Chapter 1: Chart Analysis Fundamentals (Audio)

Welcome to Chapter 1 of your journey into technical analysis. In this lesson, we’ll explore the basics of chart analysis — one of the most important skills you’ll need to grow as a trader.

Technical analysis is the study of price movement on a chart. Unlike fundamental analysis, which looks at economic news and data, technical analysis focuses only on what the price is doing right now. It’s about reading patterns, trends, and signals from the chart to help you make trading decisions.

Let’s begin with the most basic concept: price charts.

A price chart is a visual representation of how a currency pair has moved over time. For example, if you’re looking at EURO – USD or DOLLAR YEN, the chart will show you how that pair’s value has changed — maybe over the last hour, the last day, or even the last month. This helps you spot trends — is the pair going up, going down, or moving sideways?

There are three main types of charts traders use: line charts, bar charts, and candlestick charts.

Line charts are the simplest. They connect the closing prices of each time period with a line. They’re easy to read but don’t show much detail.

Bar charts are more detailed. Each bar shows the opening price, the high and low for that time period, and the closing price. But bar charts can look a bit cluttered to beginners.

Candlestick charts are the most popular among traders. They also show the open, high, low, and close, but in a more visual way that’s easier to understand. Each “candlestick” shows how price moved during that time frame.

Now, let’s break down a candlestick.

A candlestick has a body and wicks — also called shadows — on the top and bottom. If the closing price is higher than the opening price, it’s usually a green candle — that means price went up. If the closing price is lower than the opening price, it’s usually red — that means price went down.

The top of the wick shows the highest price during that period, and the bottom shows the lowest.

When you put many candlesticks together, you can start to see patterns. And these patterns can give clues about what price might do next.

This leads us to one of the most important concepts: trends.

A trend is simply the direction price is moving. If it’s moving higher, that’s an uptrend. If it’s moving lower, that’s a downtrend. If it’s just going sideways, with no clear direction, we call that a range or consolidation.

You’ll often hear the phrase, “The trend is your friend.” That’s because traders prefer to trade in the same direction as the trend — buying in an uptrend and selling in a downtrend.

To help identify trends, we use tools like trendlines and moving averages.

A trendline is a straight line that connects two or more swing lows in an uptrend, or swing highs in a downtrend. It helps you see the direction and strength of the trend.

Moving averages are lines that smooth out price action. They show the average price over a set number of periods. For example, a 20-period moving average shows the average closing price over the last 20 candles. If the price is above the moving average, the trend is usually up. If it’s below, the trend is likely down.

Next, let’s talk about support and resistance.

Support is a price level where buyers tend to step in — it’s like a floor that price bounces off. Resistance is where sellers step in — like a ceiling that price struggles to break through.

These levels are important because they help you plan your entry and exit points. When price breaks above resistance, it often continues higher. When it breaks below support, it may fall further.

You’ll also hear about breakouts and fakeouts.

A breakout happens when price moves through support or resistance with strong momentum. A fakeout is when price briefly breaks the level but then reverses quickly — this can trap traders who entered too early.

Volume is another key part of chart analysis. Volume shows how many trades are happening. High volume during a breakout is a good sign — it shows strength. Low volume might mean the breakout is weak.

Lastly, let’s touch on chart patterns.

There are many classic patterns that traders watch for. Some patterns suggest the trend will continue — these are called continuation patterns. Others signal that a reversal might happen — we call those reversal patterns.

Examples of continuation patterns include flags, pennants, and rectangles. Reversal patterns include double tops, double bottoms, head and shoulders, and inverse head and shoulders.

These patterns don’t guarantee anything, but they give us a framework to think about price movement and to manage risk.

So to summarize:

• Technical analysis focuses on price action, not news.
• We use charts — especially candlestick charts — to see what the market is doing.
• Trends help us trade in the right direction.
• Support and resistance help us plan our trades.
• Patterns and volume give us extra clues about what might happen next.

That’s it for this chapter. Take your time to go over these concepts again — they are the foundation for everything that comes next in technical analysis.