What a price chart can and cannot tell you

A candlestick chart contains less than it appears to. Each candle is four numbers for one period: the price it opened at, the highest and lowest it reached, and the price it closed at. The body spans open to close, the wick spans the full range, and the colour says which way round the open and close were. Volume, if the chart shows it, is a fifth number. That is the entire contents.

Everything else is interpretation. A level becomes "support" because someone drew a line through two lows. A shape becomes a "double bottom" because someone recognised a W. The chart did not label itself, and two people can read the same chart differently without either of them making an arithmetic error.

Why that matters before the patterns

• Patterns are named after they complete. While one is forming, the chart is identical to a chart where it fails to form.
• The eye finds shapes in random data reliably, which is why a pattern has to be defined precisely before anyone can test whether it means anything.
• A pattern says nothing about the business, the balance sheet or the distribution. It is a description of past prices.