Lesson 7: The Anatomy of a Price Chart

Part of Module 3: Technical Analysis - The Art of Reading Charts

Introduction: The Story of Price

A price chart is the trader's most important tool. It tells the story of the battle between buyers and sellers over a period of time. While there are different types of charts (like line and bar charts), the vast majority of professional traders use Japanese Candlesticks because they provide the most information in a single glance.

The Four Key Prices (OHLC)

Every single candlestick on a chart represents a specific period of time (e.g., one hour, one day) and shows you four crucial pieces of data from that period:

  1. Open: The price at the very beginning of the period.
  2. High: The absolute highest price reached during the period.
  3. Low: The absolute lowest price reached during the period.
  4. Close: The price at the very end of the period.

The Anatomy of a Candlestick

A candlestick has two main parts:

  • The Body (the thick part): This represents the range between the Open and the Close price.
  • The Wicks (or Shadows - the thin lines): These show the full range of price movement, from the High to the Low.

Bullish vs. Bearish Candlesticks

The color of the candle's body tells you the most important part of the story: which side won the battle in that period.

A Bullish Candle (usually green or white) forms when the Close price is higher than the Open price. This tells us that during this period, buyers were in control and pushed the price up.

A Bearish Candle (usually red or black) forms when the Close price is lower than the Open price. This tells us that sellers were in control and pushed the price down.

Putting it Together: The Story of a Single Candle

Vivid Example: Imagine you are looking at a 1-hour bullish candle. The body tells you the price ended the hour higher than it started. If it has a long wick on top, it means that at some point, buyers pushed the price very high, but sellers fought back and pushed it down a bit before the hour closed. The candle doesn't just show that price went up; it shows the story of the fight to get there.

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