Trading Defined
Technical AnalysisBeginner

Trading Chart

A trading chart is a picture of an asset's price history, with time running from left to right and price from bottom to top.

A chart turns thousands of individual trades into a single picture you can read in seconds: where the price has been, how fast it moved, and where buyers and sellers have repeatedly stepped in. Almost every trading decision — from a long position to a short sale — is planned on one. This guide shows you how to read a chart from scratch.

Category
Technical Analysis
Reading time
10 min
Also called
Stock chart, Candlestick chart, Chart
Updated

A chart in plain words

Think of a chart as a diary of prices. Each mark records what the price did during one slice of time — one day, one hour, or one minute. Put the marks side by side and the story of the market appears: rising, falling, or moving sideways.

The horizontal axis is time: older prices on the left, the most recent on the right. The vertical axis is price: higher up means more expensive. So a line climbing from the bottom-left to the top-right means the price has been rising.

Most traders use candlestick charts, where each mark — a candle — shows four prices for its time period: where it opened, its highest point, its lowest point, and where it closed.1

Figure 1

The parts of a trading chart

An annotated daily candlestick chartAbout two months of illustrative daily candles. The price rises steadily, pulls back from a peak, then starts to recover. The price axis runs along the right edge, dates run along the bottom, and volume bars sit beneath the candles. The last candle is marked as still forming.951001051101151201252 Mar16 Mar30 Mar13 Apr27 AprDaily chart · each candle = 1 trading dayPrice ↕Volumeshares traded per dayTime →highest hightoday’s candle: still forming
An illustrative daily candlestick chart. Time runs along the bottom, price along the right-hand side, and volume is drawn as bars beneath the candles.

How to read a trading chart, step by step

Work through these seven questions, in this order, every time you open a chart.

  1. What am I looking at?

    Check the asset name and the market it trades on. The same asset can show slightly different prices on different exchanges or brokers, particularly in crypto and forex, where there is no single central market.

  2. What is the timeframe?

    The timeframe tells you how much time each candle represents: 1 minute, 1 hour, 1 day, 1 week. A daily chart showing 100 candles covers roughly five months of trading days; a 5-minute chart showing 100 candles covers a little over eight hours.

  3. How are the axes scaled?

    Read the price range on the right axis and the dates along the bottom. Check whether the price scale is linear (equal distances = equal dollar amounts) or logarithmic (equal distances = equal percentage changes).2 Over long periods the choice changes how dramatic moves look.

  4. What does each candle say?

    A candle's body spans the open and the close; its thin wicks reach the high and the low. A body whose close is above its open is bullish (usually green or hollow); one whose close is below its open is bearish (usually red or filled).1

  5. What is the overall direction?

    Step back. Are the highs and lows getting higher (an uptrend), lower (a downtrend), or staying within a band (a range)? See trend for how traders define this more strictly.

  6. How much trading happened?

    The bars along the bottom of most charts show volume: how many shares or contracts changed hands in each period. A move on high volume involves more participants than the same move on thin volume.

  7. Where are the important levels?

    Mark prices where the market has repeatedly turned. Levels where falling prices tended to stop are called support; levels where rising prices tended to stall are called resistance. See support and resistance.

Figure 2

Anatomy of a candlestick

Anatomy of a bullish and a bearish candlestickBullish candle: open $100, high $108, low $97, close $105. The body runs from the open up to the close; the upper wick reaches the high and the lower wick reaches the low. Bearish candle: open $105, high $106, low $96, close $99. The body runs from the open down to the close.Bullishclose above openBearishclose below openHigh $108Close $105Open $100Low $97upper wickbody $5lower wickHigh $106Open $105Close $99Low $96upper wickbody $6lower wick
The same four prices — open, high, low and close — drawn as a bullish and a bearish candle. The body shows open-to-close; the wicks show the extremes.

Worked examples

Example 1 — Reading a bullish candle

Bullish

On a daily chart, one candle has these four prices:

Example 1 — Reading a bullish candle — calculation
Open$100
High$108
Low$97
Close$105
Body (close − open)$5, bullish
Upper wick (high − close)$3
Lower wick (open − low)$3
Full range (high − low)$11

The price opened at $100, dipped to $97, rallied as high as $108 and finished the day at $105 — $5 higher than it started. The upper wick tells you buyers could not hold the high: sellers pushed it back $3 before the close.

