What is a Histogram?

Welcome to the Investors Trading Academy talking glossary of financial terms and events.
Our word of the day is “Histogram”
A histogram is a type of graph that has wide applications in statistics. Histograms allow a visual interpretation of numerical data by indicating the number of data points that lie within a range of values, called a class or a bin. The frequency of the data that falls in each class is depicted by the use of a bar.
At first glance, histograms look very similar to bar graphs. Both graphs employ vertical bars to represent data. The height of a bar corresponds to the relative frequency of the amount of data in the class. The higher the bar, the higher the frequency of the data. The lower the bar, the lower the frequency of data. But looks can be deceiving. It is here that the similarities end between the two kinds of graphs.
The reason that these kinds of graphs are different has to do with the level of measurement of the data. On one hand, bar graphs are used for data at the nominal level of measurement. Bar graphs measure the frequency of categorical data, and the classes for a bar graph are these categories.
On the other hand, histograms are used for data that is at least at the ordinal level of measurement. The classes for a histogram are ranges of values.
Another key difference between bar graphs and histograms has to do with the ordering of the bars. In a bar graph it is common practice to rearrange the bars in order of decreasing height. However, the bars in a histogram cannot be rearranged. They must be displayed in the order that the classes occur.

By Barry Norman, Investors Trading Academy - ITA