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Main Dictionary B

Bar Chart

Anything about technical analysis is based on a price. Candlestick or bar charts are just a visual representation of price itself, trends or nothing more than highs and lows jumps in price. There is a formula added to historic price data in order to plot indicators on your chart. Due to the price is the ground of all technical analysis, the very first thing to study is a bar chart.

A bar chart is a main tool of technical analysis. It gives information on the price trends of a stock or asset at open, peak, drop, and close for making accurate decisions of what the market or price may do next. This information is relevant for a certain period of time.

Bar Chart Content

Each time period, asset or stock prices change by having the highest and lowest marks (vertical line), the left dash is open price mark and the right dash is close price mark.

Also, in addition to the dashes and lines, color identification is used to make it easier for analysts and participants to track the price dynamics. For example, the color of the bar is green (or black) when the open price is lower than the close one. Or the color of the bar is red when it decreases (the open price is higher than the close one).

All of this data in bar charts helps analysts to build models of price trends that can be used to make decisions. For example, short-term bar charts will be more informative for the day trader and long-term bar charts for the investor.

Bar Chart or Candlestick Chart — what is the difference

Bar chart and candlestick chart look different, but both of them are the one and other sides of the fence, they show the same information. Candlestick shadow or wick (highs and lows in a period) is the same line, but the line between the open and close (real body) is thicker. The body is colored depending on the dynamics: red color represents that the open is higher than the close; green (white) color represents that the open is lower than the close. The sign of price pullback or course reversal is moving down and creating more red bars.

Candlestick charts need to go into much detail about highs, lows, opens, closes. Bars are very-very similar except you’ve got open and close in little lines on the left (open) and on the right (close) sides of the bar. They show the same information effectively, the high, low, open, close of that time range. You also can use both of them, this changing from one to the other isn’t going to have a massive impact, but it could do a very visual and very different ways of making decisions.

Bar Chart understanding

Due to the fact that a bar chart contains a lot of graphical information, traders and investors need to be able to read it.

  • A color-coded chart provides information about price trends. The green (black) bars indicate a positive trend, while the red ones indicate a negative trend.
  • High activity of buyers can be tracked by the close price, which should be higher than the open one, indicating potential purchases. If the open and close prices are approximately at the same level, it means that there was practically no price change.
  •  Long vertical lines indicate significant fluctuations of high and low prices, while small lines indicate minor fluctuations.
  •  If the close price is at about the same level as the period maximum, it is an optimistic forecast. If the close price is much lower than the maximum, it means that there appeared more sellers by the end of the period.

The figure shows a bar chart, giving a visual image of the dynamic direction.

When the dynamics is negative (increase in fluctuations), there are more red bars, which means that it can be a price pullback or course reversal. When the dynamics is positive, there are more green bars. When the price drops, the bars are red. When the price rises, the bars are green.

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