-site seminars) included J.P. Morgan, Fidelity, Bank of New York, Goldman Sachs, Spear Leeds & Kellogg, Morgan Stanley, hedge funds, and OTC/NYSE market makers.
Underlying theoretical justification: Since the candlestick chart became the de facto standard for recording price action after 1991 (surpassing the Western bar chart in popularity), but very few candlestick-analysis software programs existed to keep pace with that popularity, Nison identified a clear market need: reduce the time needed to scan multiple markets/time frames for profitable candlestick setups from hours to minutes. This chapter frames automation not as a replacement for the pattern knowledge taught in Chapters 2–9, but as an efficiency multiplier on top of it — and, notably, as another form of the book’s core filtering philosophy, since Nison’s software explicitly combines candlestick pattern recognition (“East”) with Western technical indicators (“West”).
2. Key Terms & Definitions
| Term | Definition |
|---|---|
| Nison Candle Scanner (NCS) | Software designed by Steve Nison in 2013, built on the NinjaTrader Platform, that automatically scans multiple markets/time frames for pre-programmed candlestick patterns. Also available on the Trade Navigator and Tradestation platforms. |
| NinjaTrader Platform | A free technical analysis platform (down to daily charts) that the Nison Candle Scanner runs on; market-independent, analyzing stocks, futures, and forex markets worldwide; upgradeable into a full trading platform for a fee. |
| Nison Candle Highlighter | The equivalent tool designed for MetaTrader 4 users — since NCS itself is not available on that platform. |
| MetaTrader 4 (MT4) | An online trading platform (via www.metaquotes.net) providing brokerage services for forex, CFD, and futures markets; free, includes live data feeds, and is described as simple enough for beginners yet powerful enough for experienced forex traders. |
| Candlestick Pattern Filtering (NCS feature) | The core function of scanning a chosen market or market group for one or more of Nison’s 28 pre-programmed favorite candlestick signals, returning a list of markets currently showing that pattern. |
| Custom Chart Alerts (NCS feature) | A feature allowing a trader to select a market or group of markets and receive real-time alerts (pop-up window, audio alert, etc.) whenever a chosen candlestick pattern occurs, on any time frame. |
| Steve’s 28 Favorite Candle Signals | The specific, curated list of pre-programmed patterns available for scanning/alerting within the Nison Candle Scanner (the chapter shows examples such as Bullish/Bearish Engulfing, Hammer, Inverted Hammer, Shooting Star, Piercing Line, Bull/Bear Harami, Bull/Bear Sash, Bull/Bear Separating Line, Tweezers Bottom, Rising/Falling Window, Morning/Evening Star, Rising/Falling Three Methods, Three White Soldiers/Three Black Crows, Doji, High Wave). |
3. Anatomy, Rules, & Construction Mechanics
(This chapter has no candlestick construction rules of its own — it reuses every pattern already defined in Chapters 2–9. Its “mechanics” are entirely about how to operate the software.)
Nison Candle Scanner — Candlestick Pattern Filtering (4-step workflow)
- Select pattern(s): Pick one or more of Steve’s 28 pre-programmed favorite candle signals (example given: Bullish Engulfing Pattern).
- Select market scope: Choose a single market or market group to scan (e.g., the S&P 500, the Dow stocks, or a custom personal watchlist of tracked markets).
- Review results: All markets currently displaying the selected pattern populate in a quick pick list.
- View and confirm on chart: Clicking a specific market (example given: MMM/3M) opens its chart with the matched pattern automatically highlighted.
Nison Candle Scanner — Highlighting Patterns on Charts
- Beyond filtering across markets, NCS can also scan a single stock/market’s chart across a chosen time frame and label every candlestick pattern that appears on it.
- Two display modes: full pattern name, or an abbreviation (e.g., “+E” / “–E” for bullish/bearish Engulfing, “+P” / “–P” for Piercing, “+H” for Hammer, “–DC” for Dark Cloud Cover) — clicking an abbreviation reveals the full pattern name in the lower-left corner of the screen.
