Chart Analysis Basics

Chart Analysis Basics

Technical analysis is the study of price charts to predict future price movements. It is based on the assumption that market movements repeat in patterns and that all relevant information is already priced in.

Chart Types

• Line Chart – Connects closing prices to each other. Simple, but not very detailed.
• Bar Chart (OHLC) – Shows Open, High, Low and Close for each period. More information than the line chart.
• Candlestick Chart – The most popular chart type. Each candle shows opening price, closing price, highest price and lowest price. Green/white candles = rising prices, red/black candles = falling prices.

Important Candlestick Patterns

• Doji – Opening and closing price are almost the same. Signals indecision in the market and possible trend reversals.
• Hammer / Hanging Man – Small body with long lower wick. Hammer at the bottom = bullish, Hanging Man at the top = bearish.
• Engulfing Pattern – One large candle "swallows" the previous one completely. Bullish Engulfing = buy signal, Bearish Engulfing = sell signal.
• Morning Star / Evening Star – Three-candle reversal pattern. Morning Star signals a bullish reversal, Evening Star a bearish one.
• Shooting Star – Small body with long upper wick. Appears after an uptrend and signals a possible reversal.

Support and Resistance

Support is a price level where the price tends not to fall further because there is buying interest. Resistance is a level where the price does not rise further because there is selling pressure.

• When support is broken, it often becomes the new resistance
• When resistance is broken, it often becomes the new support
• The more often a level is tested, the stronger it is

Trend Lines

Trend lines connect at least two significant lows (uptrend) or highs (downtrend). They help identify the direction of the market:

• Uptrend – Higher highs and higher lows
• Downtrend – Lower highs and lower lows
• Sideways Trend (Range) – Price moves between two horizontal levels

Timeframes

The timeframe you choose significantly affects your analysis:

• 1M, 5M, 15M – For scalpers and day traders
• 1H, 4H – For swing traders (most commonly used)
• Daily, Weekly – For position traders and trend determination

Tip: Always use multi-timeframe analysis. Determine the trend in the higher timeframe and look for entries in the lower one.