Bar charts are one of the most common types of charts in trading. They provide a lot of information that day traders can use when making trading decisions and are easy to read and interpret.
How to Read a Bar Chart
Bar charts are often referred to as “OHLC charts” as well as “HLC charts.” The former is the most common and includes information about the open price (O), high price (H), low price (L), and closing price (C), while the HLC chart includes information only about the high price, low price, and closing price.
Open Price
The open price is the first price traded during the bar and is represented by the horizontal line on the left side of the bar.
High Price
The high price is the highest price traded during the bar and is represented at the top of the vertical bar.
Low Price
The low price is the lowest price traded during the bar and is represented at the bottom of the vertical bar.
Closing Price
The closing price is the last price traded during the bar and is represented by the horizontal line on the right side of the bar.
Direction and Range
The direction of price movement during the bar is illustrated by the positions of the open and closing feet. If the closing foot is above the opening foot, the price has made an upward progression during the bar. If the closing foot is below the opening foot, the price has made a downward progression during the bar.
The range of the bar is illustrated by the positions of the high and low of the vertical bar. The range is calculated by subtracting the low price from the high price (Bar Range = High Price – Low Price).
The Final Word
It takes a little practice to get used to reading a bar chart, especially when the price is moving very quickly. Remember that the open price is always on the left side, and the closing price always appears on the right side (just like how to read: from right to left, since the open price always comes before the close). The vertical part of the bar represents the high and low price during the bar period.
A bar chart can also include trading volume – for example, the number of shares or futures contracts or foreign currencies that are traded in each bar. Therefore, it’s also recommended to understand the buy and sell volume when reading a bar chart.
Other types of charts include Renko charts, candlestick charts, and Heikin Ashi charts.
Frequently Asked Questions
What is an inside bar on a stock chart?
On a stock chart, an inside bar is a bar that does not break the high or low of the previous bar. This indicates a decrease in volatility; the same amount of time passes, but the stock price has a smaller range. This signal can be combined with other indicators, such as the VIX volatility index.
How long does it take to form a bar on a stock chart?
Each trader determines the time it takes to form a bar on their stock chart. The only restrictions are those related to the charting software you are using. Some software may limit you to a few options, such as five-minute, hourly, daily, weekly, or monthly bars. Other software may allow you to fully customize time frames for the bars down to the second. It can be helpful to change time frames from time to time and look at price movement from a variety of contexts.
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Source: https://www.thebalancemoney.com/read-a-bar-chart-1031114
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