One of the most common trading chart types is the bar chart. They contain a wealth of information that day traders can use to make trading decisions, and they are relatively simple to read and understand. An opening foot (facing left), a vertical line, and a closing foot (facing right) make up a bar chart. Each bar contains the open, high, low, and close prices that occurred during a trader-defined interval. For example, if a day trader chooses to view a one-minute bar chart, a new bar will appear every minute, with each bar displaying the open, high, low, and close price for that minute. The interval can also be defined in terms of something other than time, such as the number of transactions. The term "tick chart" refers to a chart that shows transactions. When a certain number of transactions for the stock or other asset being charted have occurred, a new bar appears. Bar charts also show the price's direction of movement (upward or downward) and how far it moved during the bar. Based on the bar chart, day traders can assess how the price moves. Price action traders are those who make trading decisions based on those price bars.
Main Points
- A bar chart is a common day trading chart that displays a range of trading prices over a specified period.
- Bar charts can also be set to repopulate after a certain number of transactions rather than a set period.
- Bar charts are extremely useful to a day trader who bases his or her trading decisions on price movement.
- Reading a bar chart from left to right is simple, but assessing the situation correctly when prices are moving quickly will take some practice.
What Is a Bar Chart and How Do I Read It?
Bar charts are also known as "OHLC bar charts" and "HLC bar charts." The former is more popular and shows the open (O), high (H), low (L), and close (C) prices, whereas the HLC chart only shows the high, low, and close prices.Open
The open, which is indicated by the flat foot on the left side of the bar, is the first price traded during the bar.High
The vertical bar's top represents the high, which is the highest price traded during the bar.Low
As indicated by the bottom of the vertical bar, the lowest price traded during the bar is low.Close
The close, indicated by the flat foot on the right side of the bar, is the last price traded during the bar.Range and Direction
The opening and closing feet indicate the direction in which the price has moved during the bar. The price has risen during the bar if the closing foot is higher than the opening foot. The price has fallen during the bar if the closing foot is lower than the opening foot. The vertical bar's top and bottom positions indicate the range of the bar. By subtracting the low from the high, the range is calculated (Range of Bar = High - Low).Last Thoughts
Reading a bar chart takes some practice, especially when the price is changing rapidly. Always remember that the open is on the left and the close is on the right (like how you read: from right to left, because the open always comes before the close). The vertical portion of the bar represents the price's highs and lows during the bar's interval. A bar chart usually includes volume, which is the number of shares, forex lots, or futures contracts changing hands on each bar. When reading a bar chart, it's also a good idea to know how much money is being bought and sold. Renko, candlestick, and Heikin Ashi charts are some of the other chart types.Questions and Answers (FAQs)
What is the definition of an inside bar on a stock chart?
An inside bar on a stock chart is one that does not break the previous bar's high or low. The fact that the stock price has a narrower range despite the same amount of time having passed suggests that volatility is declining. This signal can be used in conjunction with other indicators, such as the VIX volatility index.On a stock chart, how long does it take to form a bar?
The time it takes for a bar to form on a stock chart is determined by each trader. The only limitations you'll face are those imposed by the charting software you use. SOne or two options, such as five-minute, one-hour, one-day, one-week, and one-month bars, are all that some software will give you to choose from. You might be able to adjust bar time frames to the second with some others. Changing time frames and looking at the price action from different perspectives can be beneficial.