ASAmol Shukla
50 mins lesson duration•10 mins read

Lesson 1: Chart Types & Price Action Fundamentals

Understand candlestick charts, support/resistance levels, and how to read price action like a professional trader.

What is Technical Analysis?

Technical analysis is the study of price movements and trading volume to forecast future price direction. Unlike fundamental analysis (which evaluates a company's intrinsic value), technical analysis focuses on what the market is doing, not what the company is worth.

Mental model: Think of technical analysis as reading the market's body language — price action, volume, and patterns tell you whether buyers or sellers are in control.

The Three Pillars of Technical Analysis

Pillar What It Studies Key Insight
Price Action How price moves over time Price discounts everything
Volume How much trading activity occurs Volume confirms trends
Time How long patterns take to form Timing matters for entries/exits

Chart Types — Choosing Your Window

1. Line Charts

The simplest chart type — connects closing prices with a continuous line.

Pros Cons
Easy to read Hides intraday volatility
Shows overall trend clearly No open/high/low data
Good for beginners Less detail for trading decisions

2. Bar Charts (OHLC)

Each bar shows four prices: Open, High, Low, Close.

Component Position
Open Horizontal tick on the left
High Top of the vertical line
Low Bottom of the vertical line
Close Horizontal tick on the right

3. Candlestick Charts (Most Popular)

Japanese candlesticks show the same OHLC data but with a visual "body" that makes patterns easier to spot.

Candle Color Meaning Visual
Green/White Close > Open (bullish) Filled body
Red/Black Close < Open (bearish) Hollow/filled body

Candlestick Anatomy:

  • Body: Range between open and close
  • Upper Wick/Shadow: High to the higher of open/close
  • Lower Wick/Shadow: Low to the lower of open/single

Key Candlestick Patterns

Single Candle Patterns

Pattern Appearance Signal Reliability
Doji Very small body, long wicks Indecision Medium
Hammer Small body, long lower wick Bullish reversal High
Shooting Star Small body, long upper wick Bearish reversal High
Marubozu Full body, no wicks Strong conviction High

Multi-Candle Patterns

Pattern Description Signal
Engulfing Current candle engulfs previous Strong reversal
Morning Star Three-candle bullish reversal Buy signal
Evening Star Three-candle bearish reversal Sell signal
Three White Soldiers Three consecutive bullish candles Strong uptrend

Support and Resistance

Support is a price level where buying interest is strong enough to prevent further decline. Resistance is where selling interest prevents further advance.

How to Identify Support & Resistance

  1. Look for price bounces — levels where price has reversed multiple times
  2. Round numbers — $50, $100, $200 often act as psychological levels
  3. Previous highs/lows — historical turning points
  4. Moving averages — dynamic support/resistance (covered later)

Key insight: Support becomes resistance once broken, and vice versa — this is called the "polarity principle."

The Role of Volume at Key Levels

Volume at Level What It Means
High volume bounce Strong support/resistance
Low volume bounce Weak level, likely to break
High volume breakout Confirmed breakout
Low volume breakout Likely false breakout

Trend Lines and Channels

Drawing Trend Lines

  • Uptrend line: Connect at least two higher lows with a straight line
  • Downtrend line: Connect at least two lower highs with a straight line
  • More touches = stronger trend line

Trend Channels

A channel is formed by drawing a parallel line to the trend line:

Channel Type How to Draw Trading Strategy
Ascending Parallel line above trend line Buy at support, sell at resistance
Descending Parallel line below trend line Short at resistance, cover at support
Horizontal Both lines flat Trade the range

Common Mistakes to Avoid

  • Mistake: Drawing too many lines — Fix: Focus on the most obvious levels; less is more.
  • Mistake: Ignoring the timeframe — Fix: Support/resistance on daily charts are more significant than on 5-minute charts.
  • Mistake: Treating levels as exact prices — Fix: Think of them as zones, not precise numbers.
  • Mistake: Forcing patterns where none exist — Fix: Let the pattern come to you; don't chase it.

Professional Tips & Tricks

  • Start with daily charts for the big picture, then zoom in for entries.
  • Use at least 2-3 touches to confirm a trend line.
  • Round numbers ($50, $100) are powerful psychological levels.
  • Always check multiple timeframes before making a decision.

Key Takeaways

  • Technical analysis studies price, volume, and time to forecast direction.
  • Candlestick charts are the most popular and informative chart type.
  • Support and resistance are zones where supply and demand shift.
  • Trend lines and channels help you identify the market's direction.
  • Always use multiple indicators and timeframes for confirmation.

Next up: Technical indicators — moving averages, RSI, and MACD.

Interactive Lesson Code Snippet
# Technical Analysis Fundamentals

## Candlestick Anatomy

Bullish Candle (Green):
        ┃  ← Upper Wick (High)
    ┏━━━━━━┓
    ┃ BODY ┃  ← Close is ABOVE Open
    ┗━━━━━━┛
        ┃  ← Lower Wick (Low)

Bearish Candle (Red):
        ┃  ← Upper Wick (High)
    ┏━━━━━━┓
    ┃ BODY ┃  ← Close is BELOW Open
    ┗━━━━━━┛
        ┃  ← Lower Wick (Low)

## Support & Resistance Zones

Price ($)
  │
120 ──────────── Resistance ───────────
  │                    ╲
100 ──────────── Support ──────────────
  │                         ╱
 80 ──────────── Support ──────────────
  │
  └────────────────────────────────────── Time

## Key Pattern Cheat Sheet

| Pattern | Signal | Strength |
|---------|--------|----------|
| Hammer | Bullish Reversal | ★★★☆☆ |
| Engulfing | Strong Reversal | ★★★★☆ |
| Doji | Indecision | ★★☆☆☆ |
| Morning Star | Buy Signal | ★★★★☆ |
Language: text

Code Visualization Tips

  • Draw your own candlestick on paper — label the body, wicks, open, high, low, and close.
  • Open a chart on TradingView and identify at least 3 support/resistance levels.
  • Practice spotting hammer and shooting star patterns on historical data.

Professional Tips & Tricks

  • Never rely on a single candlestick pattern — wait for confirmation from the next candle.
  • Support and resistance are zones, not exact lines — allow some wiggle room.
  • Higher timeframe levels (daily, weekly) are more significant than lower ones.

Python Code Judge & Practice Arena

LeetCode Style

Run real Python 3.12 WebAssembly code directly in your browser against automated test suites.

Solved:0 / 2
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Challenges:
Problem 1 of 2

Chart Reading Exercise

Easy+10 XP
Open TradingView (free) and find 3 different stocks. For each, identify the current trend (up, down, or sideways) and draw a trend line connecting at least 2 points.
main.pyPython 3.12 (WASM)
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Press Run Code to test or Submit to verify test cases

Up next · Continue learning

Technical Indicators — Moving Averages, RSI & MACD

Learn the most widely-used technical indicators to identify trends, momentum, and overbought/oversold conditions.

11 mins read55 mins
Start next lesson
Fundamental Analysis for Stock Evaluation Technical Indicators — Moving Averages, RSI & MACD
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