ChAPter 7 Bar Chart Analysis
L e a r n i n g OBj eCt i v e sAfter studying this chapter, you should be able to:■ Understand the significance of bar chart analysis and its use in forecasting potential
tops and bottoms in the market
■ Recognize the early indications of potential trend change via commonly used bar chart
patterns
■ Identify buy and sell signals via single, double, triple, and multiple bullish and bearish
bar formations
■ Read bar action behavior more effectively via the 16 price and volume reversal
characteristicst
he study of bar chart patterns forms the basis of pure price action analysis. It
represents the most fundamental skill that every technician should possess in
order to be adept in technical analysis. In this chapter we shall cover various sin-
gle, double, triple, and multiple bullish and bearish price bar patterns commonly
used by practitioners of technical analysis.7.1 Price Bar Pattern Characteristics
Construction of a price Bar
A standard price bar comprises an open (O), high (H), low (L), and close (C) price,
normally referred to by its acronym, OHLC. Price activity may be quantized over a
specified duration or time interval and summarized into OHLC data. For example,
Figure 7.1 depicts five minutes of price activity, which may be represented by a bar.
The range of the bar is simply the absolute distance between the high to low, |H − L|.
To summarize price activity over longer durations, comprising multiple intervals,
simply use the opening price of the first interval, closing price of the last interval, and
the highest and lowest prices over the entire duration observed. See Figure 7.2.