Before we get started, let’s clear one thing up.
It is nothing like a chart at a bar and it has absolutely nothing to do with ANYTHING bar related.
A bar chart in forex is a bit more complex.
Bar charts are the workhorse of technical analysis.
Seriously, there would be no technical analysis or technical traders without a bar chart.
A bar chart is a collection of price bars, with each bar showing the price movements for a given period of time.
Each bar has a vertical line that shows the highest price reached during the period, and the lowest price reached during the period.
The opening price is marked by a small horizontal line on the left of the vertical line, and the closing price is marked by a small horizontal line on the right of the vertical line.
If the close price is above the open price, the bar will be coloured black or green.
If the close is below the open, which means that the price dropped during that period, it will be coloured red.
Colour coding the price bars depending on whether the price moved up or down helps forex traders to see price movements and trends more clearly.
Bar charts are often called OHLC (or HLC) Bar Charts because they indicate the pen (O), high (H), low (L), and close (C) for that particular currency pair.
What does that mean, I hear you scream? Keep on reading and you’ll soon find out.
The open is the first price traded during the bar and is indicated by the horizontal foot on the left side of the bar. Usually the open is the same or super close to the previous close.
The high is the highest price traded during the bar and is indicated by the top of the vertical bar.
The low is the lowest price traded during the bar and is indicated by the bottom of the vertical bar.
The close is the last price traded during the bar and is indicated by the horizontal foot on the right side of the bar. It is the most important data point on the bar because it summarises the final sentiment of the given period.
Okay, so now that you know what all the lines means, let’s take a look at what an actual bar CHART looks like.
Pretty straight forward, right?
Bet you thought it would be more difficult than that…
As you can see in the example above, a bar chart is composed of vertical bars that show a currency’s trading range for whatever period you may be analysing. You can have 5-minute bars, 15-minute bars, 1-hour bars, 4-hour bars, etc. In Forex, the most commonly used bars are the 15-minute, 1 and 4-hour, and daily.
It is completely up to you and your trading strategy to decide which time period you want to analyse. A 1-minute bar chart, which shows a new price bar each minute, would be useful for a day trader but not an investor. A weekly bar chart, which shows a new bar for each week of price movement, may be appropriate for a long-term investor, but not so much for a day trader.
Bar charts also show the direction of movement—upward or downward—in the price, as well as how far the price moved during the bar. Day traders can then assess how the price is moving based on the bar chart. When a trader makes trading decisions based on those price bars, they are called price action traders.
Fun Fact: Nicolellis range bars were developed in the mid-1990s by Vicente Nicolellis, a Brazilian trader and broker who spent over a decade running a trading desk in Sao Paulo. Nicolellis developed the idea of range bars, which consider only price, thereby eliminating time from the equation.
In addition to the placement of the components, the size of the bar matters, too.
The size of bars changes according to the economic pressures that affect the supply and demand for a currency pair.
A tiny bar (small distance between high and low) means a lack in interest by both buyers and sellers.
A tall bar, with a wide distance between the high and the low, means a lot of buying and selling interest.
The distance between the high and low is named the trading range and an oddball bar that is different in size or component configuration from the bar preceding it should get attention.
When it is interpreted correctly, this simple symbol can be used to show turning points, trend lines and support and resistance levels.
While bar charts are not absolute in their ability to predict currency movements, they provide you with an important tool to better understand market movements.
Do you think you will be using bar charts when trading?
Let me know in the comments below!
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