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Everything you need to know about OHLC is found in this article. Just keep reading.
There are many ways of displaying the traded price on the charts. The chart can take the view that is chosen by the trader in his terminal. Modern trading platforms have several types of price displays and allow you to change the type of chart display at the touch of a button. Each trader chooses the most convenient way of displaying charts. In this article, we will consider the most popular one.
What is an OHLC diagram and its use?
An OHLC chart provides a histogram type graph indicating open, high, low, and close prices for all periods. Besides, OHLC is a shortened abbreviation indicating quotations over a period of time. The letters in the abbreviation are deciphered. O – Open – opening of a candle or a bar. H – High – the candlestick’s maximum. L – Low – the candlestick’s minimum. C – Close – the candlestick close. Moreover, OHLC charts are useful because they show the four main data points in a period. At the same time, the closing price is considered by many traders as the most important.
By the way, this diagram type provides useful information because it can indicate growing or falling momentum. When the opening and closing positions are far apart, there is a strong momentum signal. When the open and close are close to each other, it shows indecisiveness or weak impulse. The highs and lows point to a complete price spectrum for the period, useful for estimating volatility. In a word, in OHLC charts, traders follow several patterns.
History of OHLC
OHLC first appeared in 1750, just 20 years after markets were formed. Therefore, the designations of some elements on the candles themselves. Such as opening and closing prices. Initially, they looked rather primitive, in other words, they were considered simple. The Japanese food rice trader Homma Munehisa invented candlesticks to visually observe the movement of prices, the maximum and minimum during a certain time. Japanese candlesticks are still very popular today. Since the 17th century, many people have tried to invent better ways to display price movements, but the Japanese candlestick chart has proved to be the best type of visual observation, due to its simplicity and information value. After all, the Japanese candlestick shows us 4 price values over a certain period.
OHLC charts consist of a vertical line and two short horizontal lines to the left and right from the horizontal line. In short, the horizontal line to the left is the opening price for the period and the horizontal line to the right is the close price for the period. The height of the vertical line represents the intraday range for the period. The maximum is the maximum of the period and the minimum of the vertical line is the minimum of the period. After all, the whole structure is called a price bar. For example, when the price rises over a period, the right line will be higher than the left because the close is higher than the open. Often these bars are colored black. But, if the price falls over a period, the right line will be lower than the left, as the close is lower than the open. These bars are usually colored red.
Moreso, OHLC charts can be applied to any timeframe. This could either be a five, ten, fifteen or thirty-minute chart. When the time frame is set, the chart will show its open, high,low and close prices within that time frame.
However, using OHLC bars is the right decision for every trader. It is convenient and can bring good profits. This type of bar can also be used for collecting statistics with its subsequent analysis. Thanks to the flexibility of settings and the choice of periods, every trader can easily use OHLC to their advantage.
3 min reading
Have you had a clue of what this trading strategy entails? Find out what it is about by reading through this article.