Lesson 9 Reading Charts and Market Structure
Read a candle, describe a trend or range, and use indicators without treating them as certain signals.
What a candle contains
An OHLC candle records the open, high, low, and close for a defined interval. The body spans open to close; the wicks extend to high and low. A rising candle closes above its open. Colours can be customised, so learn the prices rather than relying on green or red. For a hypothetical EUR/USD hourly candle with open 1.1000, high 1.1030, low 1.0990, and close 1.1020:
- The body spans 20 pips.
- The full high to low range spans 40 pips.
- The upper wick spans 10 pips and the lower wick 10 pips.
The candle does not show the exact order in which high and low occurred. If a strategy’s stop and target both lie inside the range, hourly OHLC data alone cannot determine which was touched first.
Describe structure before predicting
A sequence of higher swing highs and higher swing lows is commonly described as an uptrend. Lower highs and lower lows describe a downtrend. Overlapping swings without sustained progress may describe a range. State the timeframe: a daily uptrend can contain an hourly decline. A swing high is a local high relative to neighbouring bars. To mark it objectively for this course, require two completed bars on each side with lower highs; reverse the rule for a swing low. Equal highs or lows do not qualify under this strict definition. A swing is only confirmed after those two later bars close. Treating it as known earlier creates look ahead bias. Support is an area where buying previously interrupted a decline; resistance is an area where selling previously interrupted a rise. These are descriptive areas, not barriers. A break can continue or fail. Mark the area using evidence available at the time instead of moving it after seeing the outcome.
Use a simple moving average carefully
A simple moving average, or SMA, is the mean of the last specified number of closing prices. If five closes are 1.1000, 1.1010, 1.1020, 1.1010, and 1.1010, their five period SMA is 1.1010. An average smooths past data and therefore reacts after prices change. A crossover is a rule you can test; it is not proof of a future move. Adding several indicators based on the same closing prices does not necessarily add independent evidence. Keep the chart readable and state what each indicator contributes. If using RSI, recognise it as a bounded momentum calculation, not an instruction to sell every “overbought” reading. This course’s practice setup uses only price and two SMAs so its rules remain easy to inspect.
Practice
On a historical chart, label the timeframe, price type, one confirmed swing high, one confirmed swing low, and a possible support or resistance area. Hide future bars while making each annotation. Write one sentence describing what is visible and a separate sentence stating a hypothesis. Keep them distinct.
Check your understanding
After the four lessons in this module, complete Module 3 knowledge check from the course overview. It contains the three questions from each lesson with feedback after submission. Keep written calculations in your workbook.
Glossary
- SMA
- Simple moving average of a stated number of prices