The Power of a Single Chart OHLC Bar
A bar chart or candlestick chart shows a tremendous amount of information.
It is a worthy study in and of itself.
First of all, let us understand that an Open High Low Close bar chart bar contains exactly the same information as a Japanese style candlestick chart.
Charts that limit or eliminate any portion of these 4 elements are not included in this discussion, and while they have their place, they are mostly useful as filters based upon the input of the OHLC bar or candlestick bar.
For the sake of this article then, we will simply refer to these as a bar.
The bar we speak of here holds a lot of information.
Of course there is price.
It is the foundational element from which all other information is derived.
I will attempt to deal with the found elements in their logical developmental sequence.
The first element is time.
There are 2 main types of time reflected in bar charts: legitimate time, and arbitrary time.
(And yes, I realize that time is not derived from price, but I digress) I label the time elements as legitimate to be those which have some external influence, such as the rotation of the planet.
In other words, a day bar is a legitimate time framed bar, because the world sleeps every night...
for the most part anyway.
The markets reflect this action, and it has at very least strong correlation and at most, solid proof.
You get my point, right? Another type of legitimate time is quarterly, when yet again external factors affect price.
And we also have arbitrary time which are time frames like 5 minutes, 2 days, and the type of time frame that individual traders feel comfortable with, from which they feel they can see usable trends, patterns, etc.
that result in winning trades.
The fact is, these time frames are based upon conjecture mainly, and any patterns that show are arguably the result of intuitively, or accidentally, hitting upon a time frame that resonates with the natural volatility or trending inherent in the chosen market.
Time is important for this reason.
The resonant frequency of the chosen market reflects information that gives patterns and trends for winning trades.
If you are seeing gaps up or down, many traders consider that to be a signal in and of itself.
But consider the fact that this time frame, being arbitrary, may miss information and before making a trade, at least give a few longer time frames a chance to reveal other potential patterns that may be hidden in that shorter time frame.
That is the first lesson of the bar.
The next lesson is based upon the 4 elements of the bar itself.
If the Open and the Low are equal or close, and the Close and the High are equal or close, then you have simple analysis.
Your TREND is up.
The range between the Low and High represent VOLATILITY.
And you can invert these values and easily see a downward trend and the relative volatility.
This may sound like a "so what" scenario, but it isn't.
If you are an Elliott Wave enthusiast, the longest bars are likely to show up in a 3rd wave trending, or a sharp recovery wave.
If the wave is short, your MOMENTUM is limited, and infers at least potentially, a weak VOLUME.
The tricky analysis comes when the trend is mixed.
Open in the center of the bar reveals a much weaker trend, and you must decide what that is based upon how high or how low that is.
Is it an Elliott wave of lesser magnitude? Is it a weakening of a trend? Is it a reversal? There are volumes written about many possible variations based upon the Japanese candlestick style charts, and while I don't subscribe to every nuance of Japanese candlestick analysis, much of it is based upon the principles reflected here.
How far did the price retrace in that time frame? What is the length of the High to Low and the relative volatility of this bar.
In my next article, I will deal in more detail with the situations where the trends are less clear and the Open and Close are not as easily analyzed in reference to the bar as a whole.
Stay tuned.
It is a worthy study in and of itself.
First of all, let us understand that an Open High Low Close bar chart bar contains exactly the same information as a Japanese style candlestick chart.
Charts that limit or eliminate any portion of these 4 elements are not included in this discussion, and while they have their place, they are mostly useful as filters based upon the input of the OHLC bar or candlestick bar.
For the sake of this article then, we will simply refer to these as a bar.
The bar we speak of here holds a lot of information.
Of course there is price.
It is the foundational element from which all other information is derived.
I will attempt to deal with the found elements in their logical developmental sequence.
The first element is time.
There are 2 main types of time reflected in bar charts: legitimate time, and arbitrary time.
(And yes, I realize that time is not derived from price, but I digress) I label the time elements as legitimate to be those which have some external influence, such as the rotation of the planet.
In other words, a day bar is a legitimate time framed bar, because the world sleeps every night...
for the most part anyway.
The markets reflect this action, and it has at very least strong correlation and at most, solid proof.
You get my point, right? Another type of legitimate time is quarterly, when yet again external factors affect price.
And we also have arbitrary time which are time frames like 5 minutes, 2 days, and the type of time frame that individual traders feel comfortable with, from which they feel they can see usable trends, patterns, etc.
that result in winning trades.
The fact is, these time frames are based upon conjecture mainly, and any patterns that show are arguably the result of intuitively, or accidentally, hitting upon a time frame that resonates with the natural volatility or trending inherent in the chosen market.
Time is important for this reason.
The resonant frequency of the chosen market reflects information that gives patterns and trends for winning trades.
If you are seeing gaps up or down, many traders consider that to be a signal in and of itself.
But consider the fact that this time frame, being arbitrary, may miss information and before making a trade, at least give a few longer time frames a chance to reveal other potential patterns that may be hidden in that shorter time frame.
That is the first lesson of the bar.
The next lesson is based upon the 4 elements of the bar itself.
If the Open and the Low are equal or close, and the Close and the High are equal or close, then you have simple analysis.
Your TREND is up.
The range between the Low and High represent VOLATILITY.
And you can invert these values and easily see a downward trend and the relative volatility.
This may sound like a "so what" scenario, but it isn't.
If you are an Elliott Wave enthusiast, the longest bars are likely to show up in a 3rd wave trending, or a sharp recovery wave.
If the wave is short, your MOMENTUM is limited, and infers at least potentially, a weak VOLUME.
The tricky analysis comes when the trend is mixed.
Open in the center of the bar reveals a much weaker trend, and you must decide what that is based upon how high or how low that is.
Is it an Elliott wave of lesser magnitude? Is it a weakening of a trend? Is it a reversal? There are volumes written about many possible variations based upon the Japanese candlestick style charts, and while I don't subscribe to every nuance of Japanese candlestick analysis, much of it is based upon the principles reflected here.
How far did the price retrace in that time frame? What is the length of the High to Low and the relative volatility of this bar.
In my next article, I will deal in more detail with the situations where the trends are less clear and the Open and Close are not as easily analyzed in reference to the bar as a whole.
Stay tuned.
