by John Craciun
by John Craciun
Today, when you buy something, you receive a receipt while the seller keeps a copy.
The seller tallies the sales to get the total for the day. If he is a clever businessman, he looks at weekly/monthly reports for the industry he is in and at stock charts of companies like his to have an idea what goes on in his field and to guess whether the road ahead is clear. If he is different from most businessmen, he cares to look at charts of commodities related to the products he sells to see the big picture.
Looking at price charts as opposed to merely reading lists with numbers is possible nowadays because someone began to operate this way long before us in Japan some 200 – 300 years ago: he was a trailblazer who started the trend we ride on today. That man was a rice crop owner from whom generations of rice crop owners inherited a new way of thinking improving it as time went by.
At sowing time the crop owners knew their cost. It was easy for them to look at past sales numbers but it was not easy for them to accurately predict how the new sales numbers will be like for the upcoming months.
After a while someone realized he needed a separate system of forecasting retail sales prices in order to estimate potential profit over a period of 12 months until the next year’s crop harvest which in itself also carried some big question marks.
The separate system he invented was ‘futures contracts’ whereby he, together with other major crop owners interested in assessing future prices of rice crops, can buy/sell or short/cover contracts (a business agreement based on hypothetical retail sales receipts). Suffice to say the crop owner 200 -300 years ago looked at his daily retail sales numbers until he felt he needed for some kind of graphic to show him price trends of futures contracts clearly.
He discovered the price charts which not only record the daily retail sales but also allow for observing certain patterns that repeat through the years.
Why observe patterns? Simply put, to identify early not only sales pattern frequency, regularity or irregularity but also to detect unique, never before seen patterns.
I don’t know if Japanese buyers received receipts for their purchases from sellers 200 – 300 years ago (most likely not), but I know for sure that the sharp minds of crop owners invented Kagi, Renko and Three-line Break graphics to satisfy their recordkeeping and speculative price projection needs.
Whether the discovery of these charts was a spontaneous outburst of intelligence from one genius or the continuous improved design work from generations of crop owners is outside the scope now.
The buyers went home and prepared their rice meals; the crop owner went to his office to study the sales and costs for the day and also to project sales and costs into the future looking at futures charts. It was in his best interest to assess future supply/demand as it relates to current and past sales, supply and demand in order for him to serve the public fairly.
No Japanese crop owner worked in total isolation from other crop owners. They all began trading futures contracts among themselves to keep prices in check.
This way, the price charts became one of the ‘secrets of the rich’ and the ever expanding group of crop owners trading futures contracts became some sort of a secret, exclusive club. These were secrets which the buyers never knew existed and had no benefit to know. The buyers never worried about recording their purchases but crop owners had all the reasons to record and analyze costs, sales plus
anticipated earnings.
Besides that, the buyers never imagined they too can play the futures markets because they never had enough money to budget for it or knowledge based on facts to do so.
This is how Kagi, Renko and Three-line Break price charts and futures trading were born.
The charts were used as two separate sets: (1) proof of past retail buy/sell transactions and (2) recordkeeping for futures contracts prices paid for financial speculations, enabling crop owners to compare trend direction on the two different charts.
What is amazing about Kagi, Renko and Three-line Break is that they were not only distinct charting styles but also every one of them was a special Indicator and mechanical trading system rolled into one tool for crop owners and speculators – the number of whom began to swell – to buy/sell or short/cover futures contracts.
It’s a mystery which chart of the several old Japanese charting styles came first in history, but it’s no mystery that the same thinking which had produced them also preoccupied the mind of businessmen on the other side of the world: the Dutch international wholesalers.
Owning cargo ships crisscrossing the high seas for goods which can be sold profitably, The Dutch too realized they needed a system to record not only their costs and bulk merchandise purchases but also a system of anticipating future supply and demand for merchandises in their care. Times and public demand changes from the time goods are bought to the time goods are stored in warehouses at seaports and ultimately to the time when the goods are shipped to distributors.
The Dutch international wholesalers may have discovered the Bar chart to solve the same problems which the Japanese rice crop owners had already solved with Kagi, Renko and Three-line Break and may also have re-invented the system of futures contracts in order to keep prices under control and hedge their inventories.
Different from the old Japanese charts which remained the same once they were perfect, the Bar chart evolved to become the proverbial Pandora box: a vehicle for theoretical speculation feeding the fantasies of traders who want to buy/sell or short/cover at the best price at the best possible moment encouraged by more and more analysts who began inventing more and more trading concepts, Indicators, mechanical trading systems together with better and better trade and money management rules.
There was a very big difference between crop owners or big wholesalers who needed to hedge goods in their possession against big losses at delivery time and traders who only wanted to enrich themselves speculating in the futures markets without actually owning underlying inventories of any kind.
Today we all start learning to trade securities by deciphering the intricacies of the Bar or Line charts because the popularity of these two charting styles kept the old Japanese charts in the dark unjustifiably.
How many times have you been concerned about other chart styles when you were learning to trade securities with the help of Moving Averages on the Bar chart?
Kagi, Renko and Three-line Break were conceived a bit earlier than the Bar and Line charts, and their simplicity came to haunt us today. They enabled major Japanese crop owners and big Dutch wholesalers long time ago to keep track of sales and prices of futures contracts and also to speculate in the very commodity they produced. Their business became more secure this way, which is a great advantage no other profession has.
These days everybody has a choice of price charts because the charts are not secrets anymore: they allow armies of traders to ride on the back of large interests and on trends of public demand.
Kagi, Renko and Three-line Break exist in all trading software packages now in 2014 because my e-book – The Reversal Charts – completely resuscitated them in 2003.
Make sure you do not fall victim to your need to know when you can be the hero of actually doing (read: trading) because you may succumb to the complexities of the Bar / Line charts much easier than stay focused on the beauty, elegance and simplicity of the old Japanese charts, or won’t you?
Let me remind you that many private traders came to the securities markets only to leave them with the tail down because, unbeknownst to them, they in fact traded their hallucinations of riches for the harsh realities of the Bar charts. Maybe if they had learnt and traded by the rules of Kagi, Renko and Three-line Break from the very beginning of their career following in the footsteps of mega wealthy crop owners of yesteryears, they would still have been active today as fresh as the old Japanese price charts continue to be.
And another truth: in spite of many tempting innovations on Bar charts from 1900 on, none of the enlightened minds of the computerized cyber-age era has been able to come up with something which exceeds the quality of Kagi, Renko and Three-line Break charts so far.
Could it be because the enlightened minds of cyber-age pursue vain, selfish and undeserved illusions of profits with nothing to back them up while the enlightened minds of long-forgotten Japanese crop owners pursued serving the public with real commodities?
If you liked reading, you may continue to the author’s web site www.MarketTide.com, or you may directly purchase the latest edition of his ‘The Reversal Charts’ e-book copy from here:
Electronic delivery to e-mail, 310 pages, Adobe .pdf, US$ 74.95
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