OHLC bar charts stands for “Open High Low Close”. Bar charts are the most popular type of security chart. It is the most widespread way of indicating data for stock analysis. The chart clearly shows the price at open, high, low and close as shown in the figure below. The bar can represent any time frame, from one minute to one day, and many intervals in between.
OHLC stands for the 4 elements displayed on a typical price bar:
Opening price: It is taken from the first trade of the period.
Highest price: Highest price is high trade of the period
Lowest price: Lowest price is low price of the period
Closing price: It is taken from the last trade of the period.
The top of the vertical line represents the High of the period while the bottom represents the Low. A small horizontal line on the left side of the line shows the Opening price while the one to the right gives the Closing price.
The range is the difference between the highest and lowest prices traded during a period. These high and low prices show a correlation between the price and the number of buyers and sellers for a particular equity. Of course, for every buyer, there’s usually a seller, but there are two terms that define an aberration from this hand-to-hand equilibrium.
One term used is control. This defines who has control. If there are more potential buyers, the buying pressure will force the price up until equilibrium is finally established. The buyers, at this time, have control. If there are more sellers than buyers, then the price will be forced down, and the sellers have control. You can identify who has control from the position of the closing price in relation to the previous closing price, the range, and the opening price. The larger the distance between the opening and closing prices, the larger the eagerness of the controlling hand.
Commitment is the eagerness of the party in control of a stock. If the stock has a commitment of bulls, then they’ll hang in no matter how high the price of the stock becomes. You’ll see irrational lack of deterrence by lack of profit taking and they’ll continue to hold the price up. If the bears are committed, they’ll continue to sell the stock down, undeterred by lower prices.
The OHLC Bar charts are the easiest to understand and interpret. They expose support and resistance areas. It also helps in identifying good entry points for short-term trading.
Your first step in interpreting a bar chart is to identify the direction of the trend. Then look for signs that the trend is either strengthening or weakening. The OHLC bars are good for studies of pattern profiles. Analysts believe that chart patterns graphically depict supply and demand forces that are realized on the exchange floor.
Viewing one bar alone, it is not significant, however viewing it in relation to other bars (trading periods) occurring before and after, one sees how these prices fit into a larger pattern. In this context, a single bar (and the prices of that period) becomes important and can serve as a guide to trading and timing decisions.