The analytical method from Japan is trusted by many traders around the world. However, how effective it is in the Vietnamese market needs to be considered on a case-by-case basis.

Who invented candlestick analysis?

Munehisa Homma (1724-1803) was a rice merchant in the Sakata region of Japan. He did business at Dojima Market, Osaka during the Tokugawa dynasty. This market is one of the first official futures exchanges in the world. He is considered the father of Japanese candlesticks and his success in trading earned him the title of samurai.

Previously, people only traded physical rice in Japan. However, from 1710 on, the futures market appeared with notes promising to deliver rice at a specified time in the future. From there, a secondary market for the trading of covenants also formed.

Munehisa Homma has established a dense communication network between the Sakata and Osaka regions to serve the rice trade in the market.

In 1755, he wrote San-en Kinsen Hiroku. In this book, he concludes that market sentiment is very important and has a great influence on prices. This can be used to predict future movements in rice prices.

He describes the rotation of Yang (bull market) and Yin (bear market). He used his method to become the most successful businessman in Japan at that time.

Munehisa Homma. Source: NinjaTrader
Steve Nison - The man credited with bringing candlesticks to the West

Steve Nison was one of the first to get a CMT (Chartered Market Technician) certificate. He is a renowned author and speaker who pioneered the introduction of candlesticks to the Western world. On the other hand, he is also a famous trader in the international market.

According to information from the Technical Analysis Association of America, he was a technical analyst at Merrill Lynch and vice president of Daiwa Securities.


Steve Nixon. Source: Trading Schools
The book Japanese Candlestick Charting Techniques helps investors approach the Japanese candlestick pattern. Candlestick patterns that we still apply to this day such as Engulfing, Shooting Star, etc. are explained very thoroughly and in detail.

Candlesticks work in Vietnam market?

This is a very important question and should be answered satisfactorily. The first thing that needs to be emphasized is that candlesticks reflect short-term factors. If you want to get the forecast for the next few months then this tool is not a reasonable choice. In such cases the long-term Moving Average or Elliott wave group would be more suitable tools.

Let's combine different types of signals. A common mistake is that investors often use only one type of tool when analyzing. When you use Moving Average when ADX is below 25 then the risk of signal noise is extremely high. For candlesticks too, users must know how to combine with other tools.

The factor most associated with candlesticks is resistance/support. After surpassing the 17,500-18,500 zone (equivalent to the old peak in June 2020), GEX stock price increased strongly in the next week. However, in the second half of July 2020, the price dropped very quickly and retested the 17,500-18,500 zone (currently acting as a strong support).

The Doji pattern that appeared in the session on July 31, 2020 showed that supply and demand were temporarily balanced after a period of sharp decline. On August 3, 2020, the price broke out strongly and appeared the White Marubozu pattern, showing that investor sentiment is very positive. Thus, the combination of the price successfully testing the support area and the positive candlestick pattern will give a successful buy signal.

Source: VietstockUpdater
What type of analysis is the price decreasing/increasing continuously? In fact, in the Vietnamese market, there is a rather awkward case for investors. That's a stock that broke its historic high and rallied after it. In this case, technical analysts have a relatively stable solution.

The specific case here is DGW stock. The Rising Window pattern appeared on November 9, 2020 when the price broke through all the old highs in history. At that time, investors can use the new gap (window/gap) as a short-term support area.

In the following sessions, DGW's stock price sometimes moved to near 63,000-66,000 but did not break this threshold. This is a good time to get in line for investors who were late in the previous rally.