Japanese Candlestick Charting Techniques Review: Steve Nison's Candle Classic

The Book That Replaced Bar Charts with Candlesticks

Before 1991, most Western traders used bar charts. Steve Nison's Japanese Candlestick Charting Techniques (originally 1991, 2nd edition 2001) introduced the Japanese candlestick charting system — which has since become the default chart format on every modern trading platform.

Short answer: Essential reading for any chart-based trader. Nison's work defined how Western traders interpret candles. 2nd edition updates the original with 10+ years of pattern validation. Every candlestick pattern your trading platform displays traces back to this book.

What Are Candlesticks vs Bars

Bar chart: Vertical line with tick marks for open + close. Easy to draw by hand.

Candlestick: Colored body (green/red based on close vs open) with wicks. Visually shows: body (open vs close), upper wick (high), lower wick (low). Body color (filled vs hollow) indicates bullish/bearish.

Candlesticks convey the same data as bars but with more immediate visual impact. Humans process color + shape faster than tick marks.

Nison's Key Patterns Explained

Bullish reversal patterns:

• Hammer (long lower wick)
• Inverted hammer (long upper wick)
• Bullish engulfing (green body engulfs prior red)
• Morning star (3-candle pattern)

Bearish reversal patterns:

• Shooting star
• Hanging man
• Bearish engulfing
• Evening star

Continuation patterns:

• Rising/falling three methods
• Windows (gaps)
• Doji stars

Indecision patterns:

• Doji (open = close)
• Spinning tops (small body, large wicks)

Nison's book covers 50+ patterns with historical Japanese origins + statistical validation.

Why Japanese Candlesticks Work

Japanese rice traders in the 1600s-1700s developed candles to visualize supply and demand. The patterns emerge because:

• Bodies show where the power was (bulls vs bears during the session)
• Wicks show rejection points
• Color + body size together tell a story

Modern traders have validated these patterns with statistical testing. Many hold up; some don't.

What the Book Does Well

• Original source for Western candle knowledge
• Historical context (rice traders, rice markets)
• Specific pattern rules with confirmation criteria
• Real chart examples
• Combines candles with Western analysis (moving averages, RSI)

What Requires Caution

• Not every pattern in the book has statistical edge
• Some patterns work only in trending markets
• Many patterns have been automated into platforms
• Confirmation (volume, other indicators) is essential

Who Should Read

Strong fit:

• Anyone using candlestick charts (essentially all modern traders)
• Technical analysis students
• CMT exam candidates
• Day traders + swing traders
• Intermediate charting practitioners

Less ideal:

• Fundamental-only investors
• Passive index investors
• Those seeking basic intro (start with Murphy first)

Compared to Murphy's Technical Analysis

Murphy: Comprehensive TA reference (everything) Nison: Candlestick-specific deep dive

Both are essential for serious chart traders. Read Murphy first for foundation, Nison second for candle mastery.

Pros and Cons

Pros: Source material for Western candle knowledge, 50+ patterns with historical context, 2nd edition adds 10 years validation, combines Japanese + Western analysis, clear chart examples, enduring relevance

Cons: 2001 edition — some examples dated, not every pattern statistically significant, requires existing TA familiarity, 300+ pages is time commitment, pattern recognition software has automated much of this

FAQ

Where do candles come from? Japan, 1600s rice traders. Nison researched + documented the tradition.

Are all patterns still valid? Most yes, some have weakened. Modern high-frequency trading has changed some pattern behaviors.

Best for beginners? Not first charting book. Start with Murphy's Technical Analysis; graduate to Nison.

Nison's other books? Beyond Candlesticks, Profits in the Stock Market. Supplement the first book.

Does this work for crypto? Yes — 24/7 markets + human psychology = same patterns.

Bottom Line

Japanese Candlestick Charting Techniques is the candle reference. Nison's work defined how Western traders interpret every candlestick chart they see. Mandatory for serious chart traders.

Our rating: 4.7/5 — Docked for 2001 edition dating and not-every-pattern-validated reality. Within candlestick charting category, foundational.