Stock Basics — How to Read Charts — Candlesticks, Moving Averages & Support/Resistance Explained
How to Read Charts — Candlesticks, Moving Averages & Support/Resistance
A stock chart is a compressed record of countless investors’ emotions. Reading a chart means inferring high-probability future scenarios from past price movement patterns.
1. Candlesticks — One Bar, One Day’s Emotions
Each candle visualizes four pieces of information: Open · High · Low · Close (OHLC).
Bullish vs Bearish Candles
| 구분 | Bullish Candle (Red/Green) | Bearish Candle (Blue/Red) |
|---|---|---|
| Condition | Close > Open (price rose) | Close < Open (price fell) |
| Meaning | Buying pressure dominated the day | Selling pressure dominated the day |
| Body size | Larger body = stronger buying pressure | Larger body = stronger selling pressure |
| Upper wick | Sellers pushed price down from the high | Failed rally attempt — sellers won out |
Wicks (shadows) are the thin lines extending above and below the body. The upper wick marks the high; the lower wick marks the low. A long wick means the price was pushed far in that direction before reversing.
2. Key Candlestick Patterns
| Pattern | Shape | Meaning |
|---|---|---|
| Large Bullish Candle | Long red body, no wicks | Strong buying pressure — bullish signal |
| Large Bearish Candle | Long blue body, no wicks | Strong selling pressure — bearish signal |
| Doji | Open ≈ Close, wicks on both sides | Buyers and sellers in balance — possible trend reversal |
| Hammer | Short body, long lower wick | Buyers stepped in at the lows — potential bullish reversal |
| Shooting Star | Short body, long upper wick | Sellers rejected higher prices — potential bearish reversal |
3. Moving Averages (MA)
A moving average is a line connecting the average closing prices over a set number of days. It smooths out price noise to reveal the underlying trend.
4. Golden Cross & Death Cross
The crossover signals between moving averages are widely used as powerful trend-reversal indicators.
| 구분 | Golden Cross (Buy Signal) | Death Cross (Sell Signal) |
|---|---|---|
| Condition | Short-term MA crosses above long-term MA | Short-term MA crosses below long-term MA |
| Classic example | 5-day MA crosses above 20-day MA | 5-day MA crosses below 20-day MA |
| Meaning | Short-term momentum overcoming the longer trend | Short-term selling overwhelming the longer trend |
| Caution | Without volume confirmation, may be a false signal | Often appears after a price has already dropped significantly |
5. Support & Resistance
Role reversal: A resistance level that is decisively broken often becomes a new support level. Conversely, a support level that is decisively breached often flips into resistance.
6. Volume Analysis — It Speaks Before Price Does
Volume reflects the strength of market participants’ conviction and interest.
| Pattern | Meaning |
|---|---|
| Price up + Volume up | Strong uptrend confirmed — high reliability |
| Price up + Volume down | Weakening upside momentum — caution warranted |
| Price down + Volume spike | Panic selling — possible reversal ahead |
| Price flat + Volume shrinking | Energy building — awaiting a directional breakout |
🧠 Knowledge Check
[Key Check Question]
Q. A stock’s price is rising, but trading volume has been consistently decreasing. What does this signal?
① A stronger rally is coming ② Upside momentum is weakening ③ The market is stabilizing
Answer: ② — A rally not supported by volume is a sign of weakening momentum. When fewer participants are joining even as price rises, the trend may be about to reverse.
Next: we look at the allure and harsh realities of short-term trading (day trading).
Oiyo
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