A Bar Chart
What is a bar chart?
A bar or histogram chart (the figure 1) has been known since the 19th century. It has been actively utilized in stock trading because it’s very convenient and informative. The bar chart appears to be an analog of Japanese candlesticks. It’s traditionally employed in European countries and the United States.
A bar can be defined as a vertical line with short horizontal lines, which point in different directions. Sometimes a horizontal line might be one.
The bar displays four values. These are the open price in the form of a horizontal bar on the left, the close price in the form of a horizontal bar on the right, the maximum period price, which is the upper limit of the bar and also the minimum price that is the lower limit of the bar. In addition to this, the bar chart displays price gaps. The left bar, located on the bar below the right, indicates that the price is going up. If the right line is below the left, then asset price inch down.
The size of the bar also matters – it actually indicates the activity of traders. If the bar is short (the figure 2), it means that both sellers and buyers are less active, the asset doesn’t cause much interest. A long bar with a large distance between the high and low indicates that both buyers and sellers are active in the market binary options trading. The distance between the high and the low is known as the range.
Certainly, no one opens a trading position based on the information of just one bar. The trend needs to be confirmed by corresponding graphic figures.
The trend is a straight line above the daily maximums on the downward movement on the bar chart. With the uptrend, it’s below the daily minimums.
How to analyze the bar chart information?
When it comes to analyzing the bar chart information, you require realizing what a closing price is. Well, it can be defined as a price at which the last deal is made during the bar formation period. The closing price even determines the mood of traders. If the closing price is lower than the opening price, it means that most probably negative sentiment dominates. On the contrary, if the closing price is higher than the opening one, the market is generally positive.
As for the opening price, it’s a price at which the first deal is made in the chosen time interval. As a rule, the opening price coincides with the closing price of the previous bar. If these readings are very different, a price gap is displayed on the chart. A number of small bars (the figure 3) might point out that the market’s in an unstable position, and a breakthrough is probable. On the contrary, a number of bars with a large range shows that active trading is carried out.
A series of bars with the maximums and minimums edging up point to a steady uptrend. A series of bars with the maximums and minimums tumbling indicate a downtrend. In this case, a series is represented not only by consecutive unidirectional bars but also by the majority of them in a sequence.
When working with the bar chart, a trader is expected to correctly identify patterns.
A combination of three candlesticks appears to be one of the key patterns. Here the central bar is surrounded by bars with lower highs and it points to a leap in prices. Accordingly, a pattern with opposite indicators will indicate a reversal downwards.
It was Larry Williams, a well-known trader, who made a great contribution to the definition of patterns on the bar chart. He denoted such figures as «a maximum», «an absolute maximum», «a minimum», «an absolute minimum», «an internal day», and «and external day», «an upward breakdown» as well as a number of others. All these figures are two- or three-barred.
The «maximum» figure is made up of three consecutive candlesticks, the maximum of the central one is higher than the highs of both candlesticks on the sides. This candlestick shows that the trend is going to dive. The «minimum» figure is made up of three consecutive candlesticks, the low of the central one is less than the lows of both candlesticks on the sides. That’s also a reversal pattern, indicating that the trend will head north.
«The internal day» pattern can be defined as a combination of two candlesticks, of which the maximums and minimums of the second bar are lower than those of the second bar. The trend direction is determined by the second bar. «The external day» pattern has two bars, of which the maximums and minimums of the first are less than those of the second. The trend direction is determined by the second bar.
The combination of three consecutive bars, where the third bar demonstrates a lower minimum to the minimum of the previous bar, indicates a trend reversal from the downtrend to the uptrend. The opposite pattern is a combination of three bars, the last of which has a high above the maximums of the previous bars. Here the uptrend is followed by the downtrend. On the bar chart, classic figures are also clearly seen and they resemble similar figures on the candlestick chart. As for typical figures, we can mention such figures as «a double top», «a double bottom» as well as «a head and shoulders» pattern. Others figures include «a flag», «a pennant», «triangles», «a rectangle» and others.
