What Is a Bar Graph?
A bar graph is a graphical representation of information. It uses bars that extend to different heights to depict value.
Bar graphs can be created with vertical bars, horizontal bars, grouped bars (multiple bars that compare values in a category), or stacked bars (bars containing multiple types of information).
Bar graphs are commonly used in business and financial analysis to display often complicated data. They can convey information quickly and effectively. In the financial industry, a volume chart is a commonly used vertical bar graph.
- Bar graphs can display data in visual ways.
- Bar graphs have an x-axis and a y-axis and can be used to compare one or more categories of data.
- Data is presented via vertical or horizontal bars.
- Bars can represent one or more labeled variables.
- Bars can also be grouped together for comparative purposes.
Understanding a Bar Graph
The purpose of a bar graph is to convey relational information quickly in a visual manner. The bars display the value for a particular category of data.
The vertical axis on the left or right side of the bar graph is called the y-axis. The horizontal axis at the bottom of a bar graph is called the x-axis.
The height or length of the bars represents the value of the data. The value corresponds to levels on the y-axis.
The values on the x-axis can be any variable, such as time, earnings per share (EPS), revenue, or cash flow. Bar graphs are often used to depict trading volume for a security. They appear in a panel below a security's price chart.
Bar Graph Properties
Certain aspects of a bar graph separate them from other types of graphs and charts.
- The bars on a bar graph have equal width and interval spacing.
- Bars can run vertically or horizontally.
- Bars share the same starting point or base. In other words, all bars will start at the bottom of the graph and extend upward (vertically) or they'll start at the side of the graph and extend across (horizontally).
- The y-axis of a bar graph is the side or vertical axis.
- The x-axis of a bar graph is the bottom or horizontal axis.
- Data value is defined on the y-axis; data type is defined on the x-axis.
- Bar height or extension corresponds to the value of data.
- The higher or longer a bar, the greater the value.
- If colors are used, a bar graph may include a legend that defines them.
Bar Graph Types
Vertical Bar Graph
A vertical bar graph contains data that's displayed vertically using rectangular bars that represent a measure of data. The rectangular bars start and extend from the bottom x-axis. The y-axis allows users to measure the height of the bars against specific levels of value inscribed on it. Usually, the higher the bar, the greater the value.
Horizontal Bar Graph
A horizontal bar graph contains data that's displayed horizontally using rectangular bars that represent a measure of data. The rectangular bars start and extend from the side y-axis, In this case, the x-axis allows users to measure the length of the bars against specific levels of value inscribed on it. Usually, the longer the bar, the greater the value.
Grouped Bar Graph
Grouped bar graphs, also called clustered bar graphs, represent discrete values for more than one item in the same category. The separate, rectangular bars are grouped together. Essentially, they break down the overall value (or items) for (or within) the category. A grouped bar graph could display more than one category, each with its separate rectangular bars. The information can be depicted vertically or horizontally.
Stacked Bar Graph
Stacked bar graphs, also known as composite bar graphs, divide a total into parts. These parts are typically identified using different colors within the same rectangular bar. So, a single rectangular bar that represents a total will display several parts and colors. The parts need to be labeled for identification. The information can be depicted vertically or horizontally.
Bar Graph Uses
- A bar graph is used to present data visually
- It can be used by industries to convey complicated information easily
- It can compare different variables and values
- It can reveal and facilitate the study of patterns over time
- It can compare various sets of data
- It can display categories and sub-categories
- It can display results of surveys
In technical analysis, a volume bar chart shows how much trading volume there was on a particular day. The x-axis displays days, while a bar extending up from any day depicts the amount of volume, as measured by the y-axis.
When a bar graph has a well-defined zero point and the data set has both positive and negative values in relation to this point, both ranges of values can be displayed. Bars above the zero line typically represent positive values, while bars below the zero line typically show negative values.
Example of a Bar Graph
Many traders 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.
The following daily price chart for Apple stock shows three types of bar graphs.
Extending from the right is price by volume, a type of horizontal bar graph which shows volume dispersion based on price.
Along the bottom of the chart, volume is shown using a vertical bar graph. It displays bars representing the number of shares traded per day.
Finally, the MACD histogram at the very bottom shows the separation between the MACD and the signal line. When the histogram crosses the zero line it means the MACD and signal line have crossed, which some traders use as a trade signal.
Bar Graph vs. Bar Chart
A bar graph shows data in columns, while a bar chart is a technical analysis tool that displays the open, high, low, and close prices for a particular security during a specific time period (such as a day or week) using a vertical bar. Small horizontal lines extend to the left and right of the vertical bar to show the open and close prices. The top and bottom of each bar represent the high and low prices for the period.
Unlike the bar graph, the price bar chart only covers relevant prices and does not extend all the way up from the x-axis.
Bar Graph vs. Histogram
The most immediately noticeable difference between a bar graph and a histogram is that the bars in a bar graph typically don't touch each other (other than in a grouped bar graph). A histogram is a type of bar graph where the bars have no gaps between them.
A histogram is used to depict the frequency distribution of variables in a data set. A bar graph depicts a comparison of discrete or categorical variables. Furthermore, a histogram displays distribution frequency as a two-dimensional figure: the height and width of rectangles have specific meanings. Both can vary. A bar graph is one-dimensional. The height of the rectangular bars represents something specific while the width is meaningless.
Bar Graph Limitations
A bar graph is a way to display information. How the data is chosen to be displayed could affect its interpretation. For example, if too large of a scale is chosen, then the data may appear insignificant when in actuality, it's not. The scale doesn't allow for an appropriate comparison.
In addition, bar graphs may make data look compelling when it actually lacks substance. For example, looking at only a few days worth of volume data in a stock doesn't provide much relevant information. Yet comparing recent volume to volume over the last year can provide a technical trader with useful information for trading decisions.
What Are Some Benefits of a Bar Graph?
A bar graph can be of great use when you have to explain the meaning of complex data. It allows you to compare different sets of data among different groups easily. It instantly demonstrates this relationship using two axes, where the categories are on one axis and the various values are on the other. A bar graph can also illustrate important changes in data throughout a period of time.
Why Are Bar Graphs Used?
They're used to present data, or a concept involving data, in a visual way. This can make it easier for people to quickly understand the meaning of the data. In addition, presenting data graphically rather than through text or the spoken word can be an efficient and faster way to communicate.
What Are the Types of Bar Graphs?
There are horizontal and vertical bar graphs. There are also stacked and grouped bar graphs. While histograms are similar in appearance to bar graphs, they represent data in a different way.
The Bottom Line
A bar graph can be a very useful business tool that helps deliver complicated data and concepts in a way that's easy to understand.
The overall relationship of the data (and, thus, the main point that a company is making with its presentation) is illustrated using the y-axis (values) and the x-axis (categories).
Traders use volume bar graphs every day. These can measure, for example, the number of trades executed over a certain time period (such as a day) for different securities. Or, they can indicate the volume of trades at particular prices for a security.