Reading a chart

A candle — or Japanese candlestick — summarises everything price did over a given period. A one-hour candle tells the story of that whole hour in a single symbol. It is the standard way to read a chart, and it carries more information than a plain line, which keeps only the closing price and throws the rest away.

Every candle holds four prices. The open: the price at the start of the period. The close: the price at the end. The high and the low: the extremes reached in between. The central rectangle, called the body, runs from the open to the close. The thin lines above and below, the wicks, reach out to the extremes.

Colour only tells you the direction: if the close is above the open, the candle is bullish and shows green; otherwise it is bearish and shows red. Nothing more — colour says nothing about the strength of the move, or about what comes next.

What to remember, and what everything else builds on: a long wick means price went that far and was pushed back. That is information about a rejection — somebody sold, or bought, hard enough to bring price back. A wide body means a decisive move sustained from the start of the period to the end. All technical reading starts from that distinction.

One last point beginners discover too late: a candle is only final once its period has closed. While it is still running, its body stretches, shrinks and sometimes changes colour several times. Judging a candle that has not finished forming is one of the most ordinary sources of error, and the easiest to remove: just wait.

You choose how long a candle lasts: that is the timeframe. On a 5-minute chart, each candle covers 5 minutes; on a daily chart, each candle covers a whole day. So the same market, at the same instant, reads differently depending on the timeframe shown — and none of them is right against the others.

This is not a presentation detail, it is the number one source of confusion for beginners. A 5-minute chart can be firmly bearish while the daily stays bullish. Both are accurate: the first describes the last hour, the second the last three weeks. When somebody tells you “the market is going up”, the question to ask is: on which timeframe?

Dropping to lower timeframes increases the number of visible moves, so the number of apparent opportunities — and that is exactly the trap. The lower the timeframe, the larger the share of noise, the heavier costs weigh against the move you are aiming for, and the faster you must decide. A low timeframe is harder, not more profitable.

Standard practice is to work with two or three timeframes only: a high one to decide the general direction, a low one to choose the moment to enter. Not six. Multiplying screens does not multiply information, it multiplies the opportunities to contradict yourself.

For learning, the 1-hour timeframe is a good compromise: enough movement to see things happen within a day, slow enough that you have time to think before the candle closes. Start there, and do not switch timeframe because nothing is happening — nothing happens most of the time, and that is normal.

Open a chart and squint. With no technical vocabulary at all, three things stand out, and they will keep you busy for a long while.

The first: price steps upward, steps downward, or goes sideways between two boundaries. When each high is above the previous one and each low above the previous one, that is an uptrend. The reverse is a downtrend. When highs and lows form at roughly the same levels, that is a range, and most directional reasoning loses its reliability there.

The second: certain levels make price react more than once. A ceiling where it stalls, a floor where it bounces. Those levels are not magic and they are not thin lines: they are zones where enough participants have, in the past, decided to act in the same place. A level that has never done anything is not a level, it is a line you drew.

The third: speed is not constant. Price spends most of its time drifting slowly, then covers in three candles what took it two hours before. That alternation between slow and fast is the normal texture of a market, not a flaw. A large part of technical reading is simply not confusing the two regimes.

That is enough for this step, and above all: add no indicators. A bare chart, with candles and two or three horizontal lines where price actually reacted, already holds more information than you can process today. Indicators do not create information, they recompute what is already on the screen.

A pip is the smallest conventional price change on a currency pair. On most pairs, quoted to four decimals, a pip is 0.0001: if the euro-dollar moves from 1.0850 to 1.0851, it moved one pip. On yen pairs, quoted to two decimals, a pip is 0.01.

Many brokers display one extra decimal, a tenth of a pip. Do not confuse the two when measuring your stop distance: it is a classic mistake and it goes wrong by a factor of ten.

What a pip is worth in money depends on your position size, not on the market. The reference convention: on euro-dollar, with a standard lot of 100,000 units, a pip is worth about 10 dollars. With a mini lot of 10,000 units, about 1 dollar. With a micro lot of 1,000 units, about 10 cents. It is the same price change — only your exposure differs.

The word pip belongs to the currency world. Elsewhere the vocabulary changes: on indices you count points, on futures you count ticks — a tick having a monetary value defined per contract, to be checked in the instrument specification. On shares, you simply count in currency.

Above all, remember this: the useful question is never “how many pips did I make”, but “how much could this trade have cost me”. A 50-pip gain means nothing until you know the position size and where the stop was. It is also why comparing your results in pips with somebody else means nothing, and why screenshots showing pips without showing the risk taken say nothing at all.