«A double top» and «a double bottom» are traditionally considered to be the strong reversal figures. «The double top» is formed when the trend stumbles on a strong resistance level and twice hits highs at about the same level. The figures indicate that the trend is reversing downwards. The double bottom happens to be an antagonistic pattern. It’s formed by two lows, between which there is a small rebound. The given pattern points to an uptrend.
«The head and shoulders» is a classic reversal pattern. It can be described as three peaks, of which the central is the highest. By the way, the peaks on the left and right aren’t always equal. A crucial sign of this pattern is the asset price crossing the support level. The pattern is formed following an uptrend and generates a downtrend. The pattern indicates that there’s a huge offer on the market and the asset price can drastically head south.
«The flag» and «the pennant» turn out to be trend continuation patterns. The «flag» pattern is formed by two trend lines, deviating upwards or downwards from the trend, thus indicating where the trend is going to continue. «The pennant» pattern is formed by two converging trend lines. It indicates where the trend will go by simply lifting or dropping trend lines.
On the bar chart, there can be different types of triangles. An ascending triangle points to a soaring trend, no matter what the trend was before the formation of this pattern. However, as a rule, an upward triangle is formed on an uptrend. As for a descending triangle, it indicates a downtrend, regardless of what the trend was before. The pattern is formed by a well-pronounced support line and a downward resistance line.
Advantages and disadvantages of the bar chart
The bar chart has few downsides. That’s one of the most popular charts, used by many leading investors. One of the key advantages of this chart is that it offers a lot of data, just like the Japanese candlesticks, but the bars occupy less space, and their perception is clearer compared to the Japanese candlesticks that take up more space on the chart. Some investors note that bars are good for determining resistance and support levels at small intervals. However, there’s no huge difference in providing information between candlesticks and bars, and their choice solely depends on the personal preferences of the investor.
As for the downsides of this chart, some investors dislike that it doesn’t show all the changes in the price for a certain period. Data should be refined using another graph or a bar chart with a narrower timeframe.
An example of work on binary options on the bar chart
The strategy is built around a trend change that should be determined by a signal consisting of three bars. You’d better utilize this strategy on short-term options because even a minor price movement can bring you great gains. The Pinocchio strategy enables you to make several deals for the trading day.
On the bar chart, three candlesticks show up, of which the central one is a long spike, “Pinocchio’s nose” or a pin-bar. Simultaneously, in height, the body of the pin-bar needs to be as close as possible to the level of the previous bar. The pin-bar needs to have a long shadow, directed against the trend.
The «Pinocchio» pattern happens to be a reversal one. You observe a downtrend, you should buy a CALL option. if there’s an uptrend, you require buying a PUT option. By the way, the Pinocchio strategy can be also used on the candlestick chart. Open the trading terminal of the binary broker, study the available chart types and work with them.
An example of work on the bars in the Forex
In the trading terminal, for example, Metatrader 5, the bar chart is one of the key ones. You can find it in the «Charts» section.
One of the strategies that can be used on the bar chart in the forex market is trading with two moving averages. First, you require determining the trend. Moving averages are set in the trading terminal. You should set one of them at lows and the other at highs of bars. Their periods are three bars.
You require buying assets at moving average lows only in the direction of the trend. You should close trading positions at moving average maximums. The strategy is short-term. It’s effective in a fairly volatile market.
Open the trading terminal of the Forex broker, study the available chart types and work with them:
An example of work on the bar chart when trading digital coins
Just like candlesticks, the bar chart can be utilized for cryptocurrency trading, if there’s such a chart on a crypto exchange, of course. In particular, it’s possible to trade on rebounds – against the trend. The bars demonstrate a steady ascend or tumble in the value, and the investor trades on small corrective movements against the main trend. Such movements always accompany the major trend, regardless of how fast it is.
In the crypto market, the rebound might be caused by the fact that most investors are assured that the digital currency is overvalued or undervalued. Moreover, the dynamics of the crypto asset price can also be affected by the news or event.
The main thing when using this strategy is to spot the entry point to the market. For this purpose, you need to use charts, in particular, the bar chart. However, it’s going to be more difficult to do in a period of high volatility.