Article by Investment U
Simply put, bar charts provide a visual representation of the price activity over a given period of time. And it may be the most commonly used chart for us in the Western world.
Unlike line charts, they include all four prices for each day. It gets its name because each day is represented by a vertical bar, which goes all the way from the low price to the high price.
The opening price – coming into the day – is a short horizontal line called a tic, which is drawn on the left of the bar and coming into the bar. At the end of the day, the closing price is represented by a tic leaving the bar to the right.
Here’s an example:
You create a bar chart by plotting a series of such bars across it. Each bar makes up one trading period. To create a bar, you simply need to plot the high and low prices of a trading period and then connect the two points using a vertical line.
The bar chart gives you the ability to see whether a stock has gained or lost value between the opening and closing market sessions. If the tic on the right is located higher than the tic on the left, you can imply that the value has climbed between the open and close of trading. This works for the opposite, also.
While you’re processing that, you can take a look at the distance between the day’s high and low and see how much the security fluctuated during the trading for this period. The longer the line, the more volatility – and vice versa.
The purpose of the chart is to create a predictive tool. If a stock closed on a high, for instance, the tic on the right would be located at the top of the vertical line. So if you were mainly interested in short-term gains, you might assume the odds are that the stock is likely to continue rising as soon as trading re-opens.
Yes, you’re gambling – but this is the stock market. The bar chart’s function is to provide you with more information to make a more educated decision.
We can also use this information to identify trends. If the price of a share rose during a specific period you were focusing on, then it means that investors were bullish. If the price lost ground during the period, then investors were bearish.
Always take into consideration that this is one of many tools you can use depending on your investing goals.
Good Investing,
Jason Jenkins
Article by Investment U