Bar Chart

A graph used for data visualization and technical analysis in finance is a bar chart. It displays vertical and horizontal lines arranged on a graph to provide valuable information.


What Is a Bar Chart?

A bar chart is a graph used for data visualization and technical analysis in finance. It consists of vertical and horizontal lines arranged on a graph to give meaningful information. 

In financial markets, bar charts are used for technical analysis, where the bars are used to interpret the market and get accurate readings. It is also known as OHLC charts as they represent the market’s opening, closing, high and low prices at any time.

What’s the Structure of a Bar Graph?

A bar graph comprises multiple bars representing the market flow at a specified time. Bars have a maximum and minimum point, with two ticks representing certain market trends. The upper tick closer to the market high shows the market’s opening rate, and the lower tick closer to the market low is for the closing price.

How to Analyze a Bar Chart?

To analyze a bar chart, you ought to observe and study markers used to conduct the technical analysis of the market. 

Uptrend

When the closing price is higher than the previous day’s closing price, the market is said to be experiencing an up-day. If there are consecutive up-days over a longer time with higher lows, it is an uptrend.

Downtrend

Similarly, if the closing price is lower than the previous day’s closing price, the market is said to be experiencing a down day. If there are consecutive down-days over a longer period along with lower lows, then it is a downtrend.

Spike

A spike is experienced in the market when there is a variety of selling and buying prices on the unit time resulting from sentiment. 

Volatility 

When the vertical bars are long, it shows that the high and low of the market were far apart. This indicates that the asset’s value changed by a huge factor during the unit time. Similarly, if the length of the bar is small or short, it indicates that the asset’s price did not experience much change. This effect is known as the volatility level of the market.

Inside Day

The length of the bar is of key importance while analyzing the bar chart. Short bars are used as an indicator of indecisive market sentiment. Where the investors do not show enthusiasm. Such an environment is referred to as an inside day where the current high is lower than the previous day, but the previous low is higher. 

Outside Day

Outside days, as the name suggests, are the opposite of inside days. Long bars in the bar chart with a greater difference between the high and low markets indicate an outside day. It happens when the asset’s price forms higher lows: some news causes a change in the market sentiment that triggers major market movements. The comparison of the chart with historical data confirms the downtrend or uptrend.

Price Gaps

The price gap is the difference between the previous high and the current day’s low. 

An upside gap is seen when:

Daily Low-High of the Previous Day

A downside gap is seen when:

Daily High-Low of the Previous Day

Bar Charts are essential for traders to determine market trends and make relevant assumptions and decisions. Moreover, they help with future predictions and summarize the bulk of information into an easily readable format.