DEFINITION of 'Bar Graph'

A bar graph is a chart that plots data using rectangular bars (called bins) that represent the total amount of observations in the data for that category. A bar chart is a style of bar graph; it is often used to represent the price range of a stock over a single day. In finance and economics, an example of a bar graph is one that compares median household income for several states, in which one axis represents different categories, the different states, and the other represents a discrete range of data points, median income.

Bar graphs can be constructed with the data rising vertically or extending horizontally. A commonly used vertically-oriented bar graph is the histogram, which uses bars to represent the frequency distribution of data visually. Histograms are commonly used in statistics to demonstrate how many of a certain type of variable occurs within a specific range, clustered into 'bins' or 'buckets'. For example, a census counting the age distribution of a particular country may generate a histogram to show how many people are between the ages of 0 and 10, 11 and 20, 21 and 30, 31 and 40, etc. This histogram would look similar to the example below:.

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BREAKING DOWN 'Bar Graph'

The purpose of a bar graph is to convey relational information quickly as the bars display the quantity for a particular category. The left side of a bar graph is called the y-axis, while the bottom of a bar graph is called the x-axis. When interpreting a bar graph, the length of the bars determines the highest value, lowest value and any inconsistencies.

Features

A typical bar graph has a label, axis, scales and bars. These graphs are ideal for comparing two or more values. Data is displayed either horizontally or vertically. Single bar graphs are used to convey discrete values of an item within a category. For instance, a bar graph could display the number of males with a certain trait for specific ages. The discrete value, or the number of instances in which an individual has a certain trait, is displayed based on the length of the bar. In this example, a different bar is established for each age or age group.

When a graph has a well-defined zero point and the data set has positive and negative values in relation to this point, bars can still be displayed. When this occurs, a horizontal bar graph is typically used in which the independent variable is placed on the vertical axis. The bars proceed to the left and right of the zero point; bars to the left usually display negative values while bars to the right are positive values.

Grouped Bar Graphs

Grouped bar graphs, also called clustered bar graphs, represent discrete values for more than one item that share the same category. Elaborating on the example above, a bar graph could display the number of individuals, male and female, with a certain trait for specific ages. The aggregate of number of instances could be combined into one bar. Alternatively, the instances could remain segregated by gender; one bar for all male instances and one bar for all females instances would be placed side by side for each age or age group.

Stacked Bar Graphs

Stacked bar graphs or composite bar graphs divide an aggregate total into parts. These parts are typically identified by utilizing different colors for each section. In the example above, the aggregate of instances for both males and females may be combined into one bar but the bar may be divided into multiple sections represented by different colors.

Bar Graphs in Technical Analysis

Some technical analysis relies on bar graphs. For instance, traders may employ a moving average convergence divergence (MACD) histogram, which is a popular technical indicator that illustrates the difference between the MACD line and the signal line.

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