What is a Bar Chart
Bar charts are investment charts that show the range of prices of a security across a given period of time. Technical analysts use bar charts in the process of evaluating the performance of stocks.
BREAKING DOWN Bar Chart
A bar chart has a few components, including the closing price on the right side of the bar and the opening price depicted on the left side of the bar. In these charts, 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.
A single bar represents a predetermined unit of time, typically one day of trading. However, a bar chart can sometimes depict price ranges for as little as an hour or a minute, or even as long as a week or more. These charts are popular with traders because the visual representation of price activity over a given period of time provides insight into the existence of trends and patterns. Analysts typically use bar charts to observe the contraction and expansion of price ranges during trends.
Bar Charts vs. Candlestick Charts
Bar charts are very similar to Japanese candlestick charts, which also relay the same information. But each type chart has its own following among technical analysts. Bar charts are simple by design. 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. Moreover, bar charts tend to be more literal, while candlestick charts focus on the impact of investor sentiment on security prices.
Candlestick charts have an additional information component in terms of the color used to fill in the candlestick's main body. Different colors indicate the nature of the relationship between the stock's closing price and its opening price: For example, a red or black color indicates the stock closed lower than it opened, while a green or white color indicates the stock closed higher.
Candlesticks tend to emphasize the emotional element of price action, with the focus on the color of the body and less attention to the actual highs and lows. For example, a bearish engulfing candlestick indicates panic selling because of an 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 various candlestick patterns such as hammers, stars, doji and engulfing patterns generally should be looked at in the context of the market structure as opposed to individually.