Module 7 of 12 · Trading From Scratch
Price charts look intimidating, like a heart monitor for money. They are not.
A chart is just a picture of one thing: what a price did over time.
There are two common kinds, and once you can read the scarier looking one, you can read almost any chart you will ever meet.
The line chart: the easy one
A line chart is exactly what it sounds like. A single line traces the price over time. Line going up means the price rose. Line going down means it fell. That is the whole thing, and there is nothing else to learn.
Line charts are clean and calm, but they tell you only one number: the price at each moment. The other kind tells you far more.
The candlestick: four numbers in one shape
A candlestick chart is the one that looks complicated and scares beginners off. It should not. Each little “candle” represents one chunk of time, a day, an hour, or a minute, whatever the chart is set to, and it packs in four useful numbers at once:
- Open: where the price started during that time.
- Close: where it ended.
- High: the highest it reached.
- Low: the lowest it reached.
The fat part in the middle is the body, stretching between the open and the close. The thin lines poking out the top and bottom are the wicks, marking the highest and lowest points the price touched. The diagram with this lesson lays out both at a glance.
Green means up, red means down
Here is the part that makes candles click. The color tells you who won that chunk of time:
- A green candle means the price closed higher than it opened. Buyers won. Up.
- A red candle means it closed lower than it opened. Sellers won. Down.
So at a glance, a wall of green candles is a price climbing, and a run of red is a price falling. You can read the mood of a whole chart in seconds, just from the colors, before you study a single detail.
Read one candle, start to finish
Let us read an imaginary candle together. Say it is a daily candle, so it covers one full day of trading:
- It opened at $50 and closed at $54, so it is green. An up day.
- Its high was $55, meaning at some point buyers pushed it all the way up there.
- Its low was $49, meaning early on it dipped that far before recovering.
The story that one candle tells: the day started at $50, wobbled down to $49, ran as high as $55, and settled at $54 by the close. One small shape just told you the open, the close, the best moment, the worst moment, and who won, without a single word. That is why traders love them.
Do not fall for the fancy patterns yet
Search candlesticks online and you will drown in exotic named patterns: hammers, dojis, engulfing this and morning that. Ignore all of it for now.
Most of it is half mythology, and hunting for patterns is a great way to fool yourself.
For a long time, you need exactly one skill here: look at a candle and know its open, close, high, low, and color. That is the alphabet. The fancy patterns are people claiming to write poetry before they can spell.
Pip says:People treat candlestick charts like ancient sorcery. They are mostly just little pictures of up, down, and how dramatic everyone was about it.
That is genuinely all a chart is: a picture of price over time, drawn either as a calm line or as candles that pack in four numbers each. Green up, red down, wicks for the extremes.
You can now read the basic language of every chart you will ever open.
Everything fancier is just decoration on top of these few simple shapes.
Previous: How buying actually works · Next: Market structure
