Are bar graphs applicable to technical analysis and trading?

Are bar graphs applicable to technical analysis and trading?

As soon as elementary, we already had a firsthand experience with bar graphs. Be it math, science, or even livelihood education, bar graphs would always be helpful and acceptable. How they are used back then is nothing different from how we use them in trading. Under technical analysis, traders maximize the use of charts and graphs to make better and sound decisions. Studying data and statistics is like learning other traders’ experiences where you discover why they succeeded or failed.

Specifically, bar graphs

A bar graph is a visual chart where data is in the form of bars or columns. These bars and columns are the representations of a category’s observation. They are very common and helpful in financial analysis. These bars may come in different representations such as:

  • Vertical columns
  • Horizontal bars
  • Comparative bars
  • Stacked bars

The X- and Y-axis

The x-axis is the horizontal and bottom part of the bar graph, and it stands for any variable like time, earnings per share, revenue, and so on. On the other hand, the vertical one is the y-axis. It describes the value of the variable on the x-axis. Hence, we can see that bar graphs make it easy for individuals to visualize the information they need. For instance, bar graphs can be beneficial in trading for technical analysis because they can show us trading volume under the asset’s price chart.

Bar graphs and technical analysis

One bar graph may look different from another. They are flexible charts, and creators may deviate from the usual x- and y-axis legends. They may be horizontal, vertical, stacked, or anything else. It all comes down to their primary use: to compare two or more values at a given time frame. 

We will often see single bar graphs that will show us a thing’s discrete value. As we mentioned a while ago, a bar graph can give traders a visual representation of the trading volume on different days. With that, we can compare and analyze. The x-axis is for the particular days, while the y-axis is for the trading volume. We can also interchange the positions of the x- and y-axis.

Bar graphs are very relative to technical analysis. For instance, a famous technical indicator called MACD (Moving Average Convergence Divergence) histogram shows the difference between the signal and MACD line.

The bar graph and bar chart

We have mentioned that a bar graph is a chart. That fact is accurate, and it also shows data in the form of a column. On the other hand, a bar chart shows us the open, high, close, and low prices of assets or securities in a given time frame using vertical bars. Just for additional information, there are times when the open is not included. The open price and close price are shown by small horizontal lines extending to the left and right. The price specifically covers only essential prices in bar charts, and the extension does not go all the way up.

The limitations of bar graphs

Bigger scales may tend to omit some critical data. Bar graphs can make data look interesting when there is nothing special about the data given. Hence, you can get information from bar graphs but make sure to double-check the sources.

Clare Louise

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