Reading charts

What is a chart?

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

A chart consists of three core 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 instrument price. Higher on the chart = higher price, lower = lower price.
• Candlesticks or bars: Individual elements that show price movement for a specific period. Each candlestick displays the open, high, low, and close prices for that period.

Charts are essential because they visualize the actions of all market participants. By analyzing charts, you can see where buyers and sellers are active, where key price levels are, and which direction the market is likely moving.

Timeframes

A timeframe is the period represented by each candlestick. In your chart, you select the timeframe you want to view. Popular timeframes include:

• 1 minute (1m): Each candlestick = 1 minute. Very detailed, but noisy. For active daytraders.
• 2 minutes (2m): Each candlestick = 2 minutes. Still very detailed, but slightly less noisy than 1m.
• 5 minutes (5m): Each candlestick = 5 minutes. Popular for daytrading. Good balance between detail and clarity.
• 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 higher timeframes (1d and 1h) to determine trend direction, then use a lower timeframe (1m, 2m, or 5m) to find precise entries.

Levels

Levels are important price zones where price often reacts. There are two main types:

• Support: A price level where price struggles to break below. Buying pressure is strong here. Often a good place for long entries.
• Resistance: A price level where price struggles to break above. Selling pressure is strong here. Often a good place for short entries.

Besides support and resistance, there are additional situations where price often reacts:

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

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

Patterns

Patterns are recognizable chart formations that traders use to anticipate possible price movement. There are two main types:

Candlestick patterns are formed by one or a few candlesticks. These often signal possible short-term reversals or trend continuation. Examples include the hammer, shooting star, and engulfing patterns. They are especially useful for timing entries and exits.

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

Important: Patterns are not guarantees. Always combine them with other signals such as volume, levels, and overall trend. In a later lesson on strategy, you will learn how to apply these patterns in practice.

Indicatoren

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

1. Volume

Volume shows how many shares are traded. It is one of the most important indicators for daytraders.

• High volume during a rise: Strong buying pressure, greater chance the move is genuine.
• Low volume during a rise: Weak move, possible false breakout.
• High volume during a drop: Strong selling pressure, greater chance the move is genuine.
• Low volume during a drop: Weak move, possible false breakdown.
• Volume spike: Often occurs around major news. It is usually best not to hold a trade around scheduled high-impact events.

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

2. VWAP (Volume Weighted Average Price)

VWAP shows the average price weighted by volume. It is 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 gravitates toward VWAP: Price often tends to return to VWAP, like a magnet.

3. 9EMA (9-period Exponential Moving Average)

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

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

4. ATR (Average True Range)

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

• High ATR: High volatility, larger moves.
• Low ATR: Low volatility, smaller moves.

ATR helps you set stop loss and take profit at more appropriate distances.

5. Momentum

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

• High momentum: Strong move, likely continuation.
• Low momentum: Weak move, possible reversal.
• Divergence: Price makes a new high, but momentum does not = warning signal.

Tip: Do not overload your chart with indicators. They can be useful, but they can also add noise and distraction.

Time to begin!

You now know everything you need to place your first trade. The next page explains exactly how to do that: Place your first trade