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Introduction to technical analysis charts
Introduction to technical analysis charts
Charts are among the fundamental tools of every trader using technical analysis. Let’s take a look at how they work, the most important types of charts, and how to understand price movement at first glance.
- Price vs. Time
- Types of Technical Analysis Charts
- How to Read a Candlestick Chart
Price vs. Time
Every trading chart always contains two basic axes – price and time.
Time is located on the horizontal axis (x).
Price is represented on the vertical axis (y).
This method of visualization allows traders to observe how the price has developed over time and to identify patterns in market behavior.
Charts allow traders to choose which time period they want to analyze.
For a short-term view, a five-minute or 60-minute chart can be used. For example, in a five-minute chart, each point represents five minutes of price movement.
For longer-term trading such as position or swing trading, it may be more appropriate to look at a broader time frame – from a week to a month or even a full year.
The choice of the right time interval depends on the trading strategy and investment horizon.
Example – ten-minute EUR/USD chart
In this ten-minute chart of the EUR/USD currency pair, each candlestick represents ten minutes of trading activity, allowing for a more detailed view of short-term price movements.
In this weekly chart, each candlestick represents five days of trading activity, providing an overview of longer-term trends and market developments.
You can also choose which type of price you want to track in the chart.
Most charts are set by default to display the mid-price, but you can adjust it to show either the bid price (selling) or the ask price (buying), depending on your needs.
Types of technical analysis charts
In technical analysis, there are three main types of charts: line (mountain), bar, and candlestick.
Line charts are essentially simple price charts that show the overall price movement over a selected period.
However, this type of chart does not reveal all the details. For example, if you're analyzing a 60-minute timeframe, each point will only show the last recorded price in that 60-minute interval. To see what happened during that period, you’ll need to switch to a shorter timeframe.
Bar and candlestick charts offer much more detailed information. They show the high, low, opening, and closing prices for a specific period.
The main difference between the two lies in visual presentation, though both provide very similar data about price development.
Bar Charts
Bar charts represent price movement as a series of vertical lines, each with two small horizontal ticks on the sides. This format clearly shows the price range for the given period and also identifies the opening and closing prices.
Candlestick Charts
Candlestick charts display price movement using a wider body (the “candle”), which represents the opening and closing prices. Thin lines extending from the top and bottom of the candle, called “wicks” or “shadows,” indicate the highest and lowest prices reached during the selected time interval.
At Y4Trade Academy, we focus on using candlestick charts – the most popular chart type among traders.
However, the choice between bar and candlestick charts is ultimately a matter of personal preference.
Try both types in your demo on Y4Trade.com and decide which one helps you recognize price patterns more effectively.
More advanced traders may also use sophisticated chart types such as Heikin Ashi, Renko, or point-and-figure charts. These tools allow for better trend isolation and can assist in predicting potential future price movements.
How to read a candlestick chart
Candlestick charts display price movement using three main components:
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Candle color – indicates whether the price increased or decreased during the period.
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Candle body – represents the range between the opening and closing price.
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Wicks (shadows) – show the highest and lowest price reached within the selected time interval.
Candle color
The color of a candlestick helps determine whether the price action during the period was bullish (rising) or bearish (falling).
A green candle indicates upward movement – the closing price was higher than the opening price.
A red candle indicates downward movement – the closing price was lower than the opening price.
In some charts, you may also see:
- White candles to represent rising trends.
- Black candles to represent falling trends.
The color scheme depends on chart settings and trader preferences.
Real body
The real body of a candlestick shows where most of the price action occurred during the given period. The top and bottom of the body represent the opening and closing prices.
For a bullish (green) candle, the market opened lower and closed higher:
- The opening price is at the bottom of the body.
- The closing price is at the top of the body.
For a bearish (red) candle, the situation is reversed: - The opening price is at the top of the body.
- The closing price is at the bottom of the body.
The real body helps traders understand where most trading was concentrated during the selected time interval.
Upper and lower wick
The upper and lower wicks of a candlestick show the highest and lowest prices the market reached during the trading period.
- The upper wick represents the highest price the asset reached during that time.
- The lower wick shows the lowest price recorded.
These wicks provide valuable insight into price action:
- A candle with a long upper wick and a small body indicates that the price rose significantly during the session but then pulled back near the opening level.
- A candle without wicks suggests that all trading occurred between the opening and closing prices, which may signal a strong trend with little volatility.
By analyzing these three components (body, upper wick, lower wick), traders can gain a deeper understanding of market behavior during a given period.
Technical traders believe that patterns formed by one or more candlesticks can provide important insights into the future direction of the market.
These formations help identify potential reversals or trend continuations and are a fundamental part of technical analysis.