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BAR CHARTS
Bar charts are by far the most common type of price chart. In a bar chart, each day is represented by a vertical line that ranges from the daily low to the daily high. The day’s closing value is indicated by a horizontal protrusion to the right of the bar. Additionally, the day’s opening value is often (but not always) indicated by a horizontal protrusion to the left of the bar. Figure 2.1 is a daily bar chart of an individual stock.
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| Figure 2.1: Daily bar chart—Micron Technology. Chart created with TradeStation® by Omega Research, Inc. |
In futures markets, the opening and closing prices shown on a bar chart are representative values (usually determined by exchange-authorized professional traders in a particular contract) that approximate the average price during the first and last minutes of the trading day, respectively. In the case of stocks, the opening and closing prices represent the actual first and last sales of the day as recorded by the specialist in a particular equity
The daily bar chart is most useful for trading purposes, but bar charts for longer data periods provide an extremely important perspective. These longer-period bar charts (e.g., weekly, monthly) are entirely analogous to the daily bar chart, with each vertical line representing the price range and final price level for the period. (On weekly or monthly charts, the opening and closing prices are simply the opening price from the first trading period included in the bar and the closing price of the last trading period included in the bar. For example, each bar on a weekly chart would use Monday’s opening price and Friday’s closing price.) Figure 2.2 is a weekly bar chart of the stock pictured in Figure 2.1. The segment within the rectangle corresponds to the period captured in Figure 2.1. Figure 2.3 is a monthly bar chart for the same stock. The large and small rectangles enclose the periods depicted by Figure 2.2 and Figure 2.1, respectively.
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| Figure 2.2: Weekly bar chart—Micron Technology. Chart created with TradeStation® by Omega Research, Inc. |
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| Figure 2.3: Monthly bar chart—Micron Technology. Chart created with TradeStation® by Omega Research, Inc. |
The difference in perspective between daily and weekly charts can be striking; hence, both types of charts should be examined. For example, the daily bar chart for the March 1995 silver contract (Figure 2.4) is dominated by a very bearish, massive top pattern. The weekly silver chart (Figure 2.5), however, provides a very different picture. Although in this chart the late 1993–1994 price pattern still looks toppy, the chart also reveals that prices are near the low end of a broad historical price range and that a major price base was apparently formed during the 1991 to early 1993 period. Thus, while both charts seem to imply a near-term bearish bias, the weekly chart provides strong reasons for viewing another price downswing as a potential major buying opportunity, whereas there is not even a hint of such a conclusion in the daily chart.
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| Figure 2.4: Daily bar chart perspective—March 1995 silver. |
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| Figure 2.5: Weekly bar chart perspective—silver nearest futures. |
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