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What Is a Bar Graph?
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What Is a Bar Graph?
A bar graph is a graphical representation of information. It uses bars that extend to different heights to depict value.
Bar graphs can be created with vertical bars, horizontal bars, grouped bars (multiple bars that compare values in a category), or stacked bars (bars containing multiple types of information).
Bar graphs are commonly used in business and financial analysis to display often complicated data. They can convey information quickly and effectively. In the financial industry, a volume chart is a commonly used vertical bar graph.
Key Takeaways
- Bar graphs can display data in visual ways.
- Bar graphs have an x-axis and a y-axis and can be used to compare one or more categories of data.
- Data is presented via vertical or horizontal bars.
- Bars can represent one or more labeled variables.
- Bars can also be grouped together for comparative purposes.
Understanding a Bar Graph
The purpose of a bar graph is to convey relational information quickly in a visual manner. The bars display the value for a particular category of data.
The vertical axis on the left or right side of the bar graph is called the y-axis. The horizontal axis at the bottom of a bar graph is called the x-axis.
The height or length of the bars represents the value of the data. The value corresponds to levels on the y-axis.
The values on the x-axis can be any variable, such as time, earnings per share (EPS), revenue, or cash flow. Bar graphs are often used to depict trading volume for a security. They appear in a panel below a security’s price chart.
Image by Sabrina Jiang © Investopedia 2021
Bar Graph Properties
Certain aspects of a bar graph separate them from other types of graphs and charts.
- The bars on a bar graph have equal width and interval spacing.
- Bars can run vertically or horizontally.
- Bars share the same starting point or base. In other words, all bars will start at the bottom of the graph and extend upward (vertically) or they’ll start at the side of the graph and extend across (horizontally).
- The y-axis of a bar graph is the side or vertical axis.
- The x-axis of a bar graph is the bottom or horizontal axis.
- Data value is defined on the y-axis; data type is defined on the x-axis.
- Bar height or extension corresponds to the value of data.
- The higher or longer a bar, the greater the value.
- If colors are used, a bar graph may include a legend that defines them.
Bar Graph Types
Vertical Bar Graph
A vertical bar graph contains data that’s displayed vertically using rectangular bars that represent a measure of data. The rectangular bars start and extend from the bottom x-axis. The y-axis allows users to measure the height of the bars against specific levels of value inscribed on it. Usually, the higher the bar, the greater the value.
Horizontal Bar Graph
A horizontal bar graph contains data that’s displayed horizontally using rectangular bars that represent a measure of data. The rectangular bars start and extend from the side y-axis, In this case, the x-axis allows users to measure the length of the bars against specific levels of value inscribed on it. Usually, the longer the bar, the greater the value.
Grouped Bar Graph
Grouped bar graphs, also called clustered bar graphs, represent discrete values for more than one item in the same category. The separate, rectangular bars are grouped together. Essentially, they break down the overall value (or items) for (or within) the category. A grouped bar graph could display more than one category, each with its separate rectangular bars. The information can be depicted vertically or horizontally.
Stacked Bar Graph
Stacked bar graphs, also known as composite bar graphs, divide a total into parts. These parts are typically identified using different colors within the same rectangular bar. So, a single rectangular bar that represents a total will display several parts and colors. The parts need to be labeled for identification. The information can be depicted vertically or horizontally.
Bar Graph Uses
- A bar graph is used to present data visually
- It can be used by industries to convey complicated information easily
- It can compare different variables and values
- It can reveal and facilitate the study of patterns over time
- It can compare various sets of data
- It can display categories and sub-categories
- It can display results of surveys
In technical analysis, a volume bar chart shows how much trading volume there was on a particular day. The x-axis displays days, while a bar extending up from any day depicts the amount of volume, as measured by the y-axis.
When a bar graph has a well-defined zero point and the data set has both positive and negative values in relation to this point, both ranges of values can be displayed. Bars above the zero line typically represent positive values, while bars below the zero line typically show negative values.
Example of a Bar Graph
Many traders employ a moving average convergence divergence (MACD) histogram, which is a popular technical indicator that illustrates the difference between the MACD line and the signal line.
The following daily price chart for Apple stock shows three types of bar graphs.
Image by Sabrina Jiang © Investopedia 2021
Extending from the right is price by volume, a type of horizontal bar graph which shows volume dispersion based on price.
Along the bottom of the chart, volume is shown using a vertical bar graph. It displays bars representing the number of shares traded per day.
Finally, the MACD histogram at the very bottom shows the separation between the MACD and the signal line. When the histogram crosses the zero line it means the MACD and signal line have crossed, which some traders use as a trade signal.
