Bar Charts are yet another form of visual display of historical price data. It can be used to technically analyze market behavior and can be used to predict or forecast future prices. The Bar Charts are simple and provide quite a good number of valuable information about an asset’s price behavior. There are some similarities between Bar Charts and Line Charts but there are differences as well. Let us first look at the similarities.
- Both Bar Charts and Line Charts make use of X-axis and Y-axis. In both of them, the X-axis represents the trading time intervals and the Y-axis represents the price of the asset.
- Both can be used to find out the future trends.
- In both cases, the prices can be charted against different time intervals like 1 minute, 5 minutes, 10 minutes, 15 minutes and so on.
- The greater the time interval used on X-axis, the easier it becomes to understand the long term trends.
- Both types of charts can be used by both short term and long term investors.
- While a Line Chart shows a continuous line, a Bar Chart will only show individual bars with bars progressing in up and down wave like pattern.
- While Line Charts can show only one type of price in OHLC variants, the Bar Charts can be used to represent all of the OHLC variants. However, the trader has the opportunity to customize the number of price types that can be shown in a Bar Chart.
How does a Bar Chart look like?
A simple Bar Chart is shown below with two types of time intervals. The first one show yearly data for prices while the second one shows price movements for every 1 minute.
X-axis represents yearly time intervals
X-axis represents 1-minute time interval
Explaining the Bar Chart
The Bar Chart shows a single bar at any given point in time. Bars are always vertical. The top point of the vertical line is the highest price attained by the asset during any trading time interval. The bottom point is the lowest price attained by the asset during any trading time interval. If you notice carefully, you will find two horizontal bars (small bars) protruding out on either side of any single bar. The one that protrudes out to the left is the opening price of the asset for the given trading time interval while the one protruding out to the right is the closing price of the asset for the given trading time interval.
Here is how an individual bar looks like:
In the 1-minute time interval graph shown above, you can see that the High price for asset for different time intervals shows sequential decline. This can tell that the asset is following a bearish sentiment and using Put option will be more realistic in the short term. However, in the yearly time interval representation, you can see that High price shows sequential rise and so, the long term investors will view it as a bullish sentiment and will generally opt for a Call option. Similarly, trend lines can be drawn for Open, Low and Close prices as well. Thus, a trader can actually analyze the market trend using any of the four types of prices!