Introduction to Bar Chart in Technical Analysis
Technical analysis is one of the important methodologies of stock selection and to make buy or sell decision. Before we start analysing any chart, the first selection we make is the format of the price chart. There are various types of price chart options like line chart, bar chart, candlestick chart etc but the commonly used charts in traders community is bar chart and candlestick chart. However, one chart you should not use is line chart since it provides least amount of information.
Bar charts also known as OHLC charts are used in charting and studying of chart patterns. It is one of the most popular forms of stock charts and was the most widely used charts before the introduction of candlestick charts. Each bar represents a symbol which is made up of OHLC data which are typically used to illustrate price movement of a financial instrument over a period of time. The height of each OHLC bar indicates the price range for the given period with the high being the topmost point of the bar and the low to be the lowermost point of the bar.
However, the time period could be either 1 minute, 5 minute, 15 minute, 1 hour, 4 hour, 1 day, 1 week, 1 month etc and each has its own bar as per the desired time period and accordingly it can be 1 minute bar, 1 day bar or 1 week bar. Moreover, some charting software use colours to indicate bullish or bearishness of a bar vis-a-vis to the close of the previous bar. This makes the OHLC bar chart much similar to the candlestick chart, but it lacks clarity as compared to the candlestick chart
How are they constructed?
To construct bar chart, the OHLC data is used and hence the name OHLC chart. In that vertical line, a small horizontal line (small tick) will be attached both on the left and the right hand side. The one on the left side indicates the opening price while one on the right hand shows closing price.
The bars will provide different colour depending upon whether the prices increased or fell in that period. For instance, the red colour indicates a down bar as compared to the previous bar while green candle indicates up bar vis-a-vis previous bar.
Different types of bars
There are basically four combinations of bar charts which includes-
The high and low of the present bar is higher than the previous bar and hence it is known as up bar or up day.
If the high and low of present bar is lower than the previous bar, it is termed as down bar or down day.
If the high of present bar is lower than previous bar high and the low of the present bar is higher than the low of the previous bar, then the present bar is termed as an ‘inside day’.
If the high of present bar is higher than previous bar while the low of present bar is lower than previous bar, it is known as outside bar.
Though bar chart is very commonly used chart pattern amongst the trader’s community but it’s a not a confirmation that what you expected will actually trigger. In such a scenario, you should use them in conjunction with other technical indicator and pattern for better signal.
Elearnmarkets wants to inform you that this post/video is solely for educational purpose. We are not advising any trading or investment ideas. We want to add that the data/indicator/signals contained in this website/post/video are not necessarily real-time nor accurate. All CFDs/traded instruments (stocks, indexes, futures, commodities) and Forex prices are not provided by exchanges but rather by web based charting platforms, and so prices/indicators may not be accurate and may differ from the actual market prices, meaning prices are indicative and not appropriate for trading or investing purposes. Therefore, Elearnmarkets doesn`t bear any responsibility for any trading losses you might incur as a result of using this data/ indicators/charting platform. This analysis is purely based on the technical observations and not meant for investing with real money. Elearnmarkets does not have any position in the market. One can create position in market at his/her own risk.
Elearnmarkets or anyone involved with Elearnmarkets will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals/discussions contained within this website/post. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.