Example 2 — Reading a bearish candle

Bearish

The next day's candle looks like this:

Example 2 — Reading a bearish candle — calculation
Open$105
High$106
Low$96
Close$99
Body (open − close)$6, bearish
Upper wick (high − open)$1
Lower wick (close − low)$3

The price opened where yesterday closed, barely rose, then fell as low as $96 before recovering to $99. In a bearish candle the wicks attach to different ends of the body than in a bullish one: the upper wick starts at the open, the lower wick at the close.

Example 3 — Why scale matters

Scale

A stock rises from $10 to $20 in one year, then from $100 to $110 in a later year.

Example 3 — Why scale matters — calculation
First move+$10 = +100%
Second move+$10 = +10%
On a linear scaleBoth moves look the same height
On a logarithmic scaleThe first move looks about 7× taller

Both moves added $10, but the first doubled your money while the second added 10%. A logarithmic scale draws equal percentage moves at equal heights, which is why it is often preferred for charts covering years of price history.2

Check your understanding

Test yourself before moving on. Each answer comes with an explanation.

Q1A candle opens at $50, reaches a high of $53, a low of $45 and closes at $46. What kind of candle is it?
Q2On a daily chart, what does a single candle represent?
Q3Why would you choose a logarithmic price scale?
Figure 3

One price history, three chart types

The same eight days drawn as a line chart, an OHLC bar chart and a candlestick chartThe line chart connects the eight closing prices. The bar chart draws each day as a vertical line from low to high, with a tick on the left for the open and on the right for the close. The candlestick chart fills the space between open and close with a green body for rising days and a red body for falling days.Lineclose only8 days →OHLC barsopen · high · low · close8 days →Candlesticksopen · high · low · close8 days →
The same eight days of prices drawn as a line chart (closes only), an OHLC bar chart and a candlestick chart. The candles carry the same information as the bars, but are easier to read at a glance.

Which chart type should you use?

All three are built from the same data. They differ in how much of it they show.

AspectShowsBest forLimitation
Line chartClosing prices onlySeeing the big picture and long-term trendsHides what happened within each period
OHLC bar chartOpen, high, low, close3Detailed analysis with little visual noiseHarder to read the direction of each bar quickly
Candlestick chartOpen, high, low, close, with coloured bodiesMost day-to-day trading and pattern readingColours can exaggerate the importance of single candles
Figure 4

Linear vs. logarithmic price scale

The same price history on a linear and on a logarithmic scaleA price that starts at $10 and grows 20% a year reaches about $154 after 15 years. On the linear scale the line is flat for years and then curves sharply upward. On the logarithmic scale, where $10, $20, $40, $80 and $160 are evenly spaced, the same history is a straight line.Linear scaleequal steps = equal dollars$0$40$80$120$160051015 yrsLogarithmic scaleequal steps = equal percentages$10$20$40$80$160051015 yrs
A price growing 20% every year for 15 years. On a linear scale the early growth is almost invisible; on a log scale constant percentage growth becomes a straight line.

Why traders use charts

  • To understand the context

    Before acting on news or an opinion, a chart shows whether the price is near a multi-year high, collapsing, or doing nothing — context that changes what the news means.

  • To plan entries and exits

    Traders use charts to place a stop loss beyond a level that would prove them wrong and a take profit near a level where the move may stall, which also gives them a risk-to-reward ratio.

  • To judge volatility

    The length of candles shows how much a price typically moves in a period. That helps decide position size and how far away a stop needs to be.

  • To review past decisions

    Marking your past trades on a chart is one of the fastest ways to see whether you are following your plan or reacting emotionally.

Going deeper

Read as far as you need. Each level builds on the one before it.

Choose one timeframe and learn it

Beginner

Start with a daily chart. Each candle is one trading day, the noise is lower than on minute charts, and you have time to think. Learn to describe what happened in the last 20 candles in a sentence before trying to predict anything.

Multiple timeframes, volume and gaps

Intermediate

Many traders read a higher timeframe for direction (for example weekly) and a lower timeframe for timing (for example daily or hourly). A move that looks like a strong rise on an hourly chart may be a small bounce within a weekly downtrend.

Watch for gaps: when the market opens well above or below the previous close, a candle starts away from the previous one. Gaps are common in shares after earnings or overnight news, and rare in markets that trade around the clock.

The last candle on a live chart is not finished. Its close is simply the latest price until the period ends, and the candle can change completely before then.

