Read Charts Like a Trader

Welcome everyone. In this second chapter, we will learn what charts are, how candlesticks are formed, and how technical analysis relies on these charts and candlestick patterns. Throughout this explainer, we will break down these concepts in detail. You will also discover several foundational elements that form the base of technical analysis.

Let us begin with the very first question: what are charts? We will move to the screen to understand this clearly.

On the screen, you can see a live chart of Nifty 50. The time shown below indicates the current time, and the candles are forming in real time. Right now, the chart is set to a 1-minute timeframe, which means each block or candle on this chart represents one minute of price movement. If you zoom in, you will notice that each candle is a small block that captures the price action for that minute. Every block you see here is considered a candle.If we change the timeframe to 3 minutes, then each block will represent three minutes. Switching to 5 minutes will show each block as five minutes. Changing it to one day makes each block represent one full trading day.

So the first thing to understand is: the timeframe determines what each candle represents.

Now, the next question is: Is this the only type of chart available? The answer is no. There are several other types of charts used in technical analysis. Let us look at the options available on our platform.

1. Bar Chart

When we switch to a bar chart, the blocks disappear and you will see vertical lines instead. If we zoom in, you will notice:

• The left side line on the bar shows the opening price.
• The right-side line shows the closing price.
• The centre vertical line itself shows how high and how low the price moved during that period.

For example, if a bar opens at 25,475, moves up and down, and closes at 25,478, the bar will visually represent this full range.

2. Line Chart

Line charts are commonly used by investors. The line connects the closing prices over time, which helps you see patterns such as repeated hurdles or support levels. While simple, line charts do not show the high, low or opening prices, and they do not reveal intraday movements in detail.

3. Candlestick Chart

Candlesticks are the most widely used chart type among traders, including us. Whenever traders talk about charts, they are generally referring to candlestick charts.

Each candle represents the selected timeframe. For example:

• On a 1-minute chart, each candle represents one minute.
• On a 5-minute chart, each candle represents five minutes.

Why Candlesticks Are Better Than Other Chart Types

Line charts only show price movement in a simplified way. They do not reveal how the price moved within the period.

Bar charts provide more detail, but they still do not show the volume, the strength behind the move or the overall density of price action. When you switch to a candlestick chart, the picture becomes far clearer. Candlesticks reveal significantly more information, including:

• A green candle indicates positive momentum or bullish behaviour.
• A red candle indicates negative momentum or bearish behaviour.
• The body of the candle shows the distance between the open and close.
• The wicks show how high or low the price moved during that period.

For example, if two strong green candles appear consecutively, it reflects strong buying interest and positive momentum. This level of detail is not easily visible on bar or line charts.

This is why candlestick charts are preferred by most traders. They provide richer information and help traders understand price action more accurately. In this entire course, our focus will be on studying candlestick charts.

Investments in securities markets are subject to market risks. Read all related documents carefully before investing.