Beyond Candlesticks: New Japanese Charting Techniques Revealed

by Steve Nison

Quick Summary

Steve Nison, who introduced Japanese candlestick charting to the Western world, reveals additional Japanese technical analysis techniques that go beyond candlesticks. The book covers three-line break charts, renko charts, and kagi charts -- visual methods that filter out noise and highlight significant trend changes. Nison explains the construction, interpretation, and practical application of each technique, providing a valuable expansion of the Western trader's technical toolkit.

Detailed Summary

Steve Nison's "Beyond Candlesticks" is the sequel to his groundbreaking "Japanese Candlestick Charting Techniques." Having introduced candlestick charting to Western audiences, Nison turns to three additional Japanese charting methods that were even more obscure to non-Japanese practitioners: three-line break charts, renko charts, and kagi charts.

Part One expands on candlestick analysis itself, providing additional patterns, interpretations, and refinements not covered in the first book. This includes deeper discussion of candle colors in context, market harmony signals (where multiple candle patterns align), and the integration of candlestick analysis with Western technical tools.

Part Two introduces three-line break charts, which filter price action by only recording a new line when price exceeds the high or low of the previous three lines. This eliminates the noise of minor fluctuations and produces clean visual signals of trend reversals. A new white (bullish) line after a series of black (bearish) lines signals a turnaround, and vice versa. Nison explains the construction methodology, interpretation guidelines, and shows how to combine three-line break signals with candlestick analysis and Western indicators.

Part Three covers renko charts, which use fixed "brick" sizes to filter price movement. A new brick is added only when price moves by the predefined amount. Like three-line break charts, renko charts eliminate time and minor price noise, focusing exclusively on directional price movement of sufficient magnitude. Nison discusses optimal brick-size selection, trend identification, support and resistance on renko charts, and trading strategies.

Part Four presents kagi charts, which alternate between thick and thin lines based on price reversals exceeding a predetermined threshold. The shift from thin to thick (yang to yin transition) signals a potential trend change. Kagi charts are particularly useful for identifying medium-term trend changes and support/resistance levels.

Throughout, Nison draws on his extensive relationships with Japanese technical analysts, including Hiroshi Okamoto (Nomura), Yasuhi Hayashi (Sumitomo Life), and Yoji Inata (Reuters), who provided insights and corrections to ensure accuracy. The MetaStock software is used for chart illustrations, with data from Dial-Data.

The book includes practical exercises and discusses how to combine these new charting methods with each other and with traditional Western and candlestick techniques for a more complete analytical picture.