A bar chart is a way of representing the most important information of the quotation of a financial asset in a certain period of time.
The bar chart is one of the ways to graph the price of a most famous asset. Most economic series charts are made in the form of a line. This is not the case in stock quotes. The basic line graphics only mark points. For example:
In the image you can see the price of an asset in the form of a line. This chart 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, the traders , when operating in the stock market typically need more information. That is, it is interesting to know also what has been the minimum of each day, every week or every month. It is also important to know which has been the maximum. In many cases the price of an asset opens at a price and during the day it moves. This produces that in each period there is a maximum price and a minimum price. Having the information on these points gives us information about the movement that has had the price at a glance. Below is an example of a bar chart:
In each period a bar is formed. Each bar gives us the essential information with a look. With the aim that we can better understand the bar graphs, we will explain both its structure and the types that exist.
Structure of the bars
A priori, we can differentiate between bull bars and bear bars. Although the 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 graphics is that they are all the same color. This is something that does not happen with the Japanese candlestick or Heiken Ashi candlestick chart . Two types of graphics in which it is very common to use different colors depending on 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: opening, closing, body, maximum, minimum and shadow. In the same way, we can deduce a very simple rule to identify bullish and bearish bars. The projection that indicates the opening is always to the left of the bar and the projection that indicates the closing is always on the right.
What each part of each bar represents is explained below.
- Opening:It is the price at which a financial asset begins trading in the reference period.
- Closing: It is the last quotation price of a financial asset in the reference period.
- Body: Set of prices to which the asset has quoted between the opening price and the closing price.
- Maximum: It is the highest price to which the financial asset has quoted in the reference period.
- Minimum:It is the lowest price reached by the asset in the reference period.
- Shadow: It informs us of prices in which the asset has moved, but they are not part of the body. Shadows are below or above the closure. Or, below or above the opening.
We talk about reference period to refer to any period. The bars are interpreted in the same way if the period of duration of each bar is one month than 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. Here are three examples to explain:
- The closure coincides with the maximum (bullish bars). The closing price is the same as the minimum (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 match the maximum and minimum prices.