Bar charts are made up of many price bars that each show how the price of a security or asset changed over a specific period of time. Bar charts are called different names depending on the values displayed. When the bar chart displays the high, low, and close prices it's called HLC bar chart. HLC charts are less commonly used. When the bar chart displays the open, high, low, and closing prices, it's called OHLC chart. OHLC bar chart is more popular and useful compared to HLC bar chart as it displays all four price values.
Reading Bar Charts
Understand Bar Charts
Each bar in a bar chart represents the price fluctuations over a specific time interval. Each bar's vertical line represents the range of prices seen within the time frame represented by the bar. A thin horizontal line to the left of the vertical line line indicates the opening price; a thin horizontal line to the right of the vertical line indicates the closing price.
The bar will be green (or white) if the closing price is higher than the opening price. When the closing is lower than the opening price, it indicates that the price fell during that time period and might be represented by a red (or black) bar. The bars are color-coded to aid traders in identifying patterns and price changes. All charting tools have a color coding feature.
Bar charts, along with other forms of charts including candlestick and line charts, are used by technical analysts to track price movement and inform trading decisions. Bar charts help investors examine trends, identify possible trend reversals, and track price volatility and fluctuations.
Traders and investors can pick and choose different time frame depending on the type of analysis they perform. Day traders pay close attention to the 1-minute bar chart, which updates its data by adding a new price bar every minute. Swing traders mainly use the daily chart, while position traders tend to perform their analysis by looking at the three-day chart. Investors, who make a long-term investments, general use longer time frames such as weekly bar chart and occasionally the monthly bar chart.
Reading Bar Charts
Bar charts are useful for traders and investors since they provide the open, high, low, and closing prices for each time period.
The move between the high and low prices within the specific time frame is represented by the long vertical line of the bar chart. The longer the vertical line, the greater is the fluctuation between the low and the high of that period, indicating a certain level of volatility. On the other hand, when the vertical line is shorter it indicates that there was little volatility during that time frame.
A big spread between the day's start and close indicates a considerable price change. If the close is significantly higher than the open, it indicates that buyers, the bulls, were quite active throughout that time, which could be indicative of continued purchasing activity in following time periods. If price opens and closes near the same levels, it indicates indecision, a possibly lack of conviction, during that time period.
Where price closes in relation to the open, the high and low of that time period provides important information. A strong rally followed by a close considerably below the high indicates that sellers stepped in as the session came to an end. That's not as bullish as if the asset had closed around its high for specific time period.
The color of the bar is also important. A red (or black) bar displays a bearish-leaning pattern. A green (or white) bar displays a bullish-leaning pattern.
Bar Charts vs. Candlestick Charts
Whether you prefer bar charts or candlestick charts, each has its advantages.
Comparing a bar chart to a Japanese candlestick chart reveals striking similarities. Both types of charts provide the same data, but do so in distinctive ways.
The high and and low is represented by the vertical line. The open and close are represented by two little horizontal lines on either side of the vertical line. Together (the vertical line, and the right and left horizontal lines) makes up a bar chart.
In comparison, candlestick charts, like bar charts, contain a thin vertical line representing the high and low of the time period (called shadows or wicks).
The difference is that candlestick charts have an actual thicker body, which represents the difference between the opening and closing price within that time period. If the close is lower than the open, the color of the body is body red (or black); if the close is higher than the open, the color of the body is green (or white).
While both charts display the same data, the information provided by candlestick charts and patterns can offer an added layer to the analysis.