# CHART READING GUIDE Candlesticks, patterns, volume, and indicators — all connected to the Setup Gate. Every chart concept here maps directly to a gate you run before entering a trade. ## Section 01 ### Candlesticks Each candle shows 4 data points: open, high, low, close. The body shows the open-to-close range. The wicks show how far price moved beyond that range. Together they tell you who was in control — buyers or sellers — and how decisively. **Gate 2 — Structure:** You read candlesticks to confirm clean support and resistance. A hammer at support is Gate 2 evidence. A marubozu breaking a level is Gate 2 confirmation. A doji at resistance is Gate 2 warning — strength may be fading. #### BULLISH **Bullish Candle** Close above open. Green body. The bigger the body relative to wicks, the stronger the buying pressure was all day. - Buyers in control #### BEARISH **Bearish Candle** Close below open. Red body. Sellers dominated the full session. The larger the body, the more decisive the selling pressure. - Sellers in control #### DOJI **Doji** Open equals close. Equal wicks. The market is tired — neither side won. Context matters: doji at resistance = warning. Doji at support = possible reversal. - Indecision — read context #### HAMMER **Hammer** Long lower wick (2× body minimum). Stock sold off hard during the day, but buyers stepped in and pushed it back up. Classic reversal signal at support. - Reversal at support #### MARUBOZU **Marubozu** No wicks. All body. Buyers dominated from open to close with no hesitation. The NVTS problem: multiple bullish marubozus in a row signal extended conditions — do not chase. - Explosive strength — check NVTS guard #### SHOOTING STAR **Shooting Star** Long upper wick. Stock rallied hard intraday then sold off to close near the lows. Rejection of higher prices — often the first warning that a trend is losing momentum. - Rejection at resistance #### ENGULFING **Bullish Engulfing** Today's green candle fully wraps yesterday's red candle. Buyers overwhelmed sellers completely. Strong reversal signal — especially meaningful at support on above-average volume. - Strong reversal signal #### INSIDE BAR **Inside Bar / NR7** Today's range is fully inside yesterday's range. Price is contracting — energy is coiling. A breakout above the outer candle high = Gate 2 confirmation of a new move beginning. - Coil setup — watch for breakout ## Section 02 ### Volume Analysis Volume is the weight of evidence behind price. A breakout on low volume is suspicious. The same breakout on 3× average volume is confirmed. Scanner A scores volume buildup — Gate 1 requires 500K+ average daily volume as the liquidity floor. **Gate 1 — Liquidity:** Volume serves two purposes in the gate. First, average daily volume above 500K ensures you can get in and out without slippage. Second, volume on the breakout candle (ideally 2-3× average) confirms institutional buying, not retail noise. #### Volume Contraction - Volume declining over 5+ consecutive days during a base or pullback. - This is the setup you want to see BEFORE a breakout. #### Volume Expansion - Volume 2-3× above average on the breakout candle. This is the confirmation signal. #### Climax Volume - Volume 5-10× average on a single candle, usually after a big run. This is exhaustion, not continuation. #### Volume on Pullback - Volume declining as price pulls back = healthy. - Good: low volume on down days, high volume on up days. #### Relative Volume (RVOL) - Today's volume divided by the 20-day average. #### Volume at Support If volume spikes on a down day TO support, that can be buyers stepping in aggressively. ## Section 03 ### Chart Patterns Patterns are compressed investor psychology. Understanding the psychology behind the shape helps you read new patterns you've never seen before. **Gate 5 — Thesis:** Identifying the pattern gives you your one-sentence thesis. #### The Coil / Base Breakout Stock consolidates in a tightening range for 7-21 days. Then: one large candle breaks the range on 2-3× average volume. #### Trend Pullback to EMA Stock in established uptrend. Pulls back 7-20% on declining volume — weak hands selling. Holds the EMA20 or EMA50. #### Flag / Channel Pullback After a sharp move up, price consolidates in a slightly downward-sloping channel. #### Head & Shoulders Top Three peaks — middle peak (head) is highest. When price breaks the neckline after the right shoulder, the trend reversal is confirmed. ## Section 04 ### Key Indicators Scanner A uses EMA 9/21/50, RSI, Bollinger Bands, and MACD to build the 10-component score. #### EMA 9 / 21 / 50 Smooths price over time, weighting recent candles more heavily. #### RSI Measures momentum on a 0-100 scale. Not a buy/sell signal in isolation — it confirms momentum quality. - Buy zone: RSI 45-68 on a breakout or pullback entry. #### BB Width Bollinger Bands are standard deviation envelopes around the 20-day MA. When bands narrow, price is coiling. When they expand on a move, the breakout is beginning. #### MACD Measures the spread between EMA12 and EMA26. When MACD crosses above its signal line — momentum is building. ## Section 05 ### Quick Reference Cheat Sheet #### Chart Signals — Buy / Skip / Wait **BUY SIGNALS (need 4+ of these)** - EMA 9 > 21 > 50 — full bull stack - RSI 45-68 on entry day **HARD SKIP (any one = no trade)** - RSI above 75 — Scanner A forces score to 0 - 5-day gain above 18% — NVTS guard fires #### WAIT / WATCH (setup not ready yet) - RSI 68-75 — extended but not failed - BB width still wide — coil not formed ## Section 06 ### Chart Reading Quiz #### Question 1 of 3 A stock shows: RSI 52, EMA9 above EMA21 above EMA50, 5-day gain of 4%, BB width at 3-month low, today's volume 2.8× average on a green breakout candle. Scanner A score: 84. What do you do? - **Correct answer: B**. #### Question 2 of 3 An energy stock gapped up 8% today. Prior 5-day gain was 22% before the gap. Volume is 6× average. RSI is 79. **Correct answer: C**. #### Question 3 of 3 The Regime Scorer shows 42 — NEUTRAL. What is your R:R and what do you do? - **Correct answer: B or C.**