Nison Candle Scanner — Custom Chart Alerts (4-step workflow)
- Select signals to track: Pick any (or all) of the preprogrammed Nison candle signals to automatically monitor.
- Customize alert delivery: Configure via pop-up window, special audio alerts, etc.
- Select markets to track: Choose which specific markets NCS should monitor for those signals.
- Receive alerts: Get notified immediately whenever a tracked signal occurs on any tracked market, in any time frame.
- Colour convention: Bullish (bull) candle signals are displayed in green; bearish (bear) candle signals are displayed in red.
Nison Candle Highlighter (MetaTrader 4 version)
- Functionally mirrors NCS’s core capability — finds Nison’s favorite candle patterns automatically — but built specifically to run on the MetaTrader 4 platform for forex traders.
- Same dual capability as NCS: (1) find all markets currently showing a specific pattern, and (2) identify all patterns appearing within a specific time frame on an individual chart.
- Uses the same abbreviation-labeling convention as NCS (e.g., “+P,” “+H,” “–DC,” “–E” visible directly on the price chart).
4. Practical Trading Application
Core practical benefit — time savings: The single most repeated practical claim in this chapter is that NCS/Nison Candle Highlighter reduces the time needed to find profitable candlestick-based trade setups from hours to minutes, particularly valuable for traders monitoring multiple markets across multiple time frames simultaneously.
Recommended workflow implied by the chapter:
- Use Candlestick Pattern Filtering proactively — instead of manually scanning charts one by one, define the specific pattern(s) you already know you want to trade (from your Chapter 2–9 pattern knowledge) and let the software surface every market currently showing that setup.
- Use chart highlighting to visually confirm the software’s pick — this doesn’t replace your own pattern-recognition judgment, it accelerates and double-checks it.
- Use Custom Chart Alerts for ongoing monitoring — rather than continuously watching charts, set alerts on your preferred patterns and preferred markets so you’re notified the moment a setup forms, in real time, on any time frame.
Platform selection guidance (practical/logistical advice):
- Stock, futures, and general multi-asset traders: use the Nison Candle Scanner, available on NinjaTrader (free), Trade Navigator, or Tradestation.
- Forex/CFD traders specifically on MetaTrader 4: use the Nison Candle Highlighter instead, since NCS is not built for that platform.
Connection back to the book’s filtering philosophy: The chapter explicitly frames Nison himself as “an acclaimed Western technical analyst” who teaches students to combine candle charts with the best Western technical indicators — directly reinforcing the Rule of Multiple Techniques / filtering approach that has run through Chapters 6–9. The software is presented as a practical delivery mechanism for that same philosophy, not a separate concept.
Implicit risk-management note: While the chapter does not add new stop-placement or confirmation rules of its own, it implicitly assumes that once a pattern is flagged or highlighted by the software, the trader still applies the same confirmation logic, trend-filtering, and risk-management rules taught in Chapters 4, 5, and 7 — the software finds and highlights the pattern; it does not replace the trader’s judgment about whether or how to act on it.
5. Active Recall Quiz
-
What year did Steve Nison publish the book that first revealed Japanese candlestick charting to the Western world, and what is the title of that book?
-
What specific problem does the chapter identify as the main motivation for candle-pattern recognition software — stated using the exact pattern-count figures the author has been tallying throughout the book?
-
Walk through the four-step workflow for using the Nison Candle Scanner’s “Candlestick Pattern Filtering” feature, from selecting a pattern to viewing it confirmed on an individual chart.
-
Which software tool should a forex trader on the MetaTrader 4 platform use instead of the Nison Candle Scanner, and why can’t they use NCS directly?
-
According to the chapter, what is the single biggest practical benefit NCS provides to a trader monitoring multiple markets and time frames — expressed in terms of time saved?