How to Construct a Bar Chart

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The bar chart is the type of chart most commonly used by technical analysts. The horizontal scale on the bottom of the chart indicates the passage of time. The time scale can be anywhere from minutes to years, with the most popular scale being the daily bar chart, the weekly bar chart and the monthly bar chart. The daily bar chart indicates the range of prices for one day's trade, as measured on the vertical scale of the chart. The "bar" is the range of price for a particular time period; for a daily bar chart, the top of the bar represents the highest value for the day while the bottom of the bar represents the lowest value for the day. Attached to the bar are two tics, one extending to the left and one extending to the right. The left tic represents the opening price for the trading day and the right tic represents the closing or settlement price for the day.

The daily bar chart is used for short term marketing decisions, and is extremely useful for timing entry and exit points when designing a marketing strategy. ( for example when to trigger a hedge position when profitable prices are available or where to place a protective stop on a speculative position)

For a weekly chart the price range is for one week, Monday to Friday. If a holiday occurs during the week only the data available for the week is used. The top of the bar represents the highest value for the week and the bottom of the bar represents the lowest value for the week. The tic to the left is the opening price for the first trading day of the week, usually Monday, and the tic to the right is the settlement price usually the close of trade on Friday.

The monthly chart includes the range of trade for an entire month, from the first trading day of the month to the last trading day of the month, with the opening and closing prices being the values for the first and last day of the trading month respectively.

The weekly and monthly charts are used for a longer term perspective of the markets, and are extremely useful for market planning purposes. For example, if market prices as indicated on the monthly chart are at historical lows, sales of commodities should be delayed while if prices are historically high, a more aggressive approach to marketing would be undertaken.

Two other important pieces of information are usually included on a bar chart - Volume & Open Interest.

Volume represents the total amount of trading activity that took place in a commodity for a period of time, one day on a daily bar chart, one week on a weekly bar chart, and one month on a monthly bar chart. The volume is plotted as a vertical bar extending upward from the bottom of the chart, directly under the price bar for that day. The further the volume bar extends upward into the chart the more trading volume has taken place.

Open interest represents the total number of outstanding or unliquidated contracts in a commodity at the end of a trading day. A purchase and a sale are required to establish a contract position, thus the open interest is the total of either the outstanding purchases or sales, not both.

Open interest is plotted as a solid line above the volume bars on the price chart, with a vertical scale indicating the total number of contracts outstanding.

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This educational material is provided courtesy of Keystone Marketing Services, a leader in commodity market training.
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