We read a price chart from left to right. There are 2 axis, Price (vertical) and Time (horizontal). The most basic form is a line chart, it is made by joining the closing price of each day/session to form a constant line. Below is an example of the daily EURUSD.
Price can only go in three directions, up (uptrend), down (downtrend), and sideways (range/chop). An uptrend is defined by a series of higher lows and higher highs, a downtrend by a series of lower highs and lower lows and a range by a series of highs and lows that stay within a range.
The next example is of a bar chart. As you can see it has a similar shape to the line chart, but one can now see the additional data the line graph had to miss out to draw a straight line.
On a bar chart each day/session has it's own individual bar. The horizontal line on the left is the open (O), the high of the vertical line is the high (H), the low of the vertical line is the low (L), and the horizontal line on the right is the close (C). So we call bar charts OHLC.
The following is a diagram of the same sessions as Japanese candlesticks. As you can see they are much easier to read because they are colour coded, white = up (bullish/optimistic), black = down (bearish/pessimistic). The rectangle is called the real body and the vertical lines are called shadows (upper and lower).
Below is our chart of the EURUSD in candle format (green = up, black = down).
When viewing bars and candles the open gives you a reference, the highs represent the markets hopes, the lows its fears and the close what it truly believes.
Look at the candles above. We can see that although the first candle is technically “bullish” (because it closed higher), it is actually quite pessimistic as it tried hard to make new highs but lost it’s confidence, closing near its low. This is also true with the “bearish” candle which is actually quite optimistic, as it closed nearer it’s high.
Below is our chart of the EURUSD in candle format (green = up, black = down).
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