Introduction to OHLC chart

Introduction to Bar Chart in Technical Analysis

by Ankit Jaiswal on Basic Technical Analysis, Technical Analysis
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Technical analysis is one of the important methodologies of stock selection and to make buy or sell decision.

Before we start analyzing any chart, the first selection we make is the format of the price chart.

There are various types of price chart options like a line chart, bar chart, candlestick chart etc but the commonly used charts in traders community is bar chart and candlestick chart.

Read MoreAll you need to know about the Japanese Candlestick

However, one chart you should not use is line chart since it provides the least amount of information.

Bar Charts

Bar charts also known as OHLC charts are used in charting and studying of chart patterns.

It is one of the most popular forms of stock charts and was the most widely used charts before the introduction of candlestick charts.

Each bar represents a symbol which is made up of OHLC data which are typically used to illustrate price movement of a financial instrument over a period of time.

The height of each OHLC bar indicates the price range for the given period with the high being the topmost point of the bar and the low to be the lowermost point of the bar.

BAR CHARTS

However, the time period could be either  1 minute, 5 minutes, 15 minutes, 1 hour, 4 hour, 1 day, 1 week, 1 month etc and each has its own bar as per the desired time period and accordingly it can be 1 minute bar, 1 day bar or 1 week bar.

Moreover, some charting software use colors to indicate bullish or bearishness of a bar vis-a-vis to the close of the previous bar.

This makes the OHLC bar chart much similar to the candlestick chart, but it lacks clarity as compared to the candlestick chart

How are they constructed?

OHLC Bar

To construct bar chart, the OHLC data is used and hence the name OHLC chart.

In that vertical line, a small horizontal line (small tick) will be attached both on the left and the right-hand side.

The one on the left side indicates the opening price while one on the right-hand shows closing price.

The bars will provide different colors depending upon whether the prices increased or fell in that period.

For instance, the red color indicates a down bar as compared to the previous bar while green candle indicates up bar vis-a-vis the previous bar.

Watch the video below to get a more clear idea of the use of Bar Charts in Technical Analysis:

Different types of bars

There are basically four combinations of bar charts which includes-

Up day

The high and low of the present bar is higher than the previous bar and hence it is known as up bar or up day.

You may do NSE Academy Technical Analysis course to learn the various aspects of Technical Analysis and to also learn trading strategies to trade in the real market.

The traders who are unable to devote much time in analyzing charts of various securities may benefit from scan section in the StockEdge mobile app.

Down day

If the high and low of the present bar is lower than the previous bar, it is termed as down bar or down day.

bar OHLC chart

Inside day

If the high of the present bar is lower than previous bar high and the low of the present bar is higher than the low of the previous bar, then the present bar is termed as an ‘inside day’.

Also read: Mastering Inside bar trading strategy

Outside day

If the high of the present bar is higher than the previous bar while the low of the present bar is lower than the previous bar, it is known as outside bar.

Bottomline

Though bar chart is very commonly used chart pattern amongst the trader’s community it ’s not a confirmation that what you expected will actually trigger.

In such a scenario, you should use them in conjunction with other technical indicators and pattern for a better signal.

Happy Learning!!

 


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Disclaimer

Elearnmarkets.com wants to remind you that all our content is created solely for the purpose of education. No strategy, stock, commodity, fund or any other security discussed here is any way a recommendation for trading or investing. Elearnmarkets.com will not be any way responsible for trading losses incurred by any individual or entity for trading with real money. Please take advise of certified financial advisers before trading or investing.

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