What Are OHLC Charts & How To Trade Them

OHLC, a.k.a. Open, High, Low, Close is a type of technical analysis that pinpoints price movements over a certain period. These charts may be considered highly effective by some traders, as they provide four important data points. It can be applied to any timeframe. On each single time period, an OHLC Charts plots a symbol that represents two ranges: the highest and lowest prices traded, and also the opening and closing price on that single time period (for example in a day).

What are the OHLC charts?

OHLC charts compose of several lines that represent the opening, closing, high and low price of an asset. The vertical lines on the chart display highs and lows, while the horizontal left lines are opening prices, and lines to the right are closing prices. Overall, the structure is called the price bar.

The height of the vertical lines describes the period over a certain range. The vertical lines’ highs are price highs, and the low of the vertical lines are price lows.

When the prices rise, the right horizontal lines come above the left lines, mentioning closing prices are higher than opening prices. In this case, the price bar turns red or black. Contrarily, when the prices fall, the left horizontal lines come on top of the right lines; defining opening prices are higher than closing prices. In this scenario, the price bar turns white or green.

The open and close prices are represented by the vertical positioning of tick-marks that appear on the left (representing the open price) and on right (representing the close price) sides of the high-low vertical line.

OHLC Charts
OHLC Charts

One of the main advantages of using the OHLC charts is that it presents more information than line charts. It is also different from candlesticks, as it displays vertical and horizontal lines, while the candlestick shows candles with wicks.

How to use the OHLC charts?

Open-high-low-close Charts (or OHLC Charts) are used as a trading tool to visualise and analyse the price changes over time for securities, currencies, stocks, bonds, commodities, etc.

To trade on the OHLC charts, a trader needs to remember a few rules.

Firstly, the vertical height of the OHLC bar describes the volatility of a certain period. If the height is longer, then there is greater volatility, and traders should be careful about it.

Secondly, the left and right horizontal lines tell open and close prices relative to their highs and lows. If the closing price is higher than the opening price, it shows sellers are getting more dominant, and traders may  be looking to take sell positions. On the other hand, if the closing prices are lower than the opening prices, buyers gain more control, and traders may be looking to take buy positions.

Thirdly, when trading on the OHLC charts, traders need to familiarize themselves with the bar colors. In an uptrend, the bars turn green or white (depending on the chart settings), and in a downtrend, the colors turn black or red. Traders can take positions with these colors’ appearance and exit the trade when the bars change their color.

Lastly, reversals can occur on the OHLC charts. In an uptrend, when the opening price is higher than the closing price but is now below the previous price, there is a chance of a reversal. Conversely, in a downtrend, when the opening price is lower than the closing price, the price is currently higher than the previous price, a reversal can occur.

Remembering these rules can help traders interpret the OHLC charts more effectively.

OHLC charts trading strategy

OHLC Charts are useful for interpreting the day-to-day sentiment of the market and forecasting any future price changes through the patterns produced.

Each bar on a bar chart represents price performance for a specific period. These periods could be as long as a month or as short as one minute, depending on the purpose for which the chart is to be used. Daily bar charts are some of the most popular.

The OHLC charts work on any timeframe like the 5-minute or the monthly chart. So, every type of trader can utilize OHLC charts, regardless of the forex strategy you are using.

OHLC charts buy strategy

  • The opening price must be higher than the closing prices.
  • Wait for the bars to turn green or white before entering.
  • Enter the trade after the formation of green or white bars.
  • Place a stop-loss near the recent low from the entry point.
  • Exit the trade when the bars change their colors.

OHLC charts sell strategy

  • The opening price must be lower than the closing prices.
  • Wait for the bars to turn red or black before entering.
  • Enter the trade after the formation of red or black bars.
  • Place a stop-loss near the recent high from the entry point.
  • Exit the trade when the bars change their colors.

OHLC charts conclusion

An open-high-low-close chart is a type of chart typically used to illustrate movements in the price of a financial instrument over time. Each vertical line on the chart shows the price range over one unit of time, e.g., one day or one hour.

The OHLC charts are an effective way to measure the price movements. They present more data than line charts, and are similar to the candlestick charts. Various traditional trading patterns can also appear on the OHLC charts.

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