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Bar Chart

Posted by TradingDrills Academy on

A bar chart displays price changes within a specified period of time. This chart consists of several bars, each of which alone represents the four prices during a specified time period: initial (open), maximum (high), minimum (low), and final prices (close). Analysts use this information to analyze short term and long term market trends. In a bar chart, like many of the price charts, the vertical axis (Y) represents the price scale and the horizontal axis (X) represents the time scale. 


bar chart

In a bar chart, as shown in the figure above, price movements are shown using a vertical line with two small horizontal lines on the sides to indicate the starting and closing prices over a period of time. The bottom of the vertical line at the bottom and top shows the maximum and minimum prices for the time period shown by that bar. The starting price of the transaction is indicated by a horizontal line on the left side of the vertical line, and the final price is indicated by a horizontal line on the right side of the same initial vertical line.

The time period the bar chart interprets can be changed depending on the level of analysis required. For example, if a trader uses daily price fluctuation information for analyzing market trends, it can be set so each bar represents the starting, ending, maximum, and minimum prices for one day. If a trader wants to find information for a time period of one minute, a bar chart can be set so one vertical line indicates the price fluctuation over a minute of time. 

Bar charts help traders analyze price trends, guess potential return points, and monitor price fluctuations. Bar charts are a great visual tool which allows analysts and traders to see the market trends quickly and accurately. If there is an increase in price over a set time period, the color of the vertical bar will typically be black or green. If there is a decrease in price over a time period, the vertical bar will be red. This color scheme is available to traders as an adjustable option available in most trading infrastructures. 


Interpretation of Bar Charts

There is a lot of information that a trader can extract from bar charts. If there is a big gap between the initial and final price, it means there is a significant price movement in that period. If the closing price is significantly lower than the starting price, it means that sellers were very actively selling in that time period, which may indicate selling interest in future time periods. A small gap between the initial and final price shows low price movements, which can indicate low liquidity within a time period. 

Long vertical bars indicate that there has been a significant difference between the maximum and minimum price of that period. This means that the volatility in this range has been high, and conversely, when these vertical bars are short, it indicates the low volatility of the price in this range. 

The position of the final price also conveys valuable information to us in comparison with the maximum and minimum prices. If the price of an asset in the target range is very high but still below the maximum price and is quite close to it, it could indicate that near the end of the time period the sellers have entered the flow and the intensity of the cow The market has shrunk.

If the bars are colored by descending or ascending in the relevant time frame, these colors can also transmit information to us at a glance. An upward trend and bulls are generally shown in green and black and upward one-way movements, and declining trends are generally shown in red for bars and quick downward movements.


An Example of a Bar Chart

Below is an example of a bar chart for the top 500 companies in the United States. During market downturns, bars generally rise and show an increase in price fluctuations. During this period, the color of the bars is generally red, and the number of red bars increases compared to green bars.


As prices rise, the number of green bars increases compared to red bars, making it easier to visually identify the trend. Although both red and green bars are seen during an upward (or downward) trend, the number of one of these bars is always higher than the other, and this actually causes the price to move.

In order for the price to move up in a range, the price bars must show this by moving upwards on average. If the price starts to decline on average, and this is further illustrated by the creation of red bars, it can be concluded that the price has actually entered a polarization or a reversal of the price.


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