There are two types of charts to depict price movement over time. One type of chart, called a bar chart, uses vertical lines (called bars) to show price movement over time. A bar chart shows four price points: open, high, low, and close. All components combined make bar charts great for tracking the changes in Forex price.

Bar charts differ from candlestick charts in how they visually represent price. While candlestick charts use a colored body to represent price direction, bar charts show only a simple vertical line with small horizontal marks. The left horizontal mark shows the opening price and the right horizontal mark shows the closing price.

Using bar charts allows Forex traders to recognize price trends and patterns, effectively identifying FUTURE price directions. The vertical line denotes the trading range between the highest and lowest price during a specified period of time (the period of time is also determined by the type of chart traders select). Bar charts work very well for any currency pair and time frames. 

Bar chart components

Understanding bar chart components is important for effective technical analysis. The high is the maximum price reached during a time period. The low is the minimum price reached. Together, the high and low form the vertical line of the bar. 

The open price indicates where trading opened for that period. It will be a small horizontal line extending to the left of the vertical bar. The close price indicates where trading closed. This will be a horizontal line extending to the right of the vertical bar.

Timeframes and Bar Charts 

Various timeframes are available for when we trade; each time-frame serves a specific purpose or strategy. Shorter timeframes such as 1 minute and 5 minute charts are used to relay intraday price movements. It helps day traders find profit within the same day and manage their risk.

Longer timeframes, including daily and weekly charts, show the larger market picture. Swing traders and position traders rely on longer timeframes to make strategic decisions. The timeframes will impact decision making and risk management.

Bar Charts and Indicators

Technical indicators help bar charts by analyzing the market in other ways. Moving averages smooth price action and define if market actions are in the context of an up-move or down-move. Generally speaking, prices typically continue in an up-move if trading above its moving averages. If trading below its moving averages, prices generally continue to be in a down-move.

The Relative Strength Index (RSI) is a measure of momentum built from the bar chart. The RSI is defined as 70 and above is overbought, 30 and below is oversold. Traders can use these to signal potential reversal points in the market.

Advanced Use: Bar Charts in HFT & Algo Trading

High Frequency Trading is based on Bar Chart analysis in real-time market data. Algorithms can analyse thousands of bars per second in order to seek profit opportunities. After learning bar charts and building a trading system, the frequency of bar chart updates will dictate our ability to react to competitive stock market signals.

Bar charts are used as input signals for algorithmic trading systems. Price breakouts from bar chart patterns trigger the algorithmic systems to trade on their own. Volume spikes combined with bar chart formations are used to confirm trade signals. Algorithmic trading systems can execute trade faster than a human trader can react. 

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