Bar Chart

What is a 'Bar Chart'

A bar chart is a style of chart used by some technical analysts on which the top of the vertical line indicates the highest price a security is traded at during the day, and the bottom represents the lowest price. The closing price is displayed on the right side of the bar, and the opening price is shown on the left side of the bar.

Bar Chart

BREAKING DOWN 'Bar Chart'

A single bar represents one day of trading. These are the most popular type of charts used in technical analysis. The visual representation of price activity over a given period of time is used to spot trends and patterns. Bar charts are very similar to Japanese candlestick charts with the exception of the bodies not being filled on bar charts. They are often considered the Western version of candlesticks and are best used to observe the contraction and expansion of price ranges during trends.

Bar Charts vs. Candlestick Charts

While the two styles of charts give the exact same information, there is a big split between which style is preferred by technical analysts. Bar charts are designed to be very simplistic. They allow an easy view of the range of price movement as it places more focus on the highs and lows over the open and close. Bar charts are considered more logical, literal and less emotional.

Candlesticks fill in a body based on the open and closing price of the candle for the specified time interval. By coloring in the body red or green, it can be a distraction to many traders. The focus is on the body with less attention on the highs and lows. Candlesticks tend to emphasize the emotional element of price action. For example, a bearish engulfing candlestick indicates strong panic selling due to the initial higher open that turns into a red close beyond the low of the prior candle. This indicates the buyers from the previous candle are trapped with losses, which triggers panic selling. The large red body indicates the emotion of fear, thus short selling. However, the very next candle could actually squeeze the short sellers higher since the bearish engulfing pattern did not form at the peak of an uptrend. The various candlestick patterns such as hammers, stars, doji and engulfing patterns have a high rate of failure when the context of the formation is not taken into consideration. Reversal triggers require a confirmed trend to first be in place.

Bar chart traders would not have gotten sucked into the shorts because the range would need to be confirmed with the next several bar chart closes, with a focus on the price range expansion to the downside for confirmation. Bars can also be colored red and green to indicate if the price closed higher or lower than the prior bar.

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