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4. Reading charts

Candles and scale

A candle shows the open, high, low and close for a selected interval. Its body connects the open and close; its wicks show the extremes. Colour helps you recognise the direction of change, but does not explain the cause of a move by itself.

A 15-minute timeframe groups trades differently from an hourly chart. The same move can look like a trend on a lower timeframe and a small correction on a higher one. Fix the working intervals before marking the chart; repeatedly switching to find a convenient picture changes the rule retrospectively.

An unclosed candle is still changing. A condition such as "close above the level" can only be assessed after the interval ends. In historical analysis, you cannot use a candle's final high as information that was known when that candle began.

Trends, zones and ranges

An uptrend on the selected scale is often described as a sequence of higher highs and higher lows; a downtrend as lower ones. This describes what has already happened, not a guarantee of the next move. Use the same method of choosing significant extremes in every example.

Support and resistance are areas where the interaction of supply and demand changed previously. Defining a zone and an invalidation condition is more practical than drawing an infinitely precise line. A wider zone means greater entry uncertainty and potentially a greater distance to the stop.

Consolidation means movement within a range without sustained progress in the selected direction. A breakout may be short-lived. A retest after crossing the boundary helps formulate a testable scenario, but does not guarantee continuation.

Volume and patterns

Candle volume belongs to a specific venue and instrument. Volume on one crypto exchange does not equal total worldwide turnover. Some currency-chart providers display the number of quote updates rather than exchange-traded volume.

Triangles, double tops and other patterns are ways to organise observations. Similar-looking shapes produce different outcomes under different conditions. If the rules allow a pattern to be redrawn after the outcome, the method cannot be tested.

Example rule. Higher timeframe 1h: two confirmed rising lows. Lower timeframe 15m: a close above a preselected range boundary. The practice scenario is invalidated by a close back below the boundary before entry. This describes a hypothesis; it does not establish a statistical edge.

Exercise. Find one trend and one range on a historical chart. For each, specify the instrument, venue, timeframe, observation time and invalidation criterion. Do not write "obvious growth": another person must be able to reproduce the markings from your rule.