The Most Successful Price Action Trader in History: Munehisa Homma
Today’s article is going to focus on the man who invented the candlestick chart, candlestick trading patterns, and whom I consider to be the “father” of price action trading and technical analysis. In the past I’ve written an article on the market wizards, but today’s article is about one incredible man who was known as the “God” of the markets in his day; Japanese rice trader Munehisa Homma. He lived from 1724 to 1803 and even if half of the legends about him are true, he was by far one of the most amazing traders in history and we can learn a lot from the stories that surround him.
Homma is rumored to have made the equivalent of $10 billion in today’s dollars trading.
You should probably listen to a “Samurai trader”
Homma is rumored to have made the equivalent of $10 billion in today’s dollars trading in the Japanese rice markets. In fact, he was such a skilled trader that he served as an important financial advisor to the Japanese government at the time and was later raised to the rank of honorary Samurai. I don’t know about you, but I think it’s pretty safe to say we can learn something from a guy who was such a great trader that he become a Samurai because of it, to me that is totally cool in what is probably a semi-nerdy kind of way. Rumor has it that he once had 100 profitable trades in a row….granted there’s a bit of an advantage when you are basically the “inventor” of technical analysis and no one else really knows about it yet…but clearly Homma was a force to be reckoned with in the markets and his legend lives on today.
Homma began recording price movements in the rice market on paper made out of rice plants. He laboriously drew price patterns on his rice parchment paper every day, recording the open, high, low and close of each day. Homma began seeing patterns and repetitive signals in the price bars he was drawing and soon started to give them names, including some of the popular Japanese candlestick patterns that you are probably already familiar with like Spinning tops, Stars, Doji’s, Hanging Man and others, each pattern clearly conveyed a specific meaning and Homma began using these patterns to predict the future direction of rice prices. The discovery of the price action patterns left behind by the movement of rice prices gave Homma a huge advantage over other traders in his day, and combined with his passion and skill for trading, this advantage is what allowed him to become one of the most successful traders ever, if not thee most successful trader ever.
To any of you reading this who may still be “on the fence” about the relevancy and effectiveness of price action trading, consider the fact that it was used centuries ago by Homma and others and it’s still effective in today’s markets. I cannot think of any other trading method, system, indicator or robot that has been effective for that long and stood the test of time as pure candlestick price action trading has. Whether or not Homma knew the term “price action” in his time is irrelevant, he was clearly trading from the pure price movement of the market and he was the first person who realized the advantages of focusing one’s attention on a market’s price movement to predict its direction.
Homma realized price action reflects market psychology, and used it to his advantage
In Homma’s book “The Fountain of Gold – The Three Monkey Record of Money”, which he wrote in 1755, he says that the psychological aspect of the market is critical to trading success and that traders’ emotions have a significant influence on rice prices. He notes that this can be used to position oneself against the market when all are bearish, because at that time there is cause for prices to rise (and vice versa).
In other words, Homma was the first trader to realize that by tracking the price action in a market he could actually “see” the psychological behavior of other market participants, and make use of it. As it relates to the price action strategies that I teach, this could mean for example that after a large run up or down in a market a long-tailed pin bar signal can give rise to a large move in the opposite direction. I imagine that Homma was the first person to trade a pin bar signal and I’m sure when he realized the power of the signal he got goose bumps all over his body.
Homma also probably took advantage of false break trading strategies by the sounds of what he wrote in his book. I’m sure that he quickly identified patterns similar to what I teach as the fakey setup and saw that they sometimes form at major market turning points just as the last market participants have finally committed to a direction. The tendency of people to jump into a market when it “feels” safe has probably been around ever since Homma’s trading days back in the 1700’s, and it has not changed over the centuries. Homma probably realized this as it’s very evident by studying the price action of a market and using a big of logic and commonsense. In essence, Homma was the first true “contrarian” trader and this is why he is one of my heroes to this day. Using the price action of the market and logical thinking, we can often find high-probability entries into the market while most other market participants are stuck in a cycle of trading mainly with their emotions and from what makes them feel good.
Homma would definitely agree that what “feels” like the “surest” trade is often the wrong one, and once he could start to see the emotion of market participants via candlestick price patterns, this likely became very obvious to him.
The trend has been your friend or over 250 years, so stop fighting it!
Homma described the rotation of Yang (bull market), and Yin (bear market) and claims that within each type of market is an instance of the other type.
I can only imagine the amazement that Homma must have felt when he started to see price trends emerge over his years of drawing price patterns on his rice parchment paper. It must have instantly set off a euphoric feeling in him because he likely realized very quickly that trading with the trend would be the easiest way to make money in the rice markets.
To this day, trading with the trend is still the easiest way to trade. Traders try to fight it by continuously trying to pick tops and bottoms, but trend-trading has long been the easiest way to make a lot of money in the markets. Simply put, there’s a reason for strong trends, so it’s illogical to fight the trend. Homma was the first trader to be able to identify high-probability entry points in a trending market via simple price action patterns. This method has worked for literally over 250 years, and why so many traders still try to fight it and over-complicate it is beyond me.
