Bar charts are stacked to allow you to show data values as vertical bars. Bar Chart types can be used to display trend data and compare multiple data sets. Multiple price bars are used to show how the price of an asset, security, or other item has changed over time. The open, high-low, low, and closing prices are typical of a bar. However, this can be adjusted to only show the high, lower, and close (HLC).
Understanding Bar Charts
A stacked bar chart is a collection of price bars that show price movements over a period. The vertical line at the bottom of each bar shows the price that was reached in the given period. The opening prices are marked by a horizontal line to the left of the vertical lines, while the closing prices are marked by a horizontal line to the right of that vertical line.
The bar can be colored black or green if the closing price is higher than the open price. If the close is lower than the open price, it means that the price fell during that time period. The bar could be colored red. The color coding of the bars allows traders to see price movements and trends more clearly. In most charting platforms, color coding is an option.
Technical analysts utilize bar charts (or other chart types like candlestick or line charts) to monitor price action and aid in trading decisions. Stacked Bar Charts are useful for traders to spot possible trend reversals and monitor volatility.
Investors and traders decide the period to analyze. An investor would find a 1-minute bar chart useful, but it wouldn’t be suitable for a day trader. A weekly bar chart that shows the price change for each week may be suitable for a long-term investor but not for day traders.
Interpreting bar charts
A bar chart types display the open, high, and low data for each period. This provides traders and investors with a wealth of information.
The long vertical bars indicate a large price differential between the highs and lows of the period. This means volatility grew during this period. A bar with very small vertical bars indicates that there was low volatility.
A large difference between the close and the open means that the price has made a significant movement. The close that is higher than the open indicates buyers were active during the period. This could indicate future buying. It is a sign that there wasn’t much conviction in the price movement over the period if the close is close to the open.
It may be useful to look at the location of the close relative the high or low. It is possible that the close of an asset rose higher in the period, but was still well below its high. This indicates that sellers arrived at the end. This is less bullish than when the asset closes near its peak for the period.
The colors of the stacked bar chart can be used to show information quickly if they are colored according to whether the price rose or fell during the period. A general uptrend will typically be represented by more black/green bars. Downtrends are represented by red bars.
Comparison of Candlestick and Bar Charts
Stacked Bar Charts look very similar to Japanese candlestick charts. Both chart types display the same information, but in different ways.
A stacked bar chart is made up of a vertical line and small horizontal lines that indicate the open and close. A vertical line is also used to show the high and lowest points of the period, which is called a shadow. However, the difference between open and close can be represented by a thicker section known as an actual body. If the close is below the open, the body will be shaded or colored red. If the close is above it, the body will be shaded or colored white or yellow. The information is identical, but the visual appearance of the chart types is different.