If you are into trading you definitely heard about various price charts: bars, candlesticks, columns, and others. In this article we will have a closer look at one of the most popular and versatile of them - the bar chart, which is commonly used by trades to analyze trends and periods in the financial markets. Whether you are new to trading or looking to refine your skills, a clear understanding of bar charts can enhance your market analysis, so stay tuned.
Bar Chart vs Histogram vs Column Chart
Bar Chart vs Candlestick Chart
A bar chart is a visual tool in trading that illustrates the changes in value of an asset during a certain timeframe. Each bar on the chart represents a single period, such as a day, week, or hour, depending on the trader's preference. The vertical line in each bar stands for the asset's highest and lowest prices during that period. The horizontal ticks on the left and right indicate the opening and closing prices, respectively.
Bars are a specific form of a trading chart that consists of vertical and horizontal lines.
A bar closing higher than its opening is usually viewed as bullish, signaling upward momentum. The reverse, in turn, indicates bearish market sentiment.
Bars help traders analyze market information and pinpoint possible chances for trade in technical analysis. Traders can assess market volatility and overall sentiment for a specific time frame by analyzing the high, low, opening, and closing prices on each bar. A longer bar signifies greater price fluctuation, while a shorter one represents more stability, based on the bar's length as an indicator of price range.
Bar patterns on a chart are crucial for traders to identify potential market movements and to evaluate overall market sentiment. Identifying these trends can help traders predict if the market is experiencing an upward trend, a downward trend, or moving sideways. Here are some popular bar patterns:
Spikes, also known as long bars signify rapid and sometimes abrupt price changes within a short daily trading range, usually triggered by unexpected news or events.
A spike can serve as a key reversal signal, especially if it occurs after a prolonged trend. For instance, a sudden increase in an uptrend might reflect a peak in purchasing, indicating a potential change in direction soon. On the other hand, a sudden spike in a downtrend could indicate a rush among sellers, possibly indicating the lowest point of the market.
Price gaps occur when there is a noticeable difference between the closing price of one day and the opening price of the next, with no trading activity in between. They are commonly divided into several types.
There are several types of bar charts.
Let’s consider an example of a stock chart. We can see a consistent uptrend on the chart, as such the majority of the bars have a green color. In the middle of this bar chart, there are two green spike bars which represent a rapid price change during a short period of time. In this case, spikes resulted in a short downward momentum and market indecision that soon after pulled back to the upward trend.
Here is another example on the forex bar chart in conditions of the falling market. As the prices are going down, we can see that there are more red bars than green ones, which helps us better visualize the main market sentiment. Moreover, it’s important to note that on a bearish market, the bars are usually getting longer, this way reflecting the growing price volatility.
Here are some of the key benefits of using bar charts in trading:
Even though bar charts, histograms, and column charts may look similar, they have distinct roles in analyzing data. Let’s have a closer look.
As we have already mentioned above, bar charts display individual price data for specific time periods. They show high, low, opening, and closing prices, which makes them essential for analyzing market trends and volatility.
Histograms, in turn, show the spread of numeric data, commonly employed to display frequency distributions or probability distributions within a dataset. Unlike bars, histogram charts do not concentrate on specific time-based data points.
Column charts are similar to bar charts. However, they are typically used for comparing categories of data rather than time-based data. In trading, they are less common but can be used to compare different assets (forex, futures, indexes, etc.) or market segments over the equal timeframe.
Both bar charts and candlestick charts are essential tools in technical analysis. In contrast to bars, candlesticks offer the same data but with a little bit more visual twist. Candles consist of colored bodies to indicate bullish and bearish trends: typically, green or white for bullish (closing price above the opening) and red or black for bearish (closing price below the opening). This color coding makes it easier to quickly gauge market sentiment, helping traders make informed decisions.
Bar charts are an essential tool in technical analysis. They provide a clear representation of price movements over a determined timeframe, outlining important price data, such as high, low, opening, and closing prices.
However, don’t forget that as with any other trading tools, bar chart signals as well as patterns are not to be taken for granted. Thus, it’s recommended to combine this tool with other technical analysis instruments.
A bar chart represents the price action of an asset over a specific period, like a day or a week. Each price bar displays the highest and lowest prices, along with the opening and closing prices.
A line chart shows the closing prices over time, forming a continuous line. A bar chart provides a more detailed view with price bars, displaying opening, closing, high, and low prices.
Candlesticks and bars both depict price action. Candlesticks use colored bodies to show the range between opening and closing prices. Bars use a single vertical line for high-low range and ticks for opening and closing.
A bar chart can indicate market trends, volatility, and potential reversal points. By analyzing price bars, a trader can identify patterns like higher highs, inside days, and key support and resistance levels.