Understanding price charts is a core skill for every trader. Since trading is ultimately about anticipating price movement, traders need a clear way to study how prices behaved in the past and how they are moving now.

That’s where price action charts come in. A stock chart visually displays price changes over time and records trading activity across different timeframes — minutes, hours, days, weeks, months, or even years.

Even if you don’t plan to rely heavily on technical indicators, learning how to read charts is non-negotiable. Let’s explore the three most common chart types every beginner should master.

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4.1 Types of Stock Charts

1. Line Chart

A line chart plots a stock’s price using a single continuous line, typically based on closing prices.

Why it’s useful:

• Simple and clutter-free

• Makes it easy to identify overall trends

Limitations:

• Does not show intraday price movement

• Lacks detail about volatility

Best for:
Viewing the big-picture direction of price movement

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2. Bar Chart (OHLC Chart)

A bar chart provides more detail than a line chart. Each bar represents a specific time period (hour, day, week, etc.).

Each bar shows:

• Open price

• High price

• Low price

• Close price

The height of the bar reflects volatility:

• Long bars = high volatility

• Short bars = low volatility

Because it shows Open, High, Low, Close, it’s also known as an OHLC chart.

Best for:
Identifying trends and measuring volatility

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3. Candlestick Chart

Candlestick charts present the same information as bar charts — but in a more visual and intuitive way.

Each candlestick consists of:

• A body (difference between Open and Close)

• Wicks/shadows (High and Low)

Candlesticks are color-coded:

• Green → price closed higher (bullish)

• Red → price closed lower (bearish)

This color system makes it easier to spot:

• Market sentiment

• Trend strength

• Potential reversals

Best for:
Quickly spotting trends and reversal signals

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4.2 Candlestick Anatomy

To trade effectively, you must understand what each candlestick represents.

Real Body

• The rectangular portion of the candle

• Shows the difference between opening and closing price

• Long body → strong price movement

• Short body → market indecision

Candle Color

• Green (Bullish): Close > Open

• Red (Bearish): Close < Open
  (Colors can be customized — consistency is what matters.)

Wicks (Shadows)

• Show how far price moved before closing

• Reflect market sentiment and rejection levels

Interpreting wicks:

• Long upper wick → bearish pressure

• Long lower wick → bullish pressure

• Short upper wick → bullish strength

• Short lower wick → bearish strength

Each candle tells a story about buyer and seller behavior during that period.

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4.3 Candlestick Patterns

Bullish, Bearish & Consolidation Phases

When viewed together, candlesticks form patterns that help traders interpret market behavior.

Markets usually move through three phases:

• Bullish: prices trend upward

• Bearish: prices trend downward

• Consolidation: prices move sideways

Candlestick patterns help identify potential turning points, not guarantees.

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Bullish Candlestick Patterns

Hammer

• Small body, long lower wick

• Appears after a downtrend

• Signals possible bullish reversal

Inverse Hammer

• Small body, long upper wick

• Appears after a downtrend

• Indicates buying pressure building

Bullish Engulfing

• Large green candle fully covers previous red candle

• Strong shift in momentum toward buyers

Three White Soldiers

• Three consecutive strong green candles

• Each closes higher than the last

• Signals strong bullish momentum

Bullish Rising Three

• Five-candle pattern

• Green → three small red candles → green

• Indicates trend continuation after a pause

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Bearish Candlestick Patterns

Hanging Man

• Small red body with long lower wick

• Appears at the top of an uptrend

• Warns of possible reversal

Shooting Star

• Small red body with long upper wick

• Signals selling pressure at highs

Bearish Engulfing

• Large red candle engulfs previous green candle

• Indicates strong bearish reversal

Evening Star

• Green → indecisive candle → red

• Shows loss of bullish momentum

Bearish Falling Three

• Red → three small green candles → red

• Signals continuation of a downtrend

Important: Candlestick patterns suggest probability, not certainty.

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4.4 Trading Volume & Its Importance

Trading volume measures the number of shares or contracts traded during a specific period.

Why volume matters:

• High volume = strong interest and conviction

• Low volume = weak participation

Key insights:

• Rising prices + high volume → strong bullish signal

• Falling prices + high volume → strong bearish signal

Volume is often used to:

• Confirm chart patterns

• Identify breakout strength

• Validate trend reliability

When combined with price action, volume adds a powerful layer of confirmation to trading decisions.

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Module Recap

• Price charts are essential tools for understanding market behavior

• The three main chart types are Line, Bar, and Candlestick

• Candlestick charts offer the best balance of detail and readability

• Each candlestick represents a trading period and reflects market sentiment

• Candlestick patterns help identify bullish and bearish tendencies

• Patterns do not guarantee outcomes — they describe probabilities

• Trading volume strengthens price analysis and confirms trends