What is a bar chart?

A bar chart contains much more data than a simple line chart. You can see if an asset has risen or fallen in value between open and close. The length of the 'bar' tells you whether the value of the asset has experienced a wide range in prices during the trading session. This means it is easier to pick out important extremes.

The length of the 'bar' tells you whether the value of the asset has experienced a wide range in prices during the trading session. This means it is easier to pick out important extremes.

A short bar in length, or even no height at all, indicates a very small range where asset prices for the period are very stable. This means there is little volatility for traders.

How do you analyse a bar chart?

Bar charts display plenty of information for each time period. As well as the specific relationships of two consecutive bars, it’s important to note that the closing price on one day and the opening price on the next do not have to be the same.

Watch out for a big difference between the two - known as a 'gap' - as this can work against traders who don't have an opportunity to exit a trade if it goes against their position.

What is a pattern in a bar chart?

Inside and outside days can be very important in terms of telling us how the market will react. For example, inside bars or days mean there is no dominant force in the market and trading range contraction. The longer this trading environment goes on, the more likely it is that range expansion will occur and a strong breakout. This is normally in line with the dominant trend.

Outside bars and days can also be important as they can signal a reversal in the price. This means the end of a trend.

Next up is one of the most important and popular price charts, the Japanese Candlestick!

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