The Beginner Trader
How to read a bar chart
Before you can read a full bar chart with all those confusing lines and indicators, you need to know what a bar is made up of and what each individual bar tell us. So let’s start with the basics.
What is a bar chart?
A bar chart as it relates to a stock, gives us information on the price of a stock on a given month, week, day, hour, minute, or even second. The time frame you choose depends on what your strategy requires which we will not get into in this post. The chart is made up of multiple bars. Learning how to read a single bar is the first step in learning how to read the charts and look for patterns that will fit your future trading strategies.
What do the bars signify?
A single bar will give you 4 main points of information. A bar is made up of a body and (usually) one or two wicks. Although it is possible to have candle with no wicks. The color of the body tells you if the price went up or down during the time period that bar lasted. A red candles signifies the bar closed lower then it opened, or went down. A green candle tells you the opposite.
The 4 points of information a candle gives you:
- The price the bar opened
- The price the bar closed
- The high of the candle
- The low of the candle
Check out the images below and see if you can spot the one difference that would make a candle red or green. Do you see it?
Understanding these concepts is one of the first steps in learning how to read a chart. When you combine multiple bars together you will start to see patterns. When you take those patterns and add other indicators to your charts, you will start to get buy and sell signals. We will get into these patterns and strategies in future posts.