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A chart is a graphical summary of what has happened in the market so far. The chart is concerned only with price, time (not always, for example not with Point & Figure charts) and volume (not always). So a chart is a summary of all the trades that have taken place in a certain time frame. If we were to chart all of the trades in a particular market over a period of time it would become a very large chart and lose some of the value that a chart offers (representing a lot of information in an easily digestible format). So it is usual for the chart to summaries the trade information is a series of bars, each bar summarizing the trades that took place over a specific period of time. Although it may seem that I am writing as if for a complete novice, I am not. I want to explore the fundamentals of price movement so that you have a thorough appreciation for all the information that is available from a chart. Bars A 5-minute bar starting at 8am will summaries trades from 08:00:00 to 08:04:59. The bar records the opening price, which is the price of the first trade in this time bracket; the closing price, which is the price of the last trade in this time bracket; the high price, which is the highest price traded in this time bracket; and the low price, which is the lowest price traded in this time bracket. So if we are to look at a chart, made up of 5-minute bars, with or without volume, we are seeing a summary of what has happened. I think this is important to be aware of when looking at a chart, we are not looking at the market, we are looking at a summary of it. 33 Reading bars Let us look at an individual bar Figure 8 What can we learn from this single bar? Perhaps first we should consider what we cannot determine from this bar. At the precise moment this bar closed we cannot say who was in control. |
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