Bar Graph vs. Bar Chart
A bar graph shows data in columns, while a bar chart is a technical analysis tool that displays the open, high, low, and close prices for a particular security during a specific time period (such as a day or week) using a vertical bar. Small horizontal lines extend to the left and right of the vertical bar to show the open and close prices. The top and bottom of each bar represent the high and low prices for the period.
Unlike the bar graph, the price bar chart only covers relevant prices and does not extend all the way up from the x-axis.
Bar Graph vs. Histogram
The most immediately noticeable difference between a bar graph and a histogram is that the bars in a bar graph typically don’t touch each other (other than in a grouped bar graph). A histogram is a type of bar graph where the bars have no gaps between them.
A histogram is used to depict the frequency distribution of variables in a data set. A bar graph depicts a comparison of discrete or categorical variables. Furthermore, a histogram displays distribution frequency as a two-dimensional figure: the height and width of rectangles have specific meanings. Both can vary. A bar graph is one-dimensional. The height of the rectangular bars represents something specific while the width is meaningless.
Bar Graph Limitations
A bar graph is a way to display information. How the data is chosen to be displayed could affect its interpretation. For example, if too large of a scale is chosen, then the data may appear insignificant when in actuality, it’s not. The scale doesn’t allow for an appropriate comparison.
In addition, bar graphs may make data look compelling when it actually lacks substance. For example, looking at only a few days worth of volume data in a stock doesn’t provide much relevant information. Yet comparing recent volume to volume over the last year can provide a technical trader with useful information for trading decisions.
What Are Some Benefits of a Bar Graph?
A bar graph can be of great use when you have to explain the meaning of complex data. It allows you to compare different sets of data among different groups easily. It instantly demonstrates this relationship using two axes, where the categories are on one axis and the various values are on the other. A bar graph can also illustrate important changes in data throughout a period of time.
Why Are Bar Graphs Used?
They’re used to present data, or a concept involving data, in a visual way. This can make it easier for people to quickly understand the meaning of the data. In addition, presenting data graphically rather than through text or the spoken word can be an efficient and faster way to communicate.
What Are the Types of Bar Graphs?
There are horizontal and vertical bar graphs. There are also stacked and grouped bar graphs. While histograms are similar in appearance to bar graphs, they represent data in a different way.
The Bottom Line
A bar graph can be a very useful business tool that helps deliver complicated data and concepts in a way that’s easy to understand.
The overall relationship of the data (and, thus, the main point that a company is making with its presentation) is illustrated using the y-axis (values) and the x-axis (categories).
Traders use volume bar graphs every day. These can measure, for example, the number of trades executed over a certain time period (such as a day) for different securities. Or, they can indicate the volume of trades at particular prices for a security.
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SUNS at CELTICS | FULL GAME HIGHLIGHTS | February 3, 2023
Never miss a moment with the latest news, trending stories and highlights to bring you closer to your favorite players and teams.
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The Phoenix Suns defeated the Boston Celtics, 106-94. Mikal Bridges recorded 25 points for the Suns, while Chris Paul added 15 points, 6 rebounds, and 8 assists in the victory. Jaylen Brown (27 points, 8 rebounds, 4 assists) and Jayson Tatum (20 points, 6 rebounds, 5 assists) combined for 47 points for the Celtics. The Suns improve to 28-26 on the season, while the Celtics fall to 37-16.
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Technical Analysis That Indicates Market Psychology
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The principles of market psychology underlie every technical indicator, so a good understanding of crowd behavior is crucial to your comprehension of the fundamentals of certain technical indicators. The psychology of the market is hard to predict, but several trusted indicators make it easier for traders and investors to better estimate directional changes based on shifting sentiment.
Here, we look at several technical indicators that are driven by the psychology of the market.
Key Takeaways
- Select technical indicators are used by market participants to better understand market psychology and behavior.
- This is because price and volume action can be thought of as a history of changes and shifts in sentiment such as fear and greed.
- Here, we look at how market psychology informs several such indicators including the MACD, ADX, RoC, and Williams %R.
MACD
The moving average convergence divergence (MACD) is simply a tool that measures shifts in consensus from bullishness to bearishness, and vice versa. Extending the basic MACD to a deeper level, we find the MACD-histogram, which is actually a tool for determining the difference between long-term and short-term consensus of value. The measure tracks the difference between the fast MACD line (short-term consensus) and the slow signal line (longer-term consensus).
