Technical analysis: read charts like a trader

Reading candlestick charts

Each candle shows the open, high, low and close for a period. A green (bullish) candle closes above its open; a red (bearish) candle closes below it. The wicks show the extremes reached. Long lower wicks at support show buyers stepping in; long upper wicks at resistance show selling.

Candlestick patterns worth knowing

• Hammer / pin bar: a long lower wick that rejects lower prices.
• Bullish and bearish engulfing: a candle whose body fully covers the prior one, signalling a shift in control.
• Doji: open and close nearly equal, showing indecision.
• Inside bar: a range inside the prior candle, showing consolidation before expansion.

Patterns matter most at key levels. A hammer in the middle of nowhere means little.

Support and resistance

Support is a zone where buying has repeatedly stopped declines; resistance is where selling has capped rallies. The more times a level is tested, and the higher the time frame, the more significant it is. Once broken, resistance often becomes support (and vice versa). Draw levels as zones, not exact lines.

Trends and trendlines

An uptrend makes higher highs and higher lows; a downtrend makes lower highs and lower lows. Trendlines connect swing lows in uptrends or swing highs in downtrends. A break of trend structure is often the first warning that a trend is ending.

Key indicators

Divergence

Bearish divergence happens when price makes a higher high but RSI or MACD makes a lower high: momentum is fading. Bullish divergence is the opposite at lows. Divergence is a warning, not an entry signal on its own; wait for price to confirm.

Classic chart patterns

• Continuation: bull flags, pennants, ascending triangles, cup and handle.
• Reversal: head and shoulders, double tops and bottoms.
• Measure targets using the height of the pattern projected from the breakout point, and always place a stop where the pattern would be invalidated.

Volume analysis

Healthy rallies rise on expanding volume and pull back on light volume. Breakouts on weak volume often fail. In crypto, volume differs between exchanges, so compare aggregated data where possible.

Multi-time-frame analysis

Start high and work down: the weekly chart for trend, the daily for setups and levels, and a lower time frame (4-hour or 1-hour) for precise entries. Trade in the direction of the higher time frame whenever you can.

Frequently asked questions

Keep learning