KNOWLEDGE IS MONEY
The three most important concepts that make money; knowledge, courage, and patience. Especially nowadays, knowledge is mostly a value that can be easily converted into money. For this reason, the owners of unfair and prior information, who are defined as insiders, can gain great wealth in the markets that they do not deserve at all. The biggest arena where information can turn into money is financial markets. Even knowing a few seconds ahead can make a person extraordinarily rich.
Munehisa Homma is one of the people who believed in information in the past and used it best despite limited conditions. Born into a wealthy family that produced and sold rice in the 18th century, he achieved some of the most important financial successes of his time. When Homma’s father died, the family radically appointed the youngest child, Homma, instead of appointing the eldest son to be the new manager of the business. Of course, there were good reasons for this. Because, according to the age in which he lived, he approached rice production and trade with scientific methods. He also had a nimble financial acumen. He was evaluating all the factors affecting the production and examining the effect on the yield by taking note of many variables such as weather conditions. He also had a special interest in markets.
In Japan of that time, there were many rice exchanges where rice was traded. Previously, rice was bought and sold by physical swap, but in the early 1700s, transactions were started with coupons written by rice merchant wholesalers. This was, of course, a critical stage that developed the rice market. Homma also knew how to benefit significantly from this situation. He has made tremendous amounts of money from arbitrage, which is hardly practiced today. Arbitrage is buying any product in a cheap market and selling it in an expensive market. Today, it is quite possible to find different prices and be able to trade arbitrage, as technology establishes an instant information bridge between the markets. However, in Japan at that time, the markets couldn’t be aware of each other. Even the best means of communication could provide a flow of information that could only find hours. Homma came up with an ingenious idea for this and ensured the flow of information between the markets by placing a flag in the hands of the reporters placed at regular intervals. People were visually conveying the message to the person at the next point by holding the flags in their hands. Thus, the flow of information was carried out very quickly. All that remained was to find out in which market the rice was cheap and in which market it was expensive. This network of messages, which expanded from Osaka to Sakata, brought Munehisa Homma extraordinarily significant arbitrage profits. Buying in the cheap market and selling in the expensive market.
Munehisa Homma developed candlesticks used extensively in price charts today in the 18th century. Homma’s most important invention is undoubtedly the candlestick price chart terminology called Candlestick Charts. Homma, who went to the past prices to the point he could reach in the Yodoya rice exchange, started to show these prices on the charts by classifying them with a specific methodology. Thus began the story of the emergence of candlesticks. The most important values of the bars were the day’s low, high, opening price, and closing price. The general view of the candle is already revealed by marking these price levels.
The main difference between candlestick price charts and others is that they contain a technical analysis method. Homma created names for appearances that can be distinctly likened to a previously defined shape. The shape formed by the coming together of one or more candlesticks could predict the future of the price if it creates a clearly defined pattern. For example, after a long rise the previous day, if today’s price closed in the evening at the price it opened without much movement during the day, this meant that the rise was questioned. Homma called this appearance the “Doji star.” When such an appearance occurred, he disposed of the rice contracts without delay the following day. This was perhaps one of the earliest known methods of modern technical analysis. Munehisa Homma similarly described many appearances and gave various names such as marubozu, tombstone doji, hanging man, hammer. He systematically told them and published them together with his other ideas in his book Sakata Senho and Soba Sani No Den. Munehisa Homma, who was the financial adviser to the government in the following years, died in 1803.
Steve Nison, then a research fellow at Merrill Lynch, collected the results of his research in Japan and candlestick terminology in a small booklet and distributed it to his colleagues. The teachings used in Japan for centuries were learned and used by the whole world when Nison, who discovered the system by chance from a Japanese colleague, went to Japan and researched. His colleagues appreciated his writings, and he collected what he learned based on the proposals in a comprehensive book and published it in 1991. His book titled “Japanese Candlestick Charting Techniques” has been translated into 11 different languages and has changed the price charts around the world. Today, we see that analysts use this method in their graphical analyses published in various fields.
Knowledge is the most valuable treasure today, and those who know how to use it correctly always make money. Munehisa Homma is also a tremendous financial genius who does this right.
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