The Directional System
The directional system was developed by J. Welles Wilder, Jr., as a means of identifying trends that are strong enough to be valid and useful indicators for traders. Directional lines are constructed to determine whether trends are bullish or bearish: When a positive directional line is above the negative line, bullish traders possess greater strength (and a bullish signal is given). The opposite situation indicates bearishness. More telling is the average directional indicator (ADX), which rises when the spread between the positive and negative lines increases. When the ADX rises, profitable investments are getting ever stronger, and losers are getting weaker; furthermore, the trend is likely to continue.
Momentum and Rate of Change (RoC)
Momentum indicators measure changes in mass optimism or pessimism by comparing today’s consensus of value (price) to an earlier consensus of value. Momentum and RoC are specific measures against which actual prices are compared: When prices rise but momentum or rate of change falls, a top is likely near. If prices reach a new high but momentum or RoC reach a lower top, a sell signal is realized. These rules also apply in the opposite situation, when prices fall or new lows are reached.
Smoothed Rate of Change
The smoothed rate of change compares today’s exponential moving average (average consensus) to the average consensus of some point in the past. The smoothed rate of change is simply an enhanced version of the RoC momentum indicator—it is intended to alleviate the RoC’s potential for errors in determining the market’s attitude of bullishness or bearishness.
Williams %R (Wm%R)
Wm%R, a measure focusing on closing prices, compares each day’s closing price with a recent consensus range of value (range of closing prices). If on a particular day, bulls are able to push the market to the top of its recent range, Wm%R issues a bullish signal, and a bearish signal is issued if bears can push the market to the bottom of its range.
Stochastics
Similar to Wm%R, stochastics measure closing prices against a range. If bulls push prices up during the day but cannot achieve a close near the top of the range, stochastic turns down, and a sell signal is issued. The same also holds true if bears push prices down but cannot achieve a close near the low, in which case a buy signal is issued.
Relative Strength Index (RSI)
RSI also measures market psychology in a fundamentally similar way to that of Wm%R. RSI is almost always measured with a computer, typically over a seven- or nine-day range, producing a numerical result between 0 and 100 that points to oversold or overbought situations; the RSI, therefore, gives a bullish or bearish signal, respectively.
Volume
The total volume of shares traded is an excellent way in which to ascertain the psychology of the market. Volume is actually a measure of investors’ emotional state: While a burst of volume will cause sudden pain to poorly-timed investments and immediate elation for those who made wise investments, low volume will likely not result in a significant emotional response.
The longest-lasting trends generally occur when emotion is the lowest. When volume is moderate and both shorts and longs do not experience the roller coaster ride of emotion, the trend can reasonably be expected to continue until the emotion of the market changes. In a longer-term trend such as this, small price changes either up or down do not precipitate much emotion, and even a series of small changes occurring day after day (enough to create a major, gradual trend) will generally not generate severe emotional reactions.
In the case of short selling, a market rally may serve to flush out those individuals holding short positions, causing them to cover and subsequently push the market higher. The same principle holds true on the flip side: when the longs give up and bailout, the decline pulls more poorly timed investments with it. At the most fundamental level of market volume, both short and long investors who lose money, who collectively exit their positions, are the primary drivers behind significant volume trends.
Frequently Asked Questions
How do technical indicators and market psychology fit together?
Technical analysis looks at price charts to find patterns that indicate trends and reversals. Technicians believe that these patterns are the result of market psychology. A price chart, then, can be thought of as a graphical representation of emotions such as fear, greed, optimism and pessimism, and human behavior, such as herd instinct. Price charts illustrate how market participants react to future expectations.
What do the MACD and ADX reveal about market sentiment?
The moving average convergence divergence (MACD) demonstrates the shift in consensus between bullishness and bearishness. The directional system uses directional lines to indicate whether trends are bullish or bearish, including the average directional indicator (ADX).
What do RoC and Williams %R reveal about market sentiment?
Momentum and the Rate of Change (RoC) demonstrate sentiment and the likelihood of tops or bottoms forming by looking at current price levels versus an earlier consensus of price. The smoothed rate of change looks at the current average consensus versus the consensus of a previous point.
Williams %R assesses closing prices versus a recent range of closing prices; stochastics look at closing prices versus a range; the relative strength index (RSI) looks at prices over a seven- or nine-day range.
How can volume indicators uncover trader psychology?
The total volume of shares speaks to the so-called conviction and emotional state of traders, with moderate volume often correlated to less volatility and higher volume often tied to greater volatility. Volume also helps confirm the legitimacy of a trend and identify support and resistance levels. For instance, if a price has fallen to a resistance level and volume increases without much price movement, it can indicate consolidation, often interpreted as market indecisiveness.
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