Complete Guide to Understanding Stock Charts: Key Technical Analysis from Candle Patterns to Support and Resistance Lines

Technical analysis may seem unfamiliar to beginner investors. Terms like candlestick charts, support and resistance levels, moving averages, and OBV can appear complex. However, all these tools share a common goal: to make more efficient and systematic investment decisions. In this article, we will explain the basics of chart analysis to advanced techniques, focusing on key indicators necessary for actual trading.

Candlestick Charts: The Basic Language of Price Movements

When you access a trading platform, the first thing that catches your eye is the candlestick chart. This is the most widely used chart format in stock investing. It may look complicated at first, but in reality, it is a highly effective tool for quickly grasping price movements.

Identifying Price Direction with Bullish and Bearish Candles

The first feature of candlestick charts is their color. On international platforms, upward price movements are shown as green(bullish candles), and downward movements as red(bearish candles). Domestic platforms may have the colors reversed, but the basic principle remains the same.

Each candlestick consists of several parts. The thick central part, called the body, indicates the opening and closing prices; in bullish candles, the bottom is the open, and the top is the close. In bearish candles, it’s the opposite. The length of the body reflects volatility; a long body indicates significant price movement. A long bullish or bearish candle signals a sharp price move.

Thin lines attached to the body(wicks or shadows) represent the high and low prices during that period. A long upper wick in a bearish candle suggests failed upward attempts, while a long upper wick in a bullish candle indicates weakening buying pressure. These detailed interpretations help predict future price directions.

Time Frame Settings for Short- and Long-Term Analysis

Candlestick charts allow setting various time frames, such as 1-minute, daily, or monthly charts. Short-term traders may prefer shorter candles, while long-term investors might choose longer candles, tailoring their analysis to their investment style.

Support and Resistance Levels: Psychological Reference Points

Support and resistance levels are simple yet highly practical tools. Many professional investors base their trading plans around them.

Support: The Bottom Level Where Price Bounces

While observing stocks, you may notice patterns where prices repeatedly rebound at certain levels. The line drawn on the chart where it seems “no matter how much it drops, it stops at this level” is the support level.

When the price bounces near support, it’s likely to rise again, making it a potential buy point. However, if the price breaks below support, the downtrend may intensify, so caution is needed.

Resistance: The Ceiling Level Where Price Fails to Rise

Resistance is the opposite concept of support. When a stock rises and repeatedly fails to break through a certain level, connecting these points forms the resistance line. It reflects market psychology that “it’s difficult to surpass this level no matter how much it tries.”

If the price approaches resistance and then falls back, it may be a signal to sell. Conversely, breaking through resistance could indicate a continuation of the upward trend.

Understanding Support and Resistance Volatility

It’s important to note that support and resistance levels are not absolute. They can vary depending on the time frame. A support level broken in one period may become resistance in another, and vice versa. Therefore, it’s essential to consider other indicators for comprehensive analysis.

Moving Averages: Key to Confirming Trends

Moving averages(MA) are lines that connect the average prices over a certain period. Common types include 5-day, 20-day, 60-day, and 120-day moving averages, each representing the average over its respective period.

Noise Reduction and Trend Identification

Moving averages excel at filtering out short-term fluctuations to reveal the true trend. When prices are volatile, observing the moving average helps determine whether the movement is temporary or part of a sustained trend.

Confirming Trend Direction with Orderly and Reversed Arrangements

An upward arrangement, where short-term moving averages are above long-term ones, indicates an uptrend. Conversely, a downward arrangement, where long-term averages are above short-term ones, suggests a downtrend.

Golden Cross and Dead Cross: Turning Points for Trading Signals

A golden cross occurs when a short-term moving average crosses above a long-term average, signaling a potential buy opportunity and a possible continuation of the upward trend. A dead cross, where the short-term average crosses below the long-term average, indicates a sell signal and potential downward movement.

Moving averages come in various forms, such as simple and exponential, and can be used according to the situation.

OBV Indicator: Measuring Buying and Selling Strength via Volume

OBV(On-Balance Volume) is based on the principle that volume precedes price movement. When buying pressure is strong, prices tend to rise; when selling pressure dominates, prices tend to fall.

OBV is calculated by adding volume on days when prices rise and subtracting volume on days when prices fall. This helps gauge the actual strength of buying and selling.

If the price has risen but OBV has hardly increased, it signals weakening buying pressure, suggesting a possible decline soon. Conversely, if the price drops but OBV continues to rise, it indicates hidden buying strength, which could lead to a rebound.

Integrated Analysis: Harmonious Use of Multiple Indicators

Relying solely on candlestick charts, support and resistance levels, moving averages, or OBV is insufficient for perfect judgment. Professional investors analyze all these indicators comprehensively.

For example, if the price approaches resistance, a golden cross appears, and OBV is rising, the likelihood of a breakout increases. Conversely, if near support, a dead cross and decreasing OBV together suggest a deeper decline.

Conclusion: Starting with Systematic Analysis for Smarter Investing

Candlestick patterns, support and resistance concepts, trend confirmation via moving averages, and volume signals from OBV—all may seem complicated at first glance, but in reality, they are tools that make your investment decisions more logical and systematic.

The most important thing is not to look at these indicators individually but to interpret them collectively. If you apply them flexibly according to market conditions and your investment style, technical analysis can become a powerful weapon for successful trading.