What is a bar chart?
Looking for a bar chart definition? A lot can happen to a security in one day of trading, but thankfully the bar chart exists to help summarise all the important info.
A bar chart or bar graph presents data with rectangular bars at heights or lengths proportional to the values they represent. The bars can be vertical or horizontal, though they’re usually vertical.
The beauty of bar charts is that financial or market data – for example share price changes, corporate profits or sales figures – can be easily comprehended with a single glance at the graph. This makes them a great base for further technical analysis, which will help you plot your strategy as an investor.
Where have you heard about bar charts?
Bar charts are the most-used technical analysis tool there is. If you're ever looking for the key figures for a security in one day, the bar chart is likely to be the first thing you see. Bar charts also appear regularly in newspaper analyses and in corporate reports, where they can help readers visualise changes and trends concisely – without overwhelming them with endless figures.
What you need to know about bar charts…
The most important thing to know about bar charts is how to read them. Bar graphs or charts present what’s called ‘categorical data’ – a grouping of data into discrete groups such as days of the week, months of the year, age groups and so on. In a column bar chart, the categories appear along the horizontal axis; and the height of the bar corresponds to the value of each category – for example, the share price, net profit, total sales, or whatever else is being recorded.
Bar charts showing security prices
As an investor, the type of bar chart you’ll probably be most interested in is that used to display security prices. In these charts, each vertical bar conveys four key pieces of information about a single day’s trading in a security very simply and effectively:
- The top of the bar shows the security’s highest price for the day
- The bottom of the bar is the security’s lowest price for the day
- A horizontal mark on the left of the bar is the security’s opening price
- A horizontal mark on the right of the bar is its closing price
These charts are very useful for identifying trends and patterns, and their chief characteristic is that they place more visual emphasis on the highs and lows of a security on a particular day than on their opening and closing prices.
Simple bar charts
Bar charts are also often used to display corporate data – useful if you’re looking at investing in a particular sector, for instance, and want to compare the performance of various companies. Here’s an example of a simple bar chart comparing the quarterly revenues for a range of leading IT companies.
As you can see, the companies have been arranged in order of revenue, from smallest to largest, with Apple dramatically towering over its nearest rivals Google and Microsoft. Just a quick glance at this simple bar chart gives the reader a very clear idea of how the different tech companies compare in revenue terms. The use of bright colours is visually appealing, and there’s a strong sense of how dominant Apple is, which contrasts with the rest of its peers.
Grouped bar charts
Bar graphs can also be used to present more complex comparisons of data. In so-called ‘grouped bar charts’, there are two or more bars for each categorical group, with the bars being colour-coded to depict a particular segment. For example, a retailer with five stores might make a grouped bar chart with different coloured bars representing each of the various stores. The horizontal axis would show the months or quarters of the year, and the vertical axis would record the revenue figures.
Here’s an example of a grouped bar chart that’s comparing reported oil prices for various Statoil projects in two years: 2014 (the blue columns) and 2015 (the orange columns):
At a glance, you can see exactly what’s going on – across almost all of Statoil’s projects, reported oil prices in 2015 were significantly below those of the previous year. The one exception stands out strikingly, and is therefore immediately identifiable without wading through forests of figures. So, grouped bar charts are great for making direct comparisons.
Stacked bar charts
An alternative method of presenting more complex information is through a so-called ‘stacked bar chart’. A stacked bar chart stacks bars representing different groups or segments on top of each other, with the height of the resulting bar showing the aggregate result of these groups. This procedure works well for datasets with exclusively positive values, but you should note that stacked bar charts aren’t good at depicting a mix of positive and negative values.
Here’s an example of a stacked bar chart that neatly illustrates both a company’s total revenue each month (that’s the full height of each bar) and the individual contribution made by three of its regional divisions, East, West and North:
Just a few seconds’ perusal of the chart will tell you that over the given timeframe, overall revenues rose steadily, with one slight dip between April and May. It’s also immediately evident that in the most recent month, each of the three areas recorded a roughly similar performance – in stark contrast to June, when West did very poorly in comparison to the others.
You may also have heard of candlestick charts. These are a type of financial chart used to show price movements of a security, derivative or currency. Each ‘candlestick’ usually shows one day’s trading, with each bar representing all four main pieces of info for that day: the open, close, high and low. Here’s an example:
Candlesticks usually have a body (black or white), and an upper and lower shadow (the wick). The area between the opening price and the closing price is called the real body, while price forays above and below the real body are known as shadows. The wick shows the highest and lowest traded prices of a security over the given timeframe, while the body illustrates the opening and closing trades.
If the security closed higher than it opened, then the body of the candle is unfilled, with the opening price at the bottom of the body and the closing price at the top. But if the security closed lower than it opened, the body is solid or filled, with the opening price at the top and the closing price at the bottom. Generally speaking, thelonger the candle’s body, the more intense the trading.
Candlestick charts can help investors to identify trends, and they are a cornerstone of technical analysis in stock, forex, commodity and option trading. When a bar is white and high relative to other timeframes, it shows buyers are very bullish. A coloured bar, on the other hand, means buyers are bearish.
Find out more about bar charts…
Our comprehensive online glossary has guides to lots of related terms such as chart, trend, securities and technical analysis. Take a look at some of them to deepen your understanding of how market dynamics can be captured visually, and how you can learn from bar charts and graphs.
The BBC’s Skillswise service has a very good introduction to bar charts, which assumes no previous knowledge and is an excellent starting point for those who are unfamiliar with them. Take a look here.
If you’re working in Excel, here’s a quick tutorial on how to create your own bar charts (or as they call them, column charts).
Smashing Magazine is a website and eBook publisher that offers editorial content and professional resources for web developers and web designers. In March 2017 it published an interesting article by Vitaly Radionov entitled: ‘Understanding Stacked Bar Charts: The Worst or the Best?’ It’s an insightful piece that explains some of the potential pitfalls of stacked bar charts. You can read it here.