If Homma was alive today and he saw all the messy indicators and trading robots people put on their charts, he would probably get a confused look on his face and wonder why anyone would behave so illogically and ignorantly when everything they need to find high-probability entries into the market has been right in front of their face the whole time.
Mirrors don’t lie
Homma wrote several books in his time, which are apparently out of print now, but the candlestick patterns he described in his books became known as the “Sakata Rules”. These Sakata Rules became the basis of modern candlestick charting and thus most of what Homma wrote about is still relevant today. The fact that the first person to trade from a price chart and arguably the most successful trader of all time was a price action trader, is really not surprising to me. What Homma discovered, and what many of us now know, is that the price movement on a “naked” price chart reflects everything about a market.
Everything you need to know to find high-probability entry signals into virtually any market is available on a natural price chart. If you want to see your reflection in the mirror, you just go to a mirror and look at yourself. You do not put a wig on or throw a paper bag over your head. Similarly, if you want to see what a market is doing, you simply need to look at its price chart. You do not need to cover up the most accurate reflection of a market with indicators and other nonsense. Munehisa Homma discovered this simple truth about markets over 250 years ago, and to this day many other traders, including myself, are still using pure price action to trade the markets, because there is simply no better way to trade. If you’d like to learn how I trade with price action candlestick patterns and how to trade in-line with time-tested concepts very similar to those Homma and other traders have been using for centuries, checkout my price action trading course for more information.
Works Cited- “Munehisa Homma.” Wikipedia. 03 Jan. 2013. Web. 18 Apr. 2013.
73 Comments Leave a Comment
thanks Nial , very good.
Thanks Nial, your articles are the best. I am reading your blog with great interest.
I must say I’m inspired by this article and its historical touch on the antecedence of price action trading. I have actually read an e-book titled ” candle stick trading bible” by Munehisa Homma during my early days in Forex trading due to my curiosity to want to know why prices moved in the manner they did and how I can profit from price movements. Till date that has been the best read I’ve had in my fx trading journey alongside your articles that further emphasizes the importance of understanding price action n the psychology behind the price movement and it has been really profitable with the right discipline. Kudos Nial.. Thanks for this… You are a game changer
It is very nice article, I love the work of this man of the history.
Thanks Nial for your informative and educative website helps me a lot
Very nice article Nial, as always. Thank you.
What platform did Munahisa trade on in this day? I am just wondering if computer based charting system, the like of which we use today, had been invented during his time. Amazing but curious.
Nial, you are the best source of information out there in terms on Forex education, so thank you for all your efforts of bringing it to us every day.
I am a little confused though about 2 statements in this article: the contrarian approach of going against the market when everyone else is going with it kind of contradicts with the other statement “the trend is your friend”. How do you separate between the two? :)
It’s good to learn from those who succeeded before us….Great article Mr. Nial
“Homma described the rotation of Yang (bull market), and Yin (bear market) and claims that within each type of market is an instance of the other type.” – wow what a way to put it!
What a cool trader ! Very informative.
Thank you for the great history of price action from you. Indeed I learned a great lesson from you Coach Nial, trading the Price Action, Thank you from the tedious effort for the history originator of the candlestick Munehisa Homma, which is equally relevant to the your price action you are teaching to people seeking knowledge “how to trade” like me.
Yes I have been quiet long in my trading demo using multiple indicators, changing from day to day before I happened to see your free lessons, I find all these indicators to be lagging. Its really useless. You are correct, why use indicators, when the price.
Thanks you very for your most valuable lessons. Hope i will be part of your student…when I am ready.
History repeats itself over and over and I sometimes can’t understand why we can’t learn from the past. For starters I did not like much the candlestick charts because it was too confusing for me, but now I love them because they have a lot of information if you can examine it carefully. With the trade setups that you are teaching, I have a different perception of the CC. This is a very inspiring article and I hope to be a Samurai Forex Trader like Homma someday. I was one of those guys that cluttered the charts with a few indicators but now I think that naked is better…LOL!!!
your article about Homma was very very interesting !new discover and usefull .Thank you so much Nial
Nice one Nial….well researched and thoughtful…i was intrigued when i first heard abut this homma and how he was refered to as the god of the markets…
Nice article coach.Thank you so much.
Homma would have to be the most successful trader to have ever lived. It just goes to show that price action is king and will be for a long time to come.
pls tell me what will be the timings suitable for trading to asian traders.
thanks & regards,
I’d like to be a ‘ninja trader’… lol
Hey Nial, again you never seem to amazed me! Learning Sakata Charts and Rules! Absolutely impressed. Totally agreed Rpice Action is the KEY, as the trade is either won or lose from the word go, if one goes not analysis the Price Action! Brilliant Article and research.
We should follow the method that work, not trying to re-invent it. By the way, another awesome story like usual, Nial!
Thanks Nail, this is great article and inspirational.
Thanks for another good lesson Nial!
cheers Nial. Love your work.I would like to get prints of Homma and the mother candle inside bar to put on my wall. Inspiration! Remember where we came from and where we are going.
You gave us many ‘nuggets’ in this article. Thank you.
