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Bar Chart Interpretation

Technical Analysis

Technical Analysis – Bar Chart Interpretation1

Alan Tan

alanph.tan@thomsonreuters.com

Last updated on 27 Sep 2010

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Agenda

• A Single Bar

• The Close• The Highs and Lows

• The Range

• Inside Day and Outside Day

• Key Reversal Day

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A Single Bar

High

Low

Last

OpenClose

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• The Daily bar chart is fundamentally the mostimportant.

• Trading decisions are made based on information

coming on stream throughout the trading hours ofthe day. The Range of the day is established basedon these trading decisions.

• The Close represent the cumulative trading

decisions and perceived risk of the marketdiscounting all information made availablethroughout the trading session.

• Any information that is made available after thetrading hours will be reflected in the Open of the nexttrading session. This form part of the perceived riskof carrying a position into the next trading session.

• Perceived risk is not inherent in intraday bar chart.

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The Close - Closing Price vs Opening Price

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The Close - Closing Price vs Previous Closing

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The Highs and Lows

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The Range - Expanding and Contracting Range

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Inside Day and Outside Day

Outside day

• bigger the better

• suggest increased tradingactivities

• New high is made but at thesame time lower low is alsomade

• signals pause or reversal (keyreversal day) in trend

• may be short lived

Inside day

• price congest on 2nd day –

suggest lower trading activities

• This state of equilibrium suggestit has discounted all recentinformation

• If no additional information

comes on stream, more profittaking activities will occur on the3rd day and a ‘soft’ reversal takesplace

• otherwise, trade on breakout in

either direction on 3rd day

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Key Reversal Day

Key Reversal Day

Openabove lastClose

Close belowpreviousLow

CloseabovepreviousHigh

Openbelow lastClose

Up-trend Down-trend

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• An outside day range

• For an uptrend, Open above lastClose but Close below previous Low

• For a downtrend, Open below lastClose but Close above previous High

• The next session, Open nears lastclose and then trend reverses

• Stronger than just an “outside day”

• A very reliable signal

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Key Reversal Day - Example

Daily QUSc1 [Bar]5/5/2004 - 6/2/2004 (GMT)[Professional]

11 18 25 02M ay 04

PriceUSD

103*16

104*16

105*16

106*16

103

104

105

106

Key reversal day

QUSc1, Last Trade, Bar

1/30/2006 112*24 112*25 112*19 112*22

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Review

12 Technical Analysis – Bar Chart Interpretation

Key points:

• The Daily Bar is key

• Higher Highs/Lows or Lower Lows/Highs – most basicelement of a trend

• Contracting range is a precursor to a trend reversal

• Inside day – the day of equilibrium

• Key Reversal Day – never fails