Interpreting OHLC Charts

With extensive experience as an electrical/software/coding engineer along with having a diverse financial background, Thomas Wettermann’s areas of interest include Machine Learning (ML), artificial intelligence (AI), and Financial Technology (FinTech). For the past few years, Thomas Wettermann has focused on the underlying technologies that support and promote all phases of cryptocurrency, Web 3.0, and metaverse ecosystems.

OHLC charts graphically represent price action over a set period of time for assets such as bonds, stocks, commodities, and cryptocurrencies. When combined with other financial tools, these charts are a great way to predict price movements.

A BTC 1-hour OHLC candlestick chart (Source: opensource.com)

What Does OHLC Stand for?

The abbreviation OHLC stands for four criteria of an asset’s price over a specific period of time: 

• O: open price 

• H: high price 

• L: low price 

• C: close price

Prices are determined over a specific period of time, such as a minute, hour, day, or week. Different symbols can be used to represent the four criteria collectively, and these symbols are often plotted into an OHLC chart.

What Does an OHLC Chart Look Like?

An OHLC chart illustrates a number of sequential OHLC symbols that visually represent the open, the high, the low, and the close of an asset during a period of time. A sample OHLC bar chart is illustrated below.

An OHLC bar chart (Source: datavizcatalogue.com)

This chart includes three OHLC symbols plotted along an x and y graph. The y-axis represents a pricing scale of the asset. Here, the pricing scale extends from $0 to $400.

The chart also includes a time scale provided along the x-axis. The time scale is segmented into equal increments. Here, the time scale is segmented into 24-hour periods, or Days 1, 2, and 3.

This bar chart also includes one OHLC symbol for each of the segmented time periods. For example, the first OHLC symbol in the sequence (denoted in red) represents the four OHLC price points for the asset during the first timing segment of the sequence (Day 1). The composition of each of these symbols will be discussed later in this article.

In typical OHLC charts, symbols are provided in black. But they may also be colored to visually represent whether the asset’s price went up or down during a particular time frame.

For example, the leftmost OHLC symbol in the chart above is represented in red, which designates a bearish day, when the price of the asset went down. The second OHLC symbol in the sequence is a green symbol, designating a bullish day, where the price of the asset went up.

How Are OHLC Symbols Interpreted?

Several techniques are used to interpret OHLC symbols. We summarize a few of them below.

Vertical Height

The vertical height of an OHLC symbol is an indication of the asset's price swings. The greater the price swing or range of the prices, the greater the vertical height or length. A symbol having a large range over a given period of time is often characteristic of a volatile asset.

Open and Close Positioning

The position of the open and the close tells technical traders where the asset opened and closed relative to its high and low. If the asset had a large positive wick, but the close was much lower than the high, traders assume that the buying spree died down toward the end of the period. If the asset had a large negative wick, but closed much higher than its low, selling died down toward the end of the period.

The market may be undergoing a period of indecision where the open and close are close together, as neither buyers nor sellers could make much progress in either direction. If the close is far below the open, the asset experienced strong selling during the period.

Alternatively, if the close is far above the open, it shows that there was strong buying during the period.

Trends

A sequential clustering of a number of colored green bars can represent an uptrend. And during a downtrend, more red bars than green bars often appear. These types of clusters can provide information on the trend direction and the strength of the trend.

All opinions expressed on this site are owned by Thomas Wettermann and should never be considered as advice in any form. Thomas Wettermann is not an independent financial advisor.

Any opinions, news, research, analyses, prices, or other information contained on this website is provided as a general market commentary of Thomas Wettermann and does not constitute investment advice. Thomas Wettermann will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from the use of or reliance on such information.

Trading digital financial assets such as cryptocurrencies can carry a high level of risk, and may not be suitable for all investors. Before deciding to invest, purchase, and/or trade cryptocurrency you should carefully consider your investment objectives, level of experience, adversity to risk, and volatilities. The possibility exists that you may sustain a loss of some or all of your initial investment; therefore, you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with cryptocurrency trading, and seek advice from a qualified and independent financial advisor.

All the views expressed on this site are those of Thomas Wettermann and do not represent the opinions of any entity with which Thomas Wettermann has been, is currently, or will be affiliated.