Stock Chart Analysis Complete Guide: Investment Tools from Basics to Advanced

Investors new to stocks are most often faced with charts first. Candlestick chart analysis, support and resistance levels, moving averages, and other technical analysis terms may feel unfamiliar at first, but they are all practical tools that make investment decisions more systematic. In this article, we will carefully explain four core analysis methods for stock investing and explore how to apply them in actual trading.

Basics of Stock Charts: Reading Candlestick Charts

When you access a trading platform, the first thing that catches your eye is a graph shaped like candles. This is called a candlestick chart, and it is the most widely used chart type in modern stock investing. Although it may look complex at first, it is an efficient tool for quickly and accurately understanding price movements.

Meaning conveyed by candle colors: Bullish and Bearish Candles

The most noticeable feature of candlestick charts is their color. On international standard platforms, green candles(bullish) indicate rising prices, while red candles(bearish) indicate falling prices. The thick part of each candle is called the body, representing the opening price(start of trading) and the closing price(end of trading) for that period.

For bullish candles, the bottom is the opening price, and the top is the closing price; for bearish candles, it is the opposite. The longer the body, the greater the price fluctuation during that period. Sudden long bullish or bearish candles should be carefully observed, as they indicate significant price movements.

Thin lines attached above and below the body are called shadows or wicks, representing the highest and lowest prices during the period. For example, a long upper wick on a bearish candle indicates that prices temporarily rose but ultimately fell, suggesting the possibility of further decline in the future.

Identifying Price Boundaries: Support and Resistance Levels

By observing charts, you may notice patterns where prices repeatedly react at certain levels. These are analyzed using support and resistance levels.

Support Level: Price Bottoms

Support levels are lines drawn by connecting points where prices tend to bounce back when falling. They visually represent the consensus among investors that “this stock doesn’t fall below this price.” When prices rebound near support levels, there is potential for further upward movement, making it a possible buying opportunity. However, if the price breaks through support levels and continues to decline, larger drops may follow, so caution is needed.

Resistance Level: Price Ceilings

Resistance levels are the opposite of support; they are lines connecting points where prices repeatedly fall after rising to certain levels. They visualize the pattern that “this stock doesn’t go much higher than this price.” When prices approach resistance and then fall back, it may be a signal to consider selling. Conversely, if the price breaks through resistance and continues upward, it can signal a new bullish trend.

It’s important to remember that support and resistance levels are not absolute. Once broken, they often change roles—previous resistance can become support, and vice versa.

Clarifying Trends: Moving Averages

The term “moving average” frequently appears in trading news and articles. It is a line that shows the average stock price over a specified period, such as 5, 20, 60, or 120 days.

The main advantage of moving averages is that they filter out short-term price noise and clearly reveal long-term trends. When sudden price swings occur, looking at the moving average helps determine whether it is just a short-term fluctuation or a fundamental trend change.

Signals of Trend: Golden Cross and Dead Cross

When multiple moving averages are arranged from shortest to longest—such as 5-day, 20-day, 60-day, and 120-day—they are said to be in a “positive alignment.” This indicates that the short-term average price has been rising consistently, suggesting a long-term upward trend. Conversely, if the long-term moving average is above the short-term one, it is called a “negative alignment,” indicating a long-term downward trend.

Investment Signals: Golden Cross and Dead Cross

A practical way to use moving averages is to observe where two lines intersect. When the short-term moving average crosses above the long-term moving average, it is called a “Golden Cross,” signaling strong buying momentum and a potential trend reversal to the upside. This is a good point to consider buying after confirming the trend. Conversely, when the short-term moving average crosses below the long-term one, it is called a “Dead Cross,” indicating increasing selling pressure and a possible signal to review or reduce your holdings.

Signals from Trading Volume: OBV Indicator

Volume is often overlooked in technical analysis, but it is a crucial indicator. The OBV(On-Balance Volume indicator) systematically analyzes the flow of trading volume.

OBV is based on the principle that “volume always precedes price.” It adds the volume on days when prices rise and subtracts volume on days when prices fall, providing insight into the strength of buying and selling forces.

For example, if the stock price rises but OBV remains nearly unchanged, it suggests that the price increase is weak due to low volume. This could mean a potential decline soon. Conversely, if OBV rises along with the price, it indicates healthy buying interest and a higher likelihood that the upward trend will continue.

When conducting technical analysis, do not ignore volume even if you focus on support/resistance levels and moving averages. An increase in price without strong volume backing can reverse quickly.

The First Step to Investment Success

These four fundamental tools—candlestick charts, support and resistance levels, moving averages, and OBV—each offer different perspectives on the market. Candlestick charts show individual period price movements, support and resistance levels reflect psychological thresholds, moving averages reveal overall trends, and OBV indicates the authenticity of volume.

While the analysis methods described here may seem complex at first, they are all practical weapons to make trading more systematic and cautious. Understanding and applying these tools together can help you make more rational investment decisions. Continuously learning and gaining practical experience based on these fundamentals will enable you to develop your own trading strategy.