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Bar Charts

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Price bars are thin displays of price created from 3 lines. Each line has a purpose and they display the 4 essential components of price in tandem over a specified series of time. The first component displayed per time period is the open, the second is the high, the third is the low, and the last is the close. Utilizing bar charts helps display all four crucial components of price in a simple and obvious fashion.

Price bars are thin displays of price created from 3 lines. Each line has a purpose and they display the 4 essential components of price in tandem over a specified series of time. The first component displayed per time period is the open, the second is the high, the third is the low, and the last is the close. Utilizing bar charts helps display all four crucial components of price in a simple and obvious fashion.

Bar Color

The color of bars in the chart is represented by the change in value in relation to the last bars. When utilizing charts with colored settings, a bar which shows prices increasing over the last bar’s value will be green. A bar which shows prices decreasing relative to the last bar will be red. Thus a downtrend will show either strong red bars or more red bars, while an uptrend will display strong green bars or a higher population of them.

Open

The open is displayed by a horizontal line of the left of the high-low bar signifying the high or low of the day. This appears on the bar as the opening price at the beginning of trading within the specified time period. It should be viewed in relation to the closing price of the previous bar shown. The closing price is shown by a bar facing right on the chart.

If the open is higher than the last bar’s closing price, favorable events have increased the value of the asset between the last time period and now. If the price is lower than the last bar’s closing price, unfavorable events have decreased the value of the asset in the time frame between the closing and open. Since this is based on events that are extremely recent, the change of value between closes and openings help set the tone of the new time period’s overall trading. In the vast majority of intra-day trading cases, the closing bar and the open bar will occur at the same place.

The value of the open can change for reasons that are completely unrelated to value. An example is provided by institutional investment groups. Many funds, especially sector emulating mutual and index funds, must maintain a specific asset ratio stated within their investment prospectus. These ratios are often maintained by orders that are scheduled during extended hours trading, at the open, or at the close. Bulk purchases and sale of assets, executed to maintain ratio demands, often result in price changes between opens and closes. When you see a different between closes and opens, check the news to see if significant events have occurred. If none have occurred, it’s probably a change driven by institutions balancing their asset ratios.

Close

The closing price of a period is represented by a horizontal bar to the right of high-low daily bar. This bar is set by the last transaction within the specified period. This price essentially highlights what people trading the asset ultimately think of value during that period.

Note that close is not always the last price for the trading period of time displayed. On daily charts, after hours trading occurs after the market closes. All prices movements associated with afterhours trading is included in the next day’s trading information. Opens above the previous close will be displayed as positive price movement, opens below the previous close will be displayed as negative price movement.

This detail is important: day traders often dump shares on the market at close. If they sell at close, they don’t have to deal with adverse overnight price movements. They also evade any capital requirements that exchanges or brokerages may require for holding capital overnight.

A series of closing prices strongly indicates the direction of the trend. Consecutively higher closing bars typically indicates an uptrend is occurring. Consecutively lower closing bars indicate a downtrend.

High

The path of the price over the day is displayed by a bar that runs vertically, with a top and a bottom. The length of the bar from top to bottom displays the range of price. The top of the bar is the highest point the price has reached during the day.

The higher the distance between the open and this point on the bar, the higher the optimism that occurred during the day. If the open is at the high, falling prices show pessimism throughout the day. If the open is way below the high, there was strong amounts of optimism during the trading period.

The closing price also has a strong relation to the high. If the close is at the high, optimism rules the day, especially if there is a substantial distance between the open and the high. If the open and close are both at the high, the market ultimately decided to push the price back towards the upper end of the day’s value.

Low

The bottom of the bar is the lowest price that occurred during the trading period. The distance between the open and the low displays the degree of pessimism that affected prices. If the low is at the open, little or no pessimism occurred during the trading period. If there is substantial distance between the low and the open, pessimism drove prices down during the time period.

If the close is at the low, or close to it, the trading period was primarily pessimistic. If the open is at the low, and the close is far away from the low, then optimism ruled the overall trading period. An open and close at the low indicates general indecision about value in the market.

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