Chapter 1

Chart Basics

Every stock chart is a picture of two things: how much something cost, and when. Before any pattern or indicator makes sense, you need to read those axes fluently and know how the price itself is drawn. This chapter builds that foundation.

Sources: Candlestick chart (Wikipedia), Candlestick Chart Guide (Domo)

Educational use only. This material is for educational purposes only and is not investment advice; it explains how to read charts, not what to buy or sell. Nothing here recommends any security, trade, or strategy. Chart reading describes what price has done and what patterns suggest; it cannot tell you what price will do next.
In this chapter
  • How the horizontal (time) and vertical (price) axes work, and why the timeframe you choose changes the story.
  • The three common chart styles — line, bar (OHLC), and candlestick — and what each one shows.
  • The anatomy of a single candlestick: open, high, low, close; the body versus the wicks; and what makes a candle bullish or bearish.

Price and time: the two axes

A price chart is a simple grid. The horizontal axis (the x-axis) represents time, running from older on the left to more recent on the right. The vertical axis (the y-axis) represents price, with higher values further up. Every mark on the chart answers one question: at this moment in time, what was the price?

That is genuinely all a chart is at its core — a record of price plotted against time. Everything else in this handbook is a way of summarising, grouping, or annotating those price-over-time points so that the eye can spot structure the raw numbers hide.

One detail worth noticing early is the price scale itself. Most charts use a linear scale, where equal distances represent equal dollar amounts. Some use a logarithmic scale, where equal distances represent equal percentage moves. Over long time spans a log scale often reads more honestly, because a move from 10 to 20 and a move from 100 to 200 are both a doubling, and a log scale draws them as the same vertical distance.

Timeframes

A single point on the chart usually summarises a slice of time rather than one instant. That slice is the timeframe (or interval). On a daily chart, each mark or candle covers one trading day; on a weekly chart, one week; on a 5-minute chart, five minutes. You choose the timeframe, and that choice changes what you see.

Zoom out to a weekly or monthly chart and short-term noise disappears, leaving the broad direction of the market. Zoom in to an hourly or minute chart and you see detail that was invisible before — small swings, brief spikes, quiet stretches. Neither view is "correct"; they answer different questions. A helpful habit is to read more than one timeframe: the larger one for context, the smaller one for detail.

The same stock can look like it is rising on the weekly chart and falling on the hourly chart at the very same moment. That is not a contradiction — it is the difference between the long-run trend and a short-run pullback.

Line, bar, and candlestick charts

There are three common ways to draw price. They differ in how much information each data point carries.

Line chart

The simplest style. A line chart connects one price per period — almost always the closing price — into a single continuous line. It hides the ups and downs within each period, which is exactly why it is useful: it strips away noise and shows the overall path cleanly. It is a good first look, but it tells you nothing about how volatile each period was.

Bar chart (OHLC)

A bar chart shows four numbers per period: the open, high, low, and close — often abbreviated OHLC. Each period is a vertical bar spanning the low to the high, with a small tick pointing left for the opening price and a tick pointing right for the closing price. It is far richer than a line chart because you can see the full trading range of every period.

Candlestick chart

A candlestick chart shows the same four numbers as a bar chart, but draws them in a way the eye reads much faster. Candlesticks originated with Japanese rice traders centuries ago and are now the default style on most trading platforms. Because they make the relationship between open and close so visible, they are worth understanding in detail — which is the rest of this chapter.

Anatomy of a candlestick

A single candlestick summarises one period using the same four prices as a bar: open, high, low, and close. It has two visible parts.

The thick rectangle in the middle is the body. It spans the distance between the open and the close — the two prices that bookend the period. The thin lines poking out of the top and bottom are the wicks (also called shadows or tails). The upper wick reaches up to the period's high; the lower wick reaches down to the period's low. So in one small shape you can read all four prices at a glance.

Anatomy of bullish and bearish candlesticks A green bullish candle closes above its open; a red bearish candle closes below its open. The body spans open to close, and the wicks reach the high and the low. Price Bullish (up) High Close Open Low Bearish (down) High Open Close Low
Figure 1. The body spans open-to-close; the wicks reach the high and the low. A bullish candle closes above its open; a bearish candle closes below.

Bullish versus bearish candles

The colour of the body tells you the direction of the period at a glance. A bullish candle forms when the close is higher than the open: price finished the period above where it started, so buyers were in control. By convention it is drawn green (or hollow/white). A bearish candle forms when the close is lower than the open: price finished below where it started, so sellers were in control. It is drawn red (or filled/black).

Notice the consequence: on a bullish candle the open is at the bottom of the body and the close is at the top; on a bearish candle it is the reverse. That single fact is why traders can scan a wall of candles and instantly feel the balance of buying and selling.

Reading body versus wicks

The size of the parts carries meaning too. A long body means the open and close were far apart — a decisive period with a clear winner. A short body means they finished close together — indecision. Long wicks show that price travelled well beyond where it settled: the market pushed to an extreme and was then rejected back. A long lower wick, for example, means sellers drove price down but buyers pushed it back up before the close.

A candlestick is one period's whole story compressed into a single shape: where it opened, how far it stretched, and who won by the close. — Standard technical-analysis convention

You do not need to memorise dozens of named candle shapes to benefit from this. Simply reading body direction, body size, and wick length already tells you far more than a bare line ever could. In the next chapter we zoom out from single candles to the shapes many candles make together: trends, support, and resistance.