Bar Chart

What Is a Bar Chart?

A bar chart is a visual tool that uses rectangular bars to represent numerical values. Each bar stands for one category, such as a company, sector, or time period, and its length or height reflects the value for that category. Bars are usually drawn with gaps between them, which signals that the categories are separate rather than continuous.

In investing, bar charts appear in many places. They can show a company's quarterly revenue, the trading volume of a stock on each day, or the returns of several funds over the same year. Because the eye can quickly judge differences in bar length, this format is useful when the goal is comparison.

How a Bar Chart Is Read

Bar charts are read by comparing the ends of the bars against a scale, usually marked on a vertical y-axis or a horizontal axis. The scale should start at zero. When it does not, small differences can look much larger than they really are, which can mislead the reader.

Bar charts differ from line charts, which connect points and are better suited to showing a trend across a continuous time series. A bar chart works best for discrete categories or periods that are counted separately.

Variations Used in Market Data

Charting platforms also use a related format called the OHLC bar chart. Each time period is shown as a vertical line from the high price to the low price, with a small tick on the left for the opening price and another on the right for the closing price. Although it uses bars, it is a different display from a standard bar chart. The candlestick chart is another common format that shows the same four prices, using a box between the open and close with thin lines extending to the high and low.

A histogram is also a bar-style chart, but it groups continuous data into ranges, such as sorting daily returns into bands. Its bars usually touch, because the ranges are continuous.

Advantages and Limitations

Bar charts are simple to build and easy to understand, which is why they appear often in financial reports and presentations. They make it straightforward to rank items from largest to smallest. However, they can become cluttered when they hold many data points, and they show a single value for each category rather than the detail behind it.

When reading a bar chart, it helps to check the axis labels, the time period covered, and whether the values have been adjusted for events such as stock splits, since these details change how the bars should be interpreted.