Comprehensive Guide to Reading Candlesticks in Stocks and Forex for Beginners

Entering the world of stock, forex, and trading investment requires the most important skill: mastering candlestick reading in securities. Through technical chart analysis, traders can predict price trends, grasp market changes, and develop effective buy-sell strategies. So, how to accurately read stock charts? The following article will provide detailed answers for you.

Common Types of Stock and Forex Charts

Line Chart: Overview Method

This type of chart only displays the closing price for each time frame, offering a broad view of the asset’s long-term trend.

Advantages:

• Simple, easy for beginners to understand
• Suitable for comparing long-term performance of multiple stocks
• Helps investors see the overall curve clearly

Disadvantages:

• Does not provide information about intra-day price fluctuations
• Not suitable for short-term analysis
• Lacks details for day trading

Bar Chart: More Detailed Information

High-Low-Close (HLC) (High-Low-Close) and Open-High-Low-Close (OHLC) (Open-High-Low-Close) charts provide information on opening, closing, high, and low prices in each trading session. Among these, OHLC is more widely used because it includes the opening price.

Advantages:

• Provides complete price information within a session
• The length of the bar indicates the degree of price volatility and trend strength
• Facilitates easy identification of price patterns
• Suitable for medium-term analysis

Disadvantages:

• Price bars are quite thin, making long-term analysis difficult
• Can be overwhelming for beginners due to excessive information

Japanese Candlestick Chart: The Most Powerful Analysis Tool

Candlestick charts provide comprehensive information about open, close, high, low, and market sentiment from both buyers and sellers. This is the most popular chart type among traders.

Advantages:

• Offers complete price movement information within a session
• Shows both long-term trends and short-term market psychology
• Contains many pattern analyses that support trading decisions with high accuracy
• Reading candlesticks in securities helps traders identify optimal entry points

Disadvantages:

• Large amount of information can overwhelm beginners
• Requires time to learn and master candlestick patterns

Basic Components of a Stock Chart

A professional stock chart includes:

1. Asset information: Stock name, current price, percentage change from opening price
2. X-axis: Time frame (seconds, minutes, hours, days, weeks, months)
3. Y-axis: Price scale
4. Technical indicators: Additional analysis tools
5. Chart type: Choose between line, candlestick, bar
6. Drawing tools: Resistance, support, trend lines
7. Available indicators: MACD, Bollinger Bands, Moving Averages (MA)…
8. Comparison functions: To compare with other assets

Important Information When Reading Stock Charts

Identifying Price Trends

Having an overview of the overall trend within a timeframe is fundamental to analysis. Traders need to identify trends across three timeframes: long-term, medium-term, and short-term.

For example, if Apple stock is trending upward on the weekly chart but fluctuates daily, investors might wait for daily dips to buy at better prices.

Recognizing Support and Resistance Levels

These two levels are key to determining buy and sell zones:

• Support level: The price level where the price tends to bounce back up when touched
• Resistance level: The price level that prevents further price increases

The simplest way to identify them is to find price levels where reversals frequently occur. For Bitcoin, if the price often drops when hitting a red line, that’s resistance. Conversely, if the price hits a green line and bounces back, that’s support.

Each time the price touches these levels, their effectiveness diminishes. The more times they are tested, the higher the chance of a breakout.

Volume Analysis

Volume measures supply and demand in each session. Typically:

• Price rises with high volume = strong signal
• Price rises but volume decreases = warning of reversal
• Price drops with high volume = fundamental change in valuation

Combining volume analysis with trend helps traders make more confident decisions.

Monitoring Fundamental Events

Events like stock splits, earnings reports, dividends have a strong impact on prices. For example, when Tesla conducts a stock split, the price may surge during the session but could reverse afterward as shareholders take profits.

Day traders should pay special attention to these events as they create significant opportunities or risks.

Reading Technical Indicators

Besides price and volume, professional traders often add indicators like Bollinger Bands, Moving Averages (MA), RSI, MACD, Stochastic to support decisions.

Guide to Common Technical Indicators

( Bollinger Bands: Identifying Boundary Levels

This tool includes a middle moving average (MA) and two bands above and below )±20% of the MA value###. The upper band acts as resistance, the lower as support.

Basic strategy: Buy when the price touches the lower band, sell when it hits the upper band. However, success rates may vary, so verify before applying.

( Moving Averages (MA): Trend Identification

The 50-day and 200-day MAs are the most common indicators for long-term trend detection:

• Buy signal: When MA 50 crosses above MA 200 → price is about to reverse upward
• Sell signal: When MA 50 crosses below MA 200 → price is about to reverse downward

) RSI: Detecting Overbought and Oversold Conditions

The Relative Strength Index (RSI) oscillates from 1-100, with key levels at 30, 50, 70.

• RSI > 70: Overbought, high probability of price decline
• RSI < 30: Oversold, high probability of price increase
• RSI crossing 50: Indicates current trend clarity

For Bitcoin, whenever RSI exceeds 70, the price often reverses downward. Conversely, near 30, BTC tends to bounce back up.

MACD: Momentum Change Detection

MACD combines moving averages with a histogram showing the rate of change.

Simple trading signals:

• Buy: When histogram shifts from red to green
• Sell: When histogram shifts from green to red

Stochastic: Price Volatility Measurement

This indicator includes two lines: Stochastic and a 3-period moving average.

• Stochastic > 80: Overbought
• Stochastic < 20: Oversold

Basic strategy similar to RSI: buy in oversold zones, sell in overbought zones.

Approaching for Success

To read charts effectively:

Step 1: Master three basic pieces of information - price trend, support/resistance levels, and trading volume.

Step 2: Learn to read candlesticks to understand market psychology through candlestick patterns.

Step 3: Practice by backtesting signals on historical data before real trading.

Step 4: Do not rely on a single indicator - combine multiple tools to increase reliability.

Each technical indicator has strengths and weaknesses. Signals are never 100% accurate, so verifying success rates on historical data is crucial. Start with basic concepts and gradually improve your skills through real trading experience.