What is a Bar Chart?

Bar charts show multiple price bars over time. Each bar shows how the price moved over a specified period of time. A daily bar chart shows a price bar for each day. Each bar typically shows the open, high, low, and close (OHLC) prices for that period. This may be adjusted to only show the high, low, and close (HLC). Technical analysts use bar charts—or other chart types like candlesticks or line charts—to monitor the price performance of assets which aids in making trading decisions.

Bar charts allow traders to analyze trends, spot potential trend reversals, and monitor volatility/price movements.

Key Takeaways

  • A bar chart shows the open, high, low, and close prices for a specified period of time.
  • The vertical line on a price bar represents the high and low prices for the period.
  • The left and right horizontal lines on each price bar represent the open and close prices.
  • Bar charts can be colored coded. If the close is above the open it may be colored black or green, and if the close is below the open the bar may be colored red.

How Bar Charts Work

A bar chart is a collection of price bars, with each bar showing the price movements for a given period. Each bar has a vertical line that shows the highest price reached during the period, and the lowest price reached during the period. The opening price is marked by a small horizontal line on the left of the vertical line, and the closing price is marked by a small horizontal line on the right of the vertical line.

If the close price is above the open price, the bar may be colored black or green. If the close is below the open, the price dropped during that period, so it could be colored red. Color coding the price bars depending on whether the price moved higher or lower helps some traders see trends and price movements more clearly. Color coding is available as an option in most charting platforms.

Traders and investors decide which period they want to analyze. A 1-minute bar chart, which shows a new price bar each minute, would be useful for a day trader but not an investor. A weekly bar chart, which shows a new bar for each week of price movement, may be appropriate for a long-term investor, but not so much for a day trader.

Interpreting Bar Charts

Since a bar chart shows the open, high, low, and close price for each period, there is a lot of information that traders and investors can utilize on a bar chart.

Long vertical bars show there was a big price difference between the high and low of the period. That means volatility increased during that period. When a bar has very small vertical bars, it means there was little volatility.

If there is a large distance between the open and close it means the price made a significant move. If the close is far above the open, it shows buyers were very active during the period which may indicate more buying in future periods is forthcoming. If the close is very close to the open, it shows there was not a lot of conviction in the price movement during the period.

The location of the close relative to the high and low may also provide valuable information. If an asset rallied higher during the period, but the close was well below the high, that shows that toward the end of the period sellers came in. That is less bullish than if the asset closed near its high for the period.

If the bar chart is colored coded based on whether the price rises or falls during the period, the colors can provide information at a glance. An overall uptrend is typically represented by more green/black bars and strong upward price movements. Downtrends are typically represented by more red bars and strong downward price movements.

Bar Charts Versus Candlestick Charts

Bar charts are very similar to Japanese candlestick charts. The two chart types show the same information but in different ways.

A bar chart is composed of a vertical line with small horizontal lines on the left and right which show the open and close. Candlesticks also have a vertical line showing the high and low of the period, but the difference between the open and close is represented by a thicker portion called a real body. The body is shaded in or colored red if the close is below the open. The body is white or green if the close is above the open. While the information is the same, the visual look of the two chart types is different.

Example of a Bar Chart

The following chart shows an example of a bar chart in the SPDR S&P 500 ETF (SPY). During declines, the bars typically get longer, showing an increase in volatility. Declines are also marked by more down (red) price bars compared to up (green) bars.

bar chart example with color coded price bars
Daily Bar Chart Example.  TradingView

As the price rises, there tends to be more green bars than red bars. This helps to visually spot the trend. Even though there are typically red and green bars during an uptrend (or downtrend), one is more dominant. This is how prices move. In order for the price to move higher within an uptrend, the price bars will need to reflect that by moving higher as well, on average. If the price starts moving lower, on average, by creating more red bars, then the price is moving into a pullback or a trend reversal.