A price chart looks like noise until someone shows you the grammar, and then it reads like a sentence. This lesson gives you that grammar: the three chart types, how to read a single candle at a glance, what a timeframe really means, and how to spot the trend before you risk a cent. Master this and every later lesson gets easier.
01 Three ways to draw a price
The same price data can be drawn three ways. A line chart joins closing prices into a single clean line, good for seeing the big picture. A bar chart shows the open, high, low and close of each period as a small bar. A candlestick chart shows the same four prices but as a coloured body, which is far easier to read at a glance. Candlesticks are what almost every trader uses, so they are what we will focus on.
02 How to read a single candle
Every candle covers one slice of time and tells you four prices. The thick part, the body, runs between the open and the close. The thin lines above and below, the wicks, mark the highest and lowest points reached. Colour tells you direction: a rising candle closes above where it opened, a falling candle closes below. Long bodies mean strong moves, small bodies mean indecision, and long wicks show a price that was pushed somewhere and rejected.
03 Timeframes: what one candle is worth
A timeframe sets how much time each candle represents. On a one-hour chart, each candle is one hour of trading. On a daily chart, each candle is a whole day. Lower timeframes show more detail and more noise, higher timeframes show the bigger, calmer picture. Beginners are usually better off on the higher timeframes, such as the one-hour or the daily, where signals are cleaner and there is less pressure to react to every twitch.
04 Spotting the trend
Before any fancy analysis, ask one question: which way is price generally going? An uptrend makes a series of higher highs and higher lows, like a staircase up. A downtrend makes lower highs and lower lows. When it does neither and moves sideways in a band, it is ranging. Knowing which of these three you are looking at is half of trading, because most strategies only work in one of them.
One note for later: there are other chart styles you will hear about, such as Heikin Ashi, Renko and Point and Figure. They are useful in specific situations, but they are a distraction at this stage. We cover them in their own lessons further into the academy once these basics are second nature.
- On a candlestick, what does the body show?
- A market making higher highs and higher lows is in what kind of trend?
- Which timeframes are usually better for beginners, higher or lower?
Show answers
1) The distance between the open and the close. 2) An uptrend. 3) Higher timeframes, such as the one-hour or daily.
- Line, bar and candlestick all draw the same prices. Candlesticks are the easiest to read and what most traders use.
- A candle shows four prices: the body is open to close, the wicks are the high and low, and colour shows direction.
- A timeframe sets how much time each candle covers. Read the trend first: higher highs and lows is up, lower is down, flat is a range.
Look at three things. The body shows where price opened and closed, the wicks show the highest and lowest points reached, and the colour shows whether it closed up or down over that period. A long body is a strong move, a long wick is a rejected one.
A green, or rising, candle closed higher than it opened, meaning buyers were in control over that period. A red, or falling, candle closed lower than it opened. The exact colours depend on your chart settings, but the idea is the same.
Start with the one-hour or daily chart. Higher timeframes filter out much of the random noise, give cleaner signals and remove the pressure to react constantly, which suits someone still learning.
Further reading: Price charts and technical analysis, the official MetaQuotes guide to chart types and timeframes.
You have finished Forex Basics. Back to the academy to continue →