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Basic Chart Reading

Lesson 2 of 6
Duration 12:54
Level Beginner
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In this lesson we will cover basic chart reading. We’re going to look at candles, then we’re going to compare those candles to bars. We’re going to review some basic candlestick patterns, then chart patterns from traditional technical analysis. At the end of the lesson you’ll have a way of looking at chart patterns that focuses on market structure.

Contributed By: MarketLife

Study Notes:

From Data to Charts

Market data is a (more or less) continuous flow of price data.

  • Prints (trades)
  • Quotes

Humans have limited ability to process this raw data.

So many traders use charts as a way to read market data.

Why Charts?

Can give good insight into market direction (trends).

Can give some heuristic assessment of volatility.

Some patterns may have a statistical edge that could offer opportunities for profits.

Candlesticks

Reading Candlesticks Factors to Consider

Size of body

Size of shadows in relation to the body

Position of open and close within day’s range

Relation of candlestick to overall trend

  • Context

Specific Patterns

Candlestick Patterns

Candles vs. Bars

Classical Chart Patterns:

Rectangle

Head and Shoulders

Rounding Top

Descending Triangle

Pivot Points:

The Building Blocks of Market Structure

  • Pivot high: bar with a lower high before and after.
  • Pivot low: bar with higher low before and after.
  • Indicates short-term exhaustion of buying and selling pressure.
  • Are important levels to watch for potential support and resistance.

What Is The Structure?

 

Pivots Outline Structure

Intermediate-Term Pivots

Intermediate-Term Swings

Review

Bars and Candles

Basic Patterns

  • Candlesticks
    • Single
    • Combination
    • In context

Chart

Market structure

  • Swings and pivots

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Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from MarketLife and is being posted with its permission. The views expressed in this material are solely those of the author and/or MarketLife and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

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