Consisting of varying price bars, stock market bar charts demonstrate how an asset or security’s price oscillates through a certain period. Usually, each bar reflects the opening, high, low, and closing (OHLC) prices. However, at times, these bars might be altered to only show the high, low, and closing (HLC) prices.
In this article, we will take a closer look at stock market bar graphs to understand their relevance and use.
Additional read: Double bottom pattern
Exploring bar charts in depth
Comprising a series of bars, bar charts showcase bars exhibiting price movements during a particular period. Each bar comprises a vertical line that essentially stands for the highest and lowest prices achieved during the concerned period. A short horizontal line on the left side of the vertical line indicates the opening price. Similarly, a short horizontal line positioned on the right side of the vertical line points to the closing price.
If the closing price exceeds the opening price, the bar might be displayed in black or green. On the other hand, if the closing price is beneath the opening price, the bar would be depicted in red. Such colour coding enables traders to gauge trends and price movements with ease. Most charting platforms come with the option of colour coding.
Technical analysts often employ bar charts or indicators, such as stock market line or candlestick charts, to monitor price movements. Monitoring prices through charts allows them to make advantageous trading calls. Bar charts, in particular, help traders analyse trends and catch any possible trend reversals. Furthermore, such tools alert traders about any possible price fluctuations.
It is up to investors and traders to choose the timeframe for analysis. For instance, a one-minute bar chart revealing a fresh price bar for every minute would be a valuable resource for a trader and not for an investor involved in long-term securities. In the same way, a weekly chart would prove to be a productive marker of evaluation for an investor but not for a trader.
Additional read: Shareholding pattern
Reading bar charts
Since stock market bar charts present the opening, high, low, and closing (OHLC) pricing information, traders and investors have access to a wealth of data that they can use to enter or exit positions.
The long vertical bars represent a significant price gap between the high and low of a period. This indicates an increased volatility. Conversely, small vertical bars illustrate minimum volatility.
The price is said to have made a meaningful shift if there is a huge gap between the opening and closing price. If the closing price is above the opening one, it shows proactive buyer participation, hinting at increased buying trends in the future. Conversely, if the closing price is in proximity to the opening price, it denotes that there was a lack of certainty in the price movement during the period.
Useful insights can also be derived from the position of the close relative to the highs and lows of prices. If the security tends to have rallied during the period but then its closing price was below the high, it means that the sellers made an appearance towards the period’s end. This scenario is less bullish than the one where an asset has closed near its high during the period.
Colours represent trading information if the stock market bar graph is colour-coded depending on the price fluctuations during the period. Commonly, more black or green bars signal a general uptrend, whereas downtrends are typically summarised with more red bars.
Additional read: Double top pattern
Bar charts or candlestick charts — Which is better?
Bar charts can be easily confused with candlestick charts. While they both show the same insights, they do so with distinctive approaches.
Composed of a vertical line, a stock market bar chart comes with small horizontal lines on the left and right sides, which depict the opening and closing prices. Candlesticks, like bar charts, have vertical lines, signifying the highs and lows of a specified period, which are referred to as shadows or wicks. However, the difference between the opening and closing price is communicated with a thicker section known as the real body.
The real body is coloured in red if the closing price is below the opening one. Conversely, it is coloured in green or white if the closing price surpasses the open price. While these two analysis tools convey the same data, the visual style of the charts is different.
Additional read: Evening star pattern
Closing thoughts
Technical analysis is important for traders to track price movements and market trends. To derive insights, traders often turn to stock market bar charts in an attempt to spot suitable entry and exit points to maximise profits or to cut losses. However, like most analysis tools, bar charts are not a foolproof indicator of trends and could be limited in their assessments. So, along with bar charts, ensure that other types of chart analysis instruments are used to confirm price trends with greater accuracy.
