Chart Reading Guide
Price charts allow us to visually understand market movements. This guide covers the fundamental technical analysis tools used in the coffee commodity market.
1. Candlestick Charts
Candlestick charts display the open, close, high, and low prices within a given time period as a single “candle.” They were developed in 18th-century Japan for rice trading.
Green / Hollow Candle (Bullish)
The closing price is higher than the opening price. Buyers are dominant.
• Upper wick = highest price reached during the period
• Top of body = closing price
• Bottom of body = opening price
• Lower wick = lowest price reached during the period
Red / Filled Candle (Bearish)
The closing price is lower than the opening price. Sellers are dominant.
• Upper wick = highest price reached during the period
• Top of body = opening price
• Bottom of body = closing price
• Lower wick = lowest price reached during the period
Key Candlestick Patterns
Doji
Open and close are nearly identical. A signal of indecision. May herald a trend reversal.
Hammer
Long lower wick, small body. When seen in a downtrend, it signals a potential reversal.
Engulfing
One candle completely engulfs the previous candle. A strong trend reversal signal.
2. Support and Resistance Levels
Support and resistance are horizontal levels that price repeatedly tests and typically bounces from. These levels represent zones where supply and demand are concentrated.
Support
The level where price stops falling and buyers step in. Example: The 280 cent/lb level may serve as strong support for Arabica KC1! — every time price drops to this level, buyers emerge and price recovers.
Resistance
The level where price stops rising and sellers step in. Example: Arabica price unable to break the 320 cent/lb level falls back each time it tests this level — until sufficient buying pressure finally breaks through.
Breakout
When price breaks above a resistance level, the old resistance becomes new support. The reverse is also true. Breakouts typically occur with high volume and can mark the beginning of strong trend moves. In the coffee market, climate events (frost, drought) often trigger resistance breakouts.
3. Trend Lines
Trend lines are used to identify the overall direction of price movement. An uptrend line is drawn by connecting successive lows, while a downtrend line is drawn by connecting successive highs.
Uptrend
Successive higher lows and higher highs. Each low is higher than the previous one.
Downtrend
Successive lower highs and lower lows. Each high is lower than the previous one.
Sideways (Range)
Price moves within a defined range. Neither buyers nor sellers are dominant.
4. Moving Averages
Moving averages are indicators that smooth out price data by averaging values over a specified period. They filter out noise and make the underlying trend easier to see.
| Indicator | Period | Usage |
|---|---|---|
| SMA 20 | 20 days | Short-term trend. Scalping and day trading. |
| SMA 50 | 50 days | Medium-term trend. Ideal for swing trading. |
| SMA 200 | 200 days | Long-term trend. Followed by institutional investors. |
| Golden Cross | 50/200 | When SMA 50 crosses above SMA 200 — strong buy signal. |
| Death Cross | 50/200 | When SMA 50 crosses below SMA 200 — strong sell signal. |
5. Volume
Volume is the number of contracts traded during a given period. It measures the “strength” of a price move. Price movement accompanied by high volume is more reliable. Movement on low volume may be a “trap.” In the coffee market, CFTC COT reports in particular support volume analysis by showing the direction of speculative positions.