How to Read Candlestick Charts in Context
Understand candle bodies, wicks, sessions, volume, and the difference between a price observation and a prediction.
Technical indicators
Know what the indicator measures.
A formula is a lens on recorded data—not a substitute for understanding the data or evaluating a hypothesis.
Simple moving average
A simple moving average is the arithmetic mean of the observations in a chosen window. A five-session average divides the sum of the latest five available closes by five. The window and input convention belong in the label; changing either changes the series.
Our chart lab leaves the first four average values unavailable rather than filling them with zero or quietly using shorter windows. The plotted line begins only when five observations exist.
Rate of change
The momentum example uses five-session rate of change: current close divided by the close five sessions earlier, minus one, expressed as a percentage. It is a change between two observations, not a count of rising sessions.
This is not the relative strength index, and no RSI threshold is implied. The moving averages and momentum guide explains why differently defined indicators should not share interchangeable labels.
Volume as a separate observation
Volume is displayed in thousands of sample shares per completed session. It adds context about recorded activity but does not by itself determine a subsequent direction. A real implementation would need a venue definition and a policy for corrections and incomplete sessions.
Keep transformations distinguishable from independent data. Averaging prices and taking their rate of change can illuminate different features of one series, but both are still derived from that price history.
Settings belong in the research record
Save the selected period, warmup history, decision timestamp, and data version. A rule requiring a final closing value cannot assume that it knew that final value earlier in the session. Record parameter changes as additional tests rather than invisible refinements.
Open chart analysis for the local workspace or study stock trading systems for the broader evaluation process.
Interactive sample
Explore the chart lab.
Chart lab / learn by exploring
✦ Sample dataOne dataset. Four perspectives.
Switch the view. Understand what changes.
Twenty completed sessions. Price rises from $100.00 to $108.40, with intervening declines. This is an invented sequence, not an instrument quote.
Volume is a separate illustrative observation for each session. More activity does not determine the direction of the next price move.
Solid: sample price. Dashed: five-session simple moving average. The first four averages are unavailable because five observations are required.
Momentum here means five-session rate of change: (current price ÷ price five sessions ago − 1) × 100. It is not RSI or a trading signal.
View the underlying sample data
| Session | Close | Volume | 5-session SMA | 5-session change |
|---|---|---|---|---|
| 1 | $100.00 | 380 | — | — |
| 2 | $101.20 | 440 | — | — |
| 3 | $100.60 | 325 | — | — |
| 4 | $102.40 | 510 | — | — |
| 5 | $101.80 | 365 | $101.20 | — |
| 6 | $103.70 | 600 | $101.94 | 3.70% |
| 7 | $102.90 | 430 | $102.28 | 1.68% |
| 8 | $104.20 | 480 | $103.00 | 3.58% |
| 9 | $103.10 | 420 | $103.14 | 0.68% |
| 10 | $104.90 | 590 | $103.76 | 3.05% |
| 11 | $105.30 | 630 | $104.08 | 1.54% |
| 12 | $104.60 | 420 | $104.42 | 1.65% |
| 13 | $105.90 | 560 | $104.76 | 1.63% |
| 14 | $106.40 | 605 | $105.42 | 3.20% |
| 15 | $105.50 | 510 | $105.54 | 0.57% |
| 16 | $107.10 | 680 | $105.90 | 1.71% |
| 17 | $106.20 | 520 | $106.22 | 1.53% |
| 18 | $107.60 | 700 | $106.56 | 1.61% |
| 19 | $108.10 | 610 | $106.90 | 1.60% |
| 20 | $108.40 | 660 | $107.48 | 2.75% |
The Analytics & Alpha Blog
Go deeper into the research.
Moving Averages and Momentum: Two Different Lenses
Learn what moving averages and momentum actually measure, why settings matter, and where apparent confirmation can mislead.