Bar graphic

economic-dictionary

A bar chart is a way of representing the most important information about the price of a financial asset in a certain period of time.

The bar chart is one of the most famous ways to graph the price of an asset. Most economic series charts are made in line form. This is not the case in stock prices. Basic line graphs just mark dots. For instance:

In the image you can see the price of an asset in the form of a line. This graph is constructed by joining the closing prices of each period. For example, a weekly chart will represent the union of the prices of an asset at the end of each week.

However, traders, when trading in the stock market usually need more information. That is, it is interesting to also know what the minimum has been for each day, each week or each month. It is also important to know what the maximum has been. On many occasions the price of an asset opens at a price and moves during the day. This produces that in each period there is a maximum price and a minimum price. Having the information of these points gives us information about the movement that the price has had at a glance. Here is an example of a bar chart:

In each period a bar is formed. Each bar gives us the essential information at a glance. In order to better understand bar charts, we are going to explain both their structure and the types that exist.

Structure of the bars

A priori, we can differentiate between bullish bars and bearish bars. Although current trading platforms allow us to put the color we want to each bar, depending on whether it is bullish or bearish, the normal thing in this type of charts is that they are all the same color. This is something that does not happen with the Japanese candlestick chart or the Heiken Ashi candlestick chart. Two types of charts in which it is very common to use different colors depending on whether the period has been bullish or bearish.

The structure of a bar is as follows:

From the previous image we can conclude that a bar consists of six parts: open, close, body, high, low and shadow. Similarly, we can deduce a very simple rule to identify bullish and bearish bars. The ledge that indicates the open is always to the left of the bar and the ledge that indicates the close is always to the right.

What each part of each bar represents is explained below.

  • Opening: It is the price at which a financial asset starts trading in the reference period.
  • Closing: It is the last listed price of a financial asset in the reference period.
  • Body: Set of prices at which the asset has been quoted between the opening and closing prices.
  • Maximum: It is the highest price at which the financial asset has been quoted in the reference period.
  • Minimum: It is the lowest price reached by the asset in the reference period.
  • Shadow: It informs us of the prices in which the asset has moved, but they are not part of the body. Shadows are below or above the zipper. Either below or above the opening.

We speak of a reference period to refer to any period. The bars are interpreted in the same way if the duration of each bar is one month as it is 5 minutes.

Regarding the shadows, it is important to note that the bars, as with Japanese candles, do not necessarily have to have shadows. This is a consequence of the price movement. Next we are going to put three examples to explain it:

  • The close coincides with the high (bullish bars). The closing price is the same as the low (bearish bars).
  • The opening price is equal to the minimum (bullish candles). The maximum coincides with the opening price (bearish candles).
  • Opening price and closing price coincide with the maximum and minimum prices.

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