Data quality and adjusted prices

Advanced

Historical share prices are usually adjusted for stock splits, and often for dividends, so that old prices are comparable with today's. A 2-for-1 split, for example, halves all prices before the split date on an adjusted chart; unadjusted data would show a false 50% crash. Adjusted prices are therefore not the prices that actually traded on those days.4

Candle boundaries depend on the time zone and session the data provider uses. Crypto trades around the clock, so a “daily” candle has no natural close: platforms choose a cut-off, often midnight UTC, and patterns can differ slightly between providers.5

Alternative chart constructions such as Heikin-Ashi, Renko and point-and-figure transform or filter raw prices. They can make trends easier to see, but their prices are not the actual traded prices — Heikin-Ashi, for example, averages the current and previous bars6 — so never use them to judge exactly where an order would have been filled.

Advantages and disadvantages

Advantages

  • Condenses a large amount of price information into a picture you can read quickly.
  • Works the same way for shares, currencies, commodities and crypto.
  • Makes trends, ranges and volatility visible at a glance.
  • Lets you define precise, objective levels for entries and exits.

Disadvantages

  • Shows only what has happened; a chart cannot guarantee what will happen next.
  • Reading patterns is partly subjective — two traders can see different things.
  • Short timeframes contain a lot of random noise that can look meaningful.
  • It is easy to clutter a chart with so many indicators that the price itself gets lost.

Common mistakes

  1. Reading an unfinished candle as final

    A big green candle with an hour left in the day can close red. Wait for the period to end before treating a candle as a signal.

  2. Ignoring the timeframe

    A “strong uptrend” on a 5-minute chart might be a few minutes of noise on a daily chart. Always check what each candle represents.

  3. Comparing charts with different scales

    Placing a linear chart next to a logarithmic one, or two charts with different price ranges, can make similar moves look very different.

  4. Treating patterns as certainties

    Chart patterns describe probabilities at best. Every setup fails some of the time, which is why risk management matters more than any single pattern.

  5. Adding too many indicators

    Indicators are calculated from price. Five of them on one chart usually repeat the same information and hide the price action they are derived from.

Key points to remember

  1. A trading chart shows price (vertical axis) over time (horizontal axis).
  2. Each candlestick shows four prices for its period: open, high, low and close.
  3. Close above open = bullish candle; close below open = bearish candle.
  4. Always check the timeframe and the price scale before interpreting a chart.
  5. Charts describe the past and help you plan risk — they do not predict the future with certainty.

Frequently asked questions

What do the green and red colours on a candlestick chart mean?

Green (or hollow) candles closed higher than they opened; red (or filled) candles closed lower than they opened. Colours are a display setting and can be changed in most charting software, so check the legend if a chart looks unfamiliar.1

Which timeframe is best for beginners?

Daily charts are a good place to start. They contain less random noise than minute charts and give you time to think between candles. Short-term traders later add hourly or 15-minute charts for timing.

Where can I see trading charts?

Most brokers and exchanges include charts in their platforms, and many financial websites offer free ones. Make sure you know which market and which data source a chart is based on.

Can charts predict prices?

No chart can predict prices with certainty. Charts show how the market has behaved, which helps traders estimate probabilities and plan risk. Treat any pattern as a possibility, not a promise.

What is the difference between a candlestick chart and an OHLC bar chart?

They show exactly the same four prices. An OHLC bar uses small horizontal ticks for the open (left) and close (right); a candlestick fills the space between open and close with a coloured body, which makes direction easier to see quickly.

Further learning

  • Long Position

    Put chart reading to work: how a long trade is planned and closed.

  • Short Selling

    How traders use falling charts to profit from declines — and the risks involved.

  • Support and Resistance

    The most widely used levels drawn on any chart.

  • Volume

    The bars under the candles, and what they add to a price move.

Sources

This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.

  1. Charles Schwab. How to Read Stock Charts and Trading Patterns (opens in a new tab) Checked .
  2. StockCharts ChartSchool. Technical Analysis 101, Part 6: chart scales (opens in a new tab) Checked .
  3. CME Group. Chart Types: candlestick, line, bar (opens in a new tab) Checked .
  4. StockCharts. Price Data Adjustments (opens in a new tab) Checked .
  5. Fidelity. How to read a crypto chart (opens in a new tab) Checked .
  6. Charles Schwab. How to Use Heikin Ashi Charts (opens in a new tab) Checked .

Read more elsewhere

Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. Trading Metrics is our sister site, under the same ownership; we are not affiliated with any other publisher linked above. Last reviewed . Report an error or request a source credit.