Reading a price chart from absolute zero
This module assumes you have never looked at a financial chart in your life. By the end you will be able to open any chart and describe what happened.
What a chart is actually showing
A price chart has two axes. The horizontal axis is time, running left to right, oldest on the left. The vertical axis is price, higher up meaning more expensive.
That is it. Every mark on the chart is answering one question: at this moment in time, what was the price?
Why candles instead of a line
A simple line chart plots one price per moment, usually the closing price. That throws away information. A candlestick keeps four numbers for each period instead of one, which is why almost every trader uses them.
The four numbers, explained one at a time
The thick middle part is called the body. It spans from open to close. The thin lines above and below are called wicks, or shadows, and they span out to the high and low.
Green means the close was higher than the open, so price rose over that period. Red means the close was lower than the open, so price fell. That is the only difference. A green candle can still be far below yesterday, and a red candle can still be far above.
What a candle shape is telling you
The shape encodes a small story about the fight between buyers and sellers during that period.
The two things beginners misread
Colour is relative to the open, not to yesterday. A green candle only means this period closed above where this period started. It says nothing about the wider trend.
Wicks are not mistakes. A long wick is a real record of price genuinely trading there. Somebody bought and sold at that price. It is often the most informative part of the candle, because it shows where a move was rejected.
The other things on a crypto chart
An exercise, do this now
- Open any free chart for BTC to USD. TradingView is the usual choice and needs no account to look.
- Set the timeframe to 1D so each candle is one day.
- Find the single largest red candle in the last few months. Hover it and read the four numbers.
- Work out the percentage fall: open minus close, divided by open.
- Now find a candle with a very long lower wick. Ask yourself what happened during that day: how far down did it go, and who bought it back?
- Switch to 1H and find the same day. Notice that one daily candle is now twenty four candles telling a much more detailed story.
That last step is the most important thing in this module, and it is what the next one is about.
BEFORE YOU MOVE ON
Common questions
What do the colours on a crypto chart mean?
Green means the candle closed higher than it opened; red means it closed lower. It is relative to that candle's own open, not to yesterday or to any longer trend.
What is a wick on a candle?
The thin line above or below the body, marking the highest and lowest prices reached during that period. It shows where price traded but did not hold.
What is a doji?
A candle whose open and close are almost identical, leaving a tiny body and usually long wicks. It means buyers and sellers fought to a draw, and it often appears where direction is about to change.
Should I use a log or linear price scale?
Logarithmic for anything with a long history or a huge price range, because equal distances then represent equal percentage moves. For intraday charts it makes little difference.
Risk warning: crypto is highly volatile and largely unregulated. You can lose everything you put in. Nothing here is financial, investment or tax advice.