I haven’t read the book, but I find it difficult to believe that Yin is a bear market. If anything I would have thought that Yang would be a moving market and Yin would be a consolidating market, based on the principles of what Yin and Yang represent.
Hi Nial, what a shame you have to keep telling us what we should already know! You’ve told us about it time and again before, yet most of us seem to not want to “SEE” reality. Let’s hope this article will ‘open’ everybody’s eyes and make us stick to price action once and for all. It’s that simple. Thanks, mate.
Thank u again. By this, u have payed homage to this man of intelligence and wisdom. and thanks for letting us learn about him.
As usual, another wonderful article. Thanks Nial.
Munehisa Homma TOP MAN, I want to beat his record – $10 billion, Raj
Nial, you are really awesome in your articles, never forget to write a book in your lifetime about price action baring it all to the world it will be a bestseller trust me.
Thanks, Nial. I don’t always come across good information about Mr. Homma. And, yes, I would have to agree that he would be a GREAT choice for the title of most successful price action trader. Truly an inspiration!
Yet another “one of the best yet” articles. Many thanks.
Thank you Nial, very useful information!
Perhaps you should start doing some ‘Part-Time’ History Teaching Nial? I’m sure some students who are studying more ‘traditional’ history would be appreciative, especially if they are struggling a bit ‘financially’!?? :-)
very nice article. Thanks sir nial.
Thanks for your inspiring article ! GOD BLESS YOU !
Nice one…good to know the history of price action..Thanks Nial…
Yes, you are right! Sometime we just make everything too complicate! Forgetting a thing:”the simple, the better”. so keep it stupid simple!
Great choice for a hero Nial. Personally, I am not ready to go completely naked, however, having given some concerted effort to understanding various candle formation set ups. I can honestly say that candle pattern recognition at significant points in price, with regard to time of day (which markets are open) and the news of the hour, you can potentially, as Mr. Homma had done, correctly read the predominate sentiment of market price action through all the surface noise that can distort price value and lead traders astray. Thank you for your offerings,A value to everyone thanks. Mr Fuller
Thanks Nial. This is why price action is my only way to trade. To keep it simple through trading with the trend .
Very interesting one Nail. Thanks a lot..
Awesome & confidence building article.
Thanks Nial’s .. I really enjoyed this artical…;+) Where can I get more info about Homma??
Lovely article Nial…you are such a good writer that I think you should write some BEST SELLERS. Highly inspirational.
I fall in love with your trading patterns and i must say that your concept is super.
Awsome Nial…..the great story of price action strategy its been for over 250 years ago…thank you nial..
Thank you so much for another valuable lesson, Nial! I wish I could find his books to read…..
Fantastic article nial a very powerful edge to have
thanks nail we got knowledge from your artical
Like your other articles, this is other ´best seller´ of the trading. Thanks Nial
Very cool article Nial. Mr Homma must have been one smart man.
I have been fortunate enough to go to workshops by Steve Nison in New York, who I believe was the first person to bring Candlecharts to the West.(at least he says he was).
As Steve likes to say: After using candlesticks, how anybody could ever go back to bar charts is beyond me.
But one thing is for sure: Price action trading rules!! Your course is the best out there bar none (no pun intended)
“Sam” Well if you trade in shorter time frames you should look for the longer time frames for important key levels and price action pattern, Thats why, longer time frames are more significant and reliable singles ever.
Very true, I totally agree with price action.
Thnks a million Nial,u r encourageous.more inspiring as well
Powerful and so true
You mean the founder of candlestick chart used to trade on a pure daily and higher time frame only? If yes, why do we have the lower TFs and of what importance are they?
Great article nial!!
Nice one. An inspiring article about Jesse Livermore would also be appreciated.
By God Nial, maybe he was really you! Yes you must be him reincarnated! This will really make my trading better knowing that! Thanks nial , you are truly the master of price bars!
Wonderful lesson Nial,
MUNEHISA HOMMA, NIAL FULLER, are the names i can never forget.
PRICE ACTION is the ultimate way to trade the currency markets profitably.
Great article NIal. Must look for some of his books!
I must truly say that since i found your site, most of the mystery about fx trading has been revealed to me.. i still cant belive that only trading pin bars in 8 pairs has increase my acc 40% in just 3 weeks.. i’ll be ever greatful that God led me to you.. thanks a million for your selfless services..
Seems like we are all on the right boat !
of course.. Now i become a good trader after learn to trade like him.. clean chart, no indicator… no news
what can $10 billions buy on those days?
So nice to know the market has been there and will alwayz be there.. let’s be disciplined!
They best Fx strategy can only be gotten from you.
You are really a genius yourself, NIAL.
Thank you a million times for ALL THESE
So inspiring, i know if Munehisa Homma can do it, by God’s grace i know i can do it also ….working hard to be more discipline in recording my daily journal in forex trading.Thanks Nial on this piece again.
I’ve read about him in a book before, but this article is kind of awesome Nial, thanks a lot.
Amazing nial as always
Thanks for the history lesson Nial. All price action traders can learn from this.
valuable article,, thanks nial, you always push us to change our thinking positively which will reflect definitely on our tradeing…..