Introduction:

The stories of market greats have always been a source of hope for traders in forex education topics. In today’s article, we will talk about the story of a man who invented candlestick charts and patterns, who, in my opinion, is the father of technical analysis and price action trading. Known as the “God” of the markets in his time, he is none other than Monhisa Homma, a trader in the Japanese rice market. Munhisa Huma lived from 1724 to 1803, and if only half of the stories told about him are true, he can be considered one of the greatest traders in history, and we can learn a lot from him.

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Samurai trader

It is said that Huma managed to get the equivalent of 10 billion dollars today through trading in the Japanese rice market. In fact, he was a very skilled and experienced trader and at that time served as one of the important financial advisors in the Japanese government and was later promoted to the rank of honorary samurai.

I think we can learn some valuable lessons from someone who is so master of trading that he has risen to the rank of samurai. It is said that he once managed to make 100 successful transactions in a row. In any case, if we ignore the amazing stories that have been told about him, Huma invented technical analysis at a time when no one knew about price action and market analysis, and therefore he can be considered one of the geniuses of the market whose legend is still alive. Is.

Huma recorded the price movements of the rice market on paper made from the rice plant. Every day, with great effort, he drew price patterns on paper and determined the opening, closing, high and low prices of each day. Over time, Huma noticed recurring patterns and signals in the price bars he drew and gave each of those patterns a name, including some famous candlestick patterns that you may be familiar with, such as the morning and evening stars, dojis, and the hanging man. Etc. Each of these patterns conveys a specific meaning and meaning, and Huma uses them to predict the future direction of the price of rice.

Some of you readers of this article may still have doubts about the efficiency and effectiveness of trading with price action, but keep in mind that the rules of price action were used centuries ago by Homa and other traders and are still relevant in today’s markets. I don’t think there is any trading method, system or robot that is as reliable as Price Action and has been successful for a long period of time and under different conditions. Perhaps Huma didn’t use the term “price action” at the time, but he still traded based on price action and market price behavior, and was the first to recognize the benefits of focusing on past market price movements in order to predict future price movements. found out

Price action reflects market psychology

Huma, in his book titled “The Source of Gold – A Note of Three Monkeys on Money” written in 1755, states that the psychological aspect of the market is very important for success in trading and the emotions of traders are very influential on the price of rice. He goes on to explain that considering this issue, when all the traders are selling and the market is falling, you can enter into a buying transaction, because at that time there is a reason for the price to rise and increase (and vice versa for upward trend).

In other words, Huma was the first to realize that by following market price behavior, he could “see” the behavior and emotions of other market participants and use it to his advantage. As this is related to the price action strategies I teach, it means that when a candlestick appears with long shadows after a large, sharp move up or down, for example, it can be a sign that a move is about to begin. Big in the opposite direction. I think Huma was the first person to trade with pinbars signal and I’m sure she was overjoyed when she realized the power of this signal.

According to what Huma wrote in his book, he probably used trend line breaking strategies. I’m sure Huma also recognized the patterns I teach in the market, which sometimes form at major pivot points and by the entry of the last traders in the direction of the recent trend. This tendency of people to rush to the market when they “feel” safe has probably existed since the time of Houma around 1700 AD and has not changed over the centuries. Huma probably realized this after his research on price action. Often times, by logically analyzing price action, we can find very likely entry points, while other market participants mostly trade emotionally.

If Huma were alive now, he would definitely confirm that a deal that “feels” is “definite and certain” usually goes wrong. Perhaps Huma understood this better when he was able to see traders’ sentiments through price action patterns.

Trend has been your friend for over 250 years, so don’t fight it!

In his book, Huma describes the rotation of upward (Yang) and downward (Yin) trends and says that within each type of trend, there is another type of trend. Today, I call it the fractal view.

Traders friendly trend

I can only imagine how good it felt for Huma to see the price she drew on paper move along a trend. He must have been very happy and excited when he realized that trading in the direction of the trend is the easiest way to earn profit and income from the rice market.

Today, trend trading is still the easiest way to trade, but traders are constantly trying to go against the market trend. Simply put, there must be a reason behind every strong trend, so it makes no sense to try to trade against it. Huma was the first to find probable and valid entry points in the direction of the market trend through simple price action patterns. This method has worked for over 250 years, but why many traders still do not accept it and fight the trend and complicate their trades, I have no reason for it.

Mirrors don’t lie

During his lifetime, Huma wrote several books that are apparently out of print today, but the candlestick patterns he explained in his book became known as the Sakata Rules. These Sakata rules form the basis of today’s candlestick charts, and for this reason, most of the explanations and content written by Huma in his books are still applicable today. It is no surprise to me that the most successful trader in history made his trades based on price action analysis. What Huma managed to discover, and what many of us know, is that price movements on a blank chart reflect all relevant market information.

Everything you need to find a successful entry point in any market is in a simple price chart. If you want to see your image, you stand in front of a mirror and watch yourself, and for this purpose you don’t put a hat or a paper bag on your head. Similarly, if you want to see what is happening in the market, just look at the price chart.

Munhisa Huma discovered this simple truth over 250 years ago, and to this day, many traders, including myself, still use price action rules to trade the market. If you want to learn how I trade price action patterns and learn how to trade using the same concepts that have been used by Huma and many other traders for centuries, they never get old or lose their effectiveness.