Bar Chart
The bar chart, commonly referred to as the "OHLC Chart" (Open-High-Low-Close Chart), is a widely used chart type in financial markets to represent four key price levels: the opening price, the highest price, the lowest price, and the closing price. It uses vertical lines to depict the range of price fluctuations, with horizontal lines on the left indicating the opening price and on the right indicating the closing price. Unlike candlestick charts, which use filled or hollow bodies to represent price movements, bar charts provide a simpler visual representation of price changes.
This article will explain the definition, usage, and setup of bar charts in detail.
What is a Bar Chart?
A bar chart consists of a vertical line and two horizontal lines. The observation method is as follows (with rising and falling bars differentiated by color):
Observing and Using Bar Charts
| Item | Position |
|---|---|
| Opening Price | Left horizontal line |
| Closing Price | Right horizontal line |
| Highest Price | Top of the vertical line |
| Lowest Price | Bottom of the vertical line |
In a single-color bar chart, the market trend is determined based on the position of the opening price (left) and closing price (right). If the closing price (right) is higher than the opening price (left), it indicates an uptrend; if not, it signals a downtrend.
Difference Between Bar Charts and Candlestick Charts
Compared to candlestick charts, bar charts do not show "bodies" (the rectangular area between opening and closing prices).
Therefore, bar charts offer a simpler visual representation focused on price range fluctuations.
In some trading platforms, bar charts may have different colors to indicate price movement: green for upward movements and red for downward, while platforms like MT4 and MT5 use a single color.
In some trading platforms, bar charts may have different colors to indicate price movement: green for upward movements and red for downward, while platforms like MT4 and MT5 use a single color.
How to Use Bar Charts in Trading
Bar charts are commonly used in technical analysis to observe market price fluctuations and trend changes.
While bar charts themselves don't directly provide trade signals, they help traders identify market trends, key price zones, and potential reversal points. Here are some common ways to use them:
1. Trend Identification
Uptrend:
When most bars show the closing price higher than the opening price (bullish), and the bar length gradually increases, it indicates an uptrend. In such cases, traders may consider buying on dips or holding long positions.
Downtrend:
If most bars show the closing price lower than the opening price (bearish), and the bar length gradually increases, it suggests a downtrend. Traders may consider selling on rallies or holding short positions.
Range-bound Market:
If the range of fluctuations in the bars shrinks, with no clear uptrend or downtrend, the market might be in a consolidation phase. Traders should wait for a breakout before acting.
2. Support and Resistance
Bar charts help identify support and resistance levels. A support level is a price zone where the price may rebound when falling, while a resistance level is where the price may pull back when rising.
When the price repeatedly touches and reverses at a certain level, it can be considered an important support or resistance level. Traders might buy near support or sell near resistance.
3. Reversal Signals
When the market price breaks above the highest price or below the lowest price of the previous bar, it may signal a potential reversal. For example:
Breakout to the Upside:
If the price breaks above the highest point of the previous bar and is accompanied by increased volume, it may signal the continuation or reversal into an uptrend.
Breakout to the Downside:
If the price falls below the lowest point of the previous bar and is accompanied by increased volume, it may signal the continuation or reversal into a downtrend.
4. Combining with Other Technical Tools
Bar charts are often combined with other technical analysis tools to improve the accuracy of trade decisions. Common tools include moving averages, MACD, RSI, etc.
How to Display and Set Up Bar Charts
Setting Up a Bar Chart in MT4 (MetaTrader 4)
You can set up a bar chart on the MT4 platform by following these steps:
1.Click on the bar chart icon in the toolbar.
2.In the menu bar, select "Chart," then choose "Bar Chart."
3.Alternatively, select the chart and use the shortcut Alt + 1 to quickly switch to the bar chart.
Setting Up a Bar Chart in MT5 (MetaTrader 5)
You can set up a bar chart on the MT5 platform by following these steps:
1.Click on the bar chart icon in the toolbar.
2.In the menu bar, select "Chart," then choose "Bar Chart."
3.Alternatively, select the chart and use the shortcut Alt + 1 to quickly switch to the bar chart.
Other Types of Charts
In addition to bar charts, there are several other common chart types in the financial markets:
Candlestick Chart
Candlestick charts provide a more intuitive representation by showing the "body" between the opening and closing prices, and the wicks represent the highest and lowest prices. Candlestick charts clearly indicate price trends and reversal signals.
Line Chart
Line charts connect the closing prices of each period to form a continuous line. They are mainly used to show price trends but do not display the specific price changes within each period. Line charts are simpler and better suited for observing long-term trends.
Conclusion
Bar charts are a concise and effective chart type that helps traders quickly understand market price range and movement direction. While they do not visually separate the colors like candlestick charts, observing the bar lengths and opening/closing positions allows traders to make informed judgments about the market trend.
Whether in daily trading or strategy development, bar charts provide clear visual information and are a fundamental tool that all traders must master.
