Construction of The Daily Bar Chart

The construction of the daily bar chart is extremely simple. The bar chart is both a price and a time chart. The vertical axis (the y axis) shows a scale representing the price of the contract. The horizontal axis (the x axis) records the passage of time. Dates are marked along the bottom of the the chart. All the user has to do is plot a vertical bar in the appropriate day from the day's high to the day's low (called the range). Place a horizontal tic to the right of the vertical bar identifying the daily closing price.

The reason for placing the tic to the right of the bar is to distinguish it from the opening price, which chartists record to the left of the bar. Once that day's activity has been plotted, the user moves one day to the right to plot the next day's action. Most chart services use five day weeks. Weekends are not shown on the chart. Whenever an exchange is closed during the trading week, that day's space is left blank. The bars along the bottom of the chart measure volume.

WEEKLY AND MONTHLY BAR CHARTS

We've focused so far on the daily bar chart. However, be aware that a bar chart can be constructed for any time period. The intraday bar chart measures the high, low, and last prices for periods as short as five minutes. The average daily bar chart covers from six to nine months of price action. For longer range trend analysis, however, weekly and monthly bar charts must be used.

On the weekly chart, one bar represents the price activity for the entire week. On the monthly chart, each bar shows the entire month's price action. Obviously, weekly and monthly charts compress the price action to allow for much longer range trend analysis. A weekly chart can go back as much as five years and a monthly chart up to 20 years. It's a simple technique that helps the chartist study the markets from a longer range perspective-a valuable perspective that is often lost by relying solely on daily charts.