How to read a price chart

A price chart is a picture of what buyers and sellers did over time. Day traders mostly use candlestick charts, because one candle packs four prices into a small shape. Once you can read a single candle, a whole chart starts to make sense.

This lesson covers candles, timeframes and trends. That is enough to read any chart you will see on this site.

What one candle tells you

Each candle covers a fixed slice of time, such as five minutes. It shows four prices from that slice:

• Open: the first price in the period.
• High: the highest price reached.
• Low: the lowest price reached.
• Close: the last price in the period.

The thick part is the body. It runs from the open to the close. The thin lines above and below are the wicks, also called shadows. They show how far price stretched before it pulled back.

If the close is above the open, the candle is usually green or hollow. If the close is below the open, it is usually red or filled. Colors vary by platform, so check your settings before you read anything into them.

Here is a made-up example. A five-minute candle opens at 100, rises to 112, dips to 96 and closes at 108. The body runs from 100 to 108, and it is green. The upper wick reaches 112, and the lower wick reaches 96. Buyers won that five minutes, but sellers pushed back from the high.

Timeframes

The same market looks different depending on how much time each candle covers. A one-minute chart shows every small wiggle. A one-hour chart smooths those wiggles into a few large moves.

Day traders often use one-minute to fifteen-minute charts, sometimes with a slower chart for context. Neither is more "true" than the other, since they are just different zoom levels on the same prices. The key is to pick one main timeframe and stick with it, so your signals mean the same thing every day.

Trends: higher highs and higher lows

A trend is the overall direction of price. The simplest way to see it is to watch the swing points, the spots where price turns.

• Uptrend: each swing high is higher than the last, and each swing low is higher too. Higher highs and higher lows.
• Downtrend: lower highs and lower lows.
• Range: price bounces between roughly the same high and low, with no clear direction.

When an uptrend makes a lower low, the pattern has broken. That doesn't mean price will fall. It means the clean structure is gone, and you should stop assuming the trend will continue. This idea is often called market structure.

A note on Heikin-Ashi candles

Heikin-Ashi is a smoothed type of candle. Each one is built from averages of the current and prior candle rather than raw prices. That makes trends look cleaner, but the candle's open and close are not the real traded prices. Learn standard candles first, so you know what the smoothing hides.

The takeaway

A candle shows the open, high, low and close for one slice of time. Timeframes are zoom levels, so choose one and keep it. Trends show up as higher highs and higher lows, or lower highs and lower lows. A chart describes the past. It does not tell you what happens next, which is why you need rules and a record, not just pictures.

Do this today

• Open a free chart of any market on a five-minute timeframe and name the open, high, low and close of the last candle.
• Switch between a one-minute and a one-hour chart of the same day and notice what disappears.
• Mark the last three swing highs and swing lows and decide if price is trending up, down or in a range.

Check yourself

Answer each one in your head, then open it to check.