Week 4: Reading Price

Introduces the vocabulary for describing what a price chart is showing: candlesticks as a compressed record of a period’s trading, volume as a measure of participation, and trends, support and resistance as ways of describing where price has tended to pause or reverse. None of this is presented as a signal in itself — its real job is defining where an entry, a stop, and an invalidation level actually sit, which is what Week 5 needs to size a position and what Weeks 6–7 need to place one.

The question this week answers#

A small account can’t just “wait and see” — a position needs a stop before it needs an opinion. What is a candlestick chart actually recording, and where in it does an entry, an invalidation level or a stop honestly belong?

By the end of this lecture#

• read what a single candlestick records: open, high, low and close for a period
• explain what volume adds that price alone doesn’t show
• define trend, range, support and resistance
• explain the difference between observing a pattern and treating it as a signal

Key ideas#

A candlestick summarises one time period (a day, an hour, a minute — the course mostly uses daily candles) with four numbers: the open, high, low and close. The “body” shows open versus close; the “wicks” show how far price moved beyond that range before settling. It’s a compression of a lot of individual trades into one shape, nothing more.

Volume — how many shares changed hands in that period — matters because the same price move on high volume reflects a lot of agreement; on low volume, it might reflect very little. Neither guarantees the move continues.

A trend describes a period where price has been mostly moving in one direction; a range describes a period where it hasn’t. Support and resistance describe price zones (not exact lines) where price has previously paused or reversed. All four of these are descriptions of what already happened on the chart — they are observations, not predictions, and this course will not present them as reliable standalone buy or sell signals at any point. What they’re good for is more specific: a support zone is a candidate place to put a stop, and a break of it is a candidate place to decide a trade was simply wrong — boundaries a small account needs regardless of what happens to be quoted at that moment (Week 2) or how volatile the fill turns out to be.

A worked example#

A simulated five-day sequence of daily closes for stock “Meridian Supply”: $51, 53, 52, 55, 54$. Read as a chart, this is a mild uptrend with one down day — a description of what happened, which says nothing on its own about day six.

The numbers#

A simple moving average smooths a run of closes into one number. The 5-day simple moving average of the sequence above:

(51 + 53 + 52 + 55 + 54) ÷ 5 = 265 ÷ 5 = 53

That single number, $53, is a lagging summary of the last five days — by construction it always sits behind the most recent price movement, which is exactly why Week 6 is explicit that a moving average confirms a trend after the fact rather than calling one in advance.

What a diagram would show#

A simulated candlestick chart covering roughly two weeks, with a shaded band marking an observed support zone and an annotation distinguishing “price paused here” (an observation) from “therefore price will pause here again” (an unsupported assumption) — the diagram’s whole purpose is to make that distinction visible.

Try it yourself#

The takeaway#

Candlesticks, volume, trend and support/resistance are a shared vocabulary for describing a chart, not a set of rules for predicting one. What they settle isn’t direction — it’s where an entry, a stop and an invalidation level honestly sit, which is exactly what Week 5 needs to size a position before either one is decided.