Basic Chart Analysis for Beginner Traders: Reading Candlestick Charts to OBV

If you are new to the stock market, terms like candlestick charts, support lines, resistance lines, moving averages, and OBV volume analysis may feel unfamiliar. But don’t worry. All of these tools are ultimately designed to help you trade more strategically and efficiently. In this article, I will explain from the basics how to interpret candlestick charts, support and resistance levels, moving averages, and OBV volume analysis in a beginner-friendly way.

Candlestick Chart: Contains All Information About Price Movements

When you access a trading platform, the first thing that catches your eye is the candlestick chart. It is called so because of its candle-like shape, and it is the most widely used chart type in modern stock trading. It may look complicated, but in reality, it is a very effective analytical tool for quickly and accurately understanding price movements.

Bullish and Bearish Candles: Reading Price Trends by Color

The most noticeable feature of a candlestick chart is the color of the candles. Green candles indicate an upward movement (bullish), and red candles indicate a downward movement (bearish).

Note: In domestic exchanges, these colors may be reversed.

Each candle consists of the following components:

Body(Real Body): The thick part representing the opening and closing prices for a specific period. In bullish candles, the bottom is the opening price, and the top is the closing price; in bearish candles, the opposite. The length of the body indicates the price range during that period.

If a candle with a long body(Long Body) suddenly appears, it warrants close attention. This could indicate a mid- to long-term trend change rather than a short-term sharp drop or rise.

Shadows(Wicks): Thin lines attached to the body, showing the highest and lowest prices during the period. Both bullish and bearish candles have upper shadows indicating the high, and lower shadows indicating the low.

A long upper shadow in a bearish candle suggests that prices rose well above the opening price but then fell back down, indicating strong selling pressure and potential continuation of a downtrend.

A long upper shadow in a bullish candle indicates that prices rose but then retreated, suggesting weakening buying momentum.

One of the strengths of candlestick charts is that you can freely set the time frame, such as 1-minute, daily, or monthly charts. This makes it an essential analysis tool for both short-term traders and long-term investors, and many experts make trading decisions based solely on candlestick patterns.

Support and Resistance: Find the Walls of Price

Support and resistance levels are simple but highly practical tools used by many traders.

Role of Support Lines

While observing prices, you may notice patterns where the price bounces back at certain levels despite a downtrend. These points are connected to form support lines. Support lines serve as important reference points for investment decisions.

If the price bounces near a support line, it is likely to rise again, so you might consider buying at that point. Conversely, if the price breaks through the support line and continues downward, it indicates a strengthening downtrend.

Meaning of Resistance Lines

Resistance lines are the opposite of support lines. They connect points where the rising price repeatedly gets pushed back.

If the price approaches a resistance line and then falls again, there is a possibility of further decline, and you might consider selling or waiting for a better opportunity. If the price breaks through the resistance line and continues upward, it signals a potential ongoing uptrend.

It’s important to remember that support and resistance levels are not absolute. Once the price breaks through a support or resistance, their roles can change. For example, a resistance level can become a support level after being broken.

Effective trading requires not only these tools but also their combined use with other technical indicators.

Moving Averages: Clearly Reveal Trends

The term “이평선” (moving average line) frequently appears in financial news. It is a shortened term for moving average.

A moving average is a line that shows the average closing price over a specified period.

For example, the 5-day moving average reflects the average price over 5 trading days, the 20-day over about a month, and the 60-day over roughly three months.

The main benefit of moving averages is that they filter out short-term volatility and clearly show the overall trend. Even during sudden fluctuations, looking at the moving average helps you determine whether the trend is generally upward or downward.

Arrangements: Golden Cross and Death Cross

When multiple moving averages are arranged from top to bottom as 5-day, 20-day, 60-day, and 120-day, it is called a “정배열” (positive arrangement). This indicates that the average prices are rising over time and suggests a steady upward trend.

Conversely, when longer-period moving averages are above shorter ones, it is called a “역배열” (reverse arrangement), indicating a declining trend over time.

Even if the current price is rising, if a stock has maintained a reverse arrangement for a long time, it’s important to analyze carefully whether this is a true trend reversal or just a temporary rebound.

Golden Cross and Dead Cross: Key Trading Signals

The most practical way for beginners to use moving averages is to identify the Golden Cross and Death Cross.

Golden Cross occurs when a short-term moving average crosses above a long-term moving average. This is a positive signal indicating a potential start of a bullish trend, and buying can be considered after confirming the trend.

Death Cross occurs when a short-term moving average crosses below a long-term moving average. This indicates a bearish trend and suggests that selling or exiting positions might be appropriate.

Moving averages help clarify the trend and can be used flexibly with different types such as simple moving averages (SMA) and exponential moving averages (EMA). However, their effectiveness is maximized when used together with other indicators.

OBV Indicator: Read Hidden Signals Through Volume

The last tool introduced is the OBV(On Balance Volume) indicator, also called the “Cumulative Volume Indicator.”

OBV is based on the principle that volume tends to lead price movements. Generally, high buying volume pushes prices up, and high selling volume pushes prices down.

OBV is calculated by adding the volume on days when the price rises and subtracting the volume on days when the price falls. This helps assess the true strength of buying and selling pressure.

For example, if the price has risen but OBV remains almost unchanged, how should this be interpreted? It indicates weakening buying pressure and suggests that the price may decline in the future.

In technical analysis, it’s essential to look at volume indicators like OBV along with support/resistance levels and moving averages. Price increases without volume support are less likely to sustain.

Comprehensive Analysis for Smarter Trading

So far, we have covered how to read candlestick charts, support and resistance levels, moving averages, and OBV volume analysis. While these tools may seem complex at first, they are ultimately designed to help you make more efficient and reliable trading decisions.

Rather than relying on individual indicators, combining multiple tools provides a more trustworthy analysis. By comprehensively analyzing candlestick patterns, support and resistance levels, moving average arrangements, and volume trends, you can better understand the true market flow.