The man who invented candlesticks made a fortuneBroadcom Inc.BATS:AVGOTopChartPatternsThe man who invented candlesticks made a fortune Osaka, the middle of the 1700s. A rice merchant from Sakata walks into the Dojima market, where traders buy and sell paper coupons for rice that has not been grown yet. As far as we know, that was one of the first organised futures markets in the world. His name was Munehisa Homma. He got very rich in that room. That part is documented. The rest of the sentence in the title is where it gets interesting. What he actually did Homma did not build his fortune by predicting the weather or by reading news. He built it by predicting how people would behave. In 1755 he wrote a book about how crowds behave in a market. One line in it still works today: when everybody is bearish, there is reason for the price to rise. That book is older than the United States, and it is probably one of the first books on market psychology ever written. What nobody can prove Every course, every video and every manual says that Homma invented the candlestick chart. Steve Nison is the man who brought candles to the West. He had every reason to want the romantic version to be true. And in his own book he writes that he found hardly any evidence that Homma ever used these charts, and that candlesticks probably appeared in the early Meiji period, from 1868. Homma died in 1803. That is 65 years earlier. There is no single inventor. Candles were built slowly, by many hands, over generations. The famous five rules of Sakata were tied to Homma's name long after his death, by people who never met him. I would love to tell you the romantic version, but there is no way to prove that Homma ever invented a single candlestick pattern. But that changes nothing. Let me show you the other side Now, you may be thinking: so the whole story is a lie and we all repeat it. Not exactly. Think of a candle as a thermometer. One candle is one reading of one session. The body tells you who won, buyers or sellers, and by how much. The wicks tell you how far each side pushed before they were sent back. It does not measure rice. It measures people behaviour. Homma spent his life measuring behaviour. That is the entire content of his book. So did he draw candles? Nobody can prove it. Could he have used something very close to them? Perfectly possible, because they do the exact job he was already doing by eye. A candle is not a forecast, it is a record of who won the session and by how much. Two interesting things The colours are backwards. On your screen green goes up. In the original Japanese charts red is the rising candle and black is the falling one. The old name for it was the yin yang chart, and red was the colour of life and growth. Open a Japanese broker screen and it will look broken to you. It is not. We are the ones who flipped it. And the dates are much closer than you think. Candles reached Western traders through an English translation in 1986, a magazine article at the end of the 1980s, and Nison's book in 1991. Before that we drew bars. Candles have been normal here for about 35 years, not 300. Since then we have all believed that candles work. But do they? So we counted every candlestick pattern, one by one We took the S&P 500, 30 years of daily data, and counted what each candle actually did next. Entry at the open of the session after the signal, because that is the first price you could really pay. The Hammer appeared 42,671 times. On average it returned +1.94% over the following 20 market sessions. The average S&P 500 stock over any 20 sessions returns 1.12%. So the most famous bullish candle in the world beats the market. It works. It just does not work very much. Now read that number again, because almost nobody publishes it. The Inverted Hammer have similar returns, at +1.79% over 37,889 appearances. And the Hanging Man returned 1.22%, which is the market average with extra steps. Here is the part worth keeping. The Hanging Man is the same candle as the Hammer. Identical. Small body, long lower shadow. The same reading on the thermometer. The only difference is what the price did in the days before it. In those 30 years the market printed 42,671 Hammers and 58,161 Hanging Men, the same shape with two opposite names. Same temperature, different patient. One of them holds up. The other one does not. What you take from this table Homma made his fortune reading behaviour, which is exactly what a candle measures, even if nobody can prove he ever drew one. Red meaning "down" is a Western decision, not a Japanese one. The famous patterns are real but thin on their own, and counting is the only way to find out which ones are worth your money. Next we open the full list: 65 patterns, the same 30 years, ranked from best to worst. More than half of them do not pass. Some of the most famous names on your platform are in the bottom half, and one of them is probably on your chart today. And I will publish a deep dive on the Hammer soon. If you filter that same candle (Hammer) properly the average goes from +1.94% to +4.82% over the same 20 sessions, against 1.12% for the average stock. That is 4.3 times the market. The candle is the small edge. The filter is the big one. And if you have the proper exit strategy, the edge is simply massive.