You might be wondering about how to read an OHLC chart (or bar chart), and that’s understandable. Next to the candlestick chart, this is one of the most widely used day trading charts.
Let’s start simple. What is an ohlc chart? Well, it’s also called an open high low close chart, and that name just about explains it. Each piece of the bar in a bar chart represents one of those 4 elements. The open, high, low, or close for that time frame.
Before I discuss that further, what do I mean by time frame? Well for OHLC charts, each bar represents a period of time set by you, the user. This can be days, weeks, months or, for day trading, hours and minutes. The most commonly used time frames for day trading are the 5 minute chart and the 1 minute chart.
Okay, back to dissecting the bars in an ohlc chart; so each piece of the bar represents one of the four elements mentioned. In the illustration here, you can see those elements and how they pertain thepieces of a bar chart. The left horizontal tick always represents the opening price. This is the first price the stock trades at within the chosen time frame. The highs and lows are the shown as the tips of the vertical line. These are the highest prices traded within the chosen time frame. The closing bar is the right horizontal tick represents the closing price, or the last price the stock traded at within the chosen time frame.
This one bar is only a piece of the chart though, stock charts are actually made up of many of these charts in series to give you a picture of where the stock is. Technical analysts also use this information to attempt to predict which direction has the highest probability of going. Below are examples of a single color ohlc chart, and a two color chart.
As you can see they’re both fairly easy to read, though sometimes it’s difficult to make out exactly where those opening and closing prices are. It’s for that reason that I prefer to trade using candlestick charts, but to each their own, I suppose. Anyway, that’s the OHLC chart in a nutshell.