Reading charts

Reading charts is an essential skill for every trader. This page teaches you how to interpret charts and which tools you can use to make better decisions.

What is a chart?

A chart (price graph) is a visual representation of the price movement of a financial instrument (such as a stock, crypto, or forex) over time. It's the foundation of technical analysis and helps traders identify patterns, trends, and opportunities.

A chart consists of three main elements:

• Time axis (horizontal): Shows time, from left (past) to right (present). Each candlestick or bar represents a specific time period.
• Price axis (vertical): Shows the price of the instrument. Higher on the chart = higher price, lower = lower price.
• Candlesticks or bars: The individual elements that display the price movement for a specific period. Each candlestick shows the open, high, low, and close price for that period.

Charts are essential because they visualize the actions of all traders in the market. By analyzing charts, you can see where buyers and sellers are active, where important price levels are, and which direction the market is likely to go.

Timeframes

A timeframe is the time period that each candlestick represents. In your chart, you select the timeframe you want to display. Popular timeframes are:

• 1 minute (1m): Each candlestick = 1 minute. Very detailed, lots of noise. For active daytraders.
• 2 minutes (2m): Each candlestick = 2 minutes. Still very detailed, but slightly less noise than 1m.
• 5 minutes (5m): Each candlestick = 5 minutes. Popular for daytrading. Good balance between detail and overview.
• 15 minutes (15m): Each candlestick = 15 minutes. Less noise, clearer patterns.
• 1 hour (1h): Each candlestick = 1 hour. For swingtrading and longer positions.
• 1 day (1d): Each candlestick = 1 day. For long-term analysis and trend identification.

When analyzing, start with the higher timeframes (1d and 1h) to determine the trend, and use a lower timeframe (1m, 2m, or 5m) to find your exact entry.

Levels

Levels are important price levels where the price often reacts. There are 2 types of levels:

• Support: A price level where the price has difficulty falling below. Buying pressure is strong here. Often a good time to go long.
• Resistance: A price level where the price has difficulty rising above. Selling pressure is strong here. Often a good time to go short.

In addition to support and resistance levels, there are a few additional situations where the price can react:

• Round numbers: Psychological levels such as $100, $150, $200. Prices often react to these round numbers.
• Yesterday high (YH): The highest price reached on the previous trading day.
• Yesterday low (YL): The lowest price reached on the previous trading day.

You can draw levels on your chart by placing horizontal lines at important prices. The more often a price reacts to a level, the more important that level is.

Patterns

Patterns are recognizable shapes in the chart that traders use to predict possible price movements. There are two main types of patterns:

Candlestick patterns are formed by one or a few candlesticks. These patterns often give signals about possible reversals or continuations of the trend in the short term. Examples include patterns such as the hammer, shooting star, and engulfing patterns. They are especially useful for timing your entry or exit.

Chart/trend patterns are formed by multiple candlesticks over a longer period. These patterns create recognizable shapes such as wedges, flags, and head and shoulders. They help you identify larger movements and trend changes.

Important: Patterns are not a guarantee. Always use them in combination with other signals such as volume, levels, and the overall trend. In a later lesson on strategies, you'll learn how to apply these patterns practically in your trading.

Indicators

Indicators are mathematical calculations that help you recognize patterns. Here are the most important ones:

Volume

Volume shows how many shares are being traded. This is the most important indicator for daytraders.

• High volume on rise: Strong buying pressure, greater chance the movement is legitimate.
• Low volume on rise: Weak movement, possibly a false breakout.
• High volume on decline: Strong selling pressure, greater chance the movement is legitimate.
• Low volume on decline: Weak movement, possibly a false breakdown.
• Volume spike: Often during important news. It's best not to be in a trade around scheduled news events.

Rule: Volume confirms the trend. Without volume, a movement is less reliable.

VWAP (Volume Weighted Average Price)

VWAP shows the average price weighted by volume. It's one of the most reliable indicators for daytrading.

• Above VWAP: Often bullish (rising). Price above VWAP = stronger buying pressure.
• Below VWAP: Often bearish (falling). Price below VWAP = stronger selling pressure.
• Price pulls toward VWAP: The price tends to return to VWAP, like a magnet.

9EMA (9-period Exponential Moving Average)

The 9EMA is a fast moving average that shows the short-term trend.

• Price above 9EMA: Short-term trend is bullish.
• Price below 9EMA: Short-term trend is bearish.
• 9EMA crosses above/below price: Possible trend change.

ATR (Average True Range)

ATR measures volatility. It shows how much the price moves on average per day.

• High ATR: High volatility, large movements.
• Low ATR: Low volatility, small movements.

ATR helps you set your stop loss and take profit at the right distance.

Momentum

Momentum indicators (such as RSI or MACD) measure the strength of a movement.

• High momentum: Strong movement, likely continuation.
• Low momentum: Weak movement, possible reversal.
• Divergence: Price makes a new high, but momentum doesn't = warning signal.

Tip: Don't let yourself get too distracted by indicators. They can be helpful, but they also create noise and distraction.