Bar charts. The only bars that remained in ‘business as usual’ throughout this pandemic.
Probably because they have absolutely nothing to do with the bars we are normally used to.
Bars in the stock market are sliiiightly more complex.
So without further ado, let’s explore this awesome chart type!
A bar chart is a collection of price bars, with each bar showing the real-time price movements of the given stock.
Each bar has a vertical line that shows the highest price the stock reached during the stock period, and the lowest price the stock reached during the pre-set period.
The open price is typically marked by a small horizontal line on the left of the vertical line, and the close price is marked by a small horizontal line on the right of the vertical bars.
This is what it a bar looks like in black & white.
Now, you most likely won’t use the black & white version of bar charts in your trading platform.
In fact, most traders prefer the colour-coded version and use the green & red bars for their trading purposes. The colour-coding helps them to see prices, their movements, chart patterns and trends more clearly.
The bars are coloured green if the closing price is above the open price.
The bars are coloured red If the closing price is below the open price, which means that the price dropped during that period.
FUN FACT: Did you know that bar charts are often called OHLC Charts? That’s because they indicate the Open, High, Low, and Close for that particular stock.
The open marks the price the stock trades for at the start of the trading day and is indicated by the horizontal foot on the left side of the bar. The open price is generally the same or super close to the previous closing price.
The high marks the highest price the stock traded for during the day and is indicated by the top of the vertical bar.
The low is the lowest price the stock traded for during the day and is indicated by the bottom of the vertical bar.
The closing price is the last price the stock traded for during the day and is indicated by the horizontal foot on the right side of the bar. The close price the most important data point on the bar because it summarises the final sentiment of the pre-set period.
We know. That’s a lot of information but now that you know what everything means, let’s take a look at what a real stock bar chart looks like in real-time.
Looks pretty sexy, right? Look at those trends!
Some traders even get the patterns printed but I’d say that’s too far.
But each to their own!
Now, the good thing about bar charts is that they show the stock’s trading range for whatever period you choose.
You can choose from the following:
Bar charts are especially popular amongst day traders. The most commonly used bars amongst stock traders are the 4-hour and daily bars.
Yup, that’s right. Bar size matters.
Teeny tiny bars symbolise a lack of interest by both buyers and sellers, whereas big boy, tall bars with a wide distance between the high and the low symbolise a lot of buying and selling interest from traders.
Now, of course, there is so much more to bar sizes and different patterns than this, but for now, that’s all you need to know.
Quality over quantity, am I right?
And whilst bar charts are not absolutely, spot-on accurate in their abilities to predict stock price movements and they do come with price gaps at times, they provide technical analysts with a good tool to spot patterns, trends and understand the overall market movements better.
Price gaps are areas on a chart where no trading activity has taken place.
Do you think you will be using bar charts to make trading decisions when trading stocks?
Let me know in the comments below!