Why You Should be Trading with Range Bars

Range bars are bars that are plotted on a chart that have the same price increment, the same height, and each bar closes either at the high or the low, regardless of the opening price. There is no time component as you would see with candlestick charts or bar charts.

Range bars were brought to the markets in 1995 by a Brazilian broker and trader named Vicente M. Nicolellis, Jr.

If you want a range of 5 points on the Dow and you are trading with range bars, set your range to 5. Every time the Dow moves 5 points up or down in total for that bar, it will complete the current bar and start a new one.  Time has no effect and will charts will only plot a new bar once the range setting has been met.

This can make for a cleaner looking chart making it much easier to find chart or candlestick patterns.

 

Range Bars VS Candlesticks – Clarity In Price

This the EURJPY Forex pair using both time based and range based charting using Tradingview charting during the same time period.  This platform defaults to using bars instead of candlesticks.

range bars

We can clearly see the price movements have created easy to spot turning points in the market.  Zones that have and could act as support and resistance are easy to spot.

Let’s contrast that with a time based chart (daily).

time based

What can we see on the range chart when comparing these two charts?

+ The long tails on the candles are removed

+ The areas of support and resistance zones are clear

+ More visually appealing

The issue with time based charting is that small movements of price, some call it noise, will print.  The range bar will only print after price had advanced or declined X range.

Range bars help show you the picture of what price is doing. It does not matter what trading indicators you use, they will respond much faster and give a clear pattern to improve your trading.

 

Range Bars are available on Metatrader

It used to be that with Metatrader you only had the option of trading with time charts, but not anymore! You can now use range bar charts and reduce market debris such as long wicked whipsaw bars, stalls and consolidation. All of these can prevent traders from clearly seeing the market as it unfolds.

You’re probably thinking, “Wait! Everybody uses time-based charts” and you’re right, and that’s the problem. Replacing time-based indicators with range bars may very well replace your losses with profit.

The plugin that is needed for range bars can be found here.

 

Is There An Edge With Day Trading Range Bar Charts?

The greatest edge of a range bar is that the information displayed is directly relevant to your trade. When using a time-based technical signal, your trade is late by definition because you are waiting until the time period closes.

The range bar is valued by technicians because unlike a time-based signal, a range bar is the actual price movement a currency has established over an undefined amount of time.

For example, a 10-pip range bar candlestick shows the trader a definitive trading range of 10 pips. A break above or below this range isn’t a “violation” but a price expansion and is an event that can be traded. How does this help the trader?  There is no subjectivity when using a range bar.  Either price moves 11 pips and then must plot a new bar or it doesn’t.

 

Range Bar Strategies

If you trade the Forex market as a day trader and you seek to make 10 Pips on a trade wouldn’t it be more useful to pull up a 10 Pip range bar chart?

A 10 pip plot would ignore time and instead concentrate on price movement alone, and price is what ultimately matters.  Using a recent example, a trader can easily draw a down trend line on price that formed a double bottom.  Looking for a long trade, a trader waits until price closes above the down trend line showing price has just moved up 10 pips.

If the current bar closes at it’s high, a trader would close the trade for profit.

BREAKOUT TRADE RANGE BARS

Once the currency trade moves outside the 10 Pip range, another candlestick will form, no matter how many minutes or seconds this may take.

This chart is using a 50 pip range bar setting.

The 20 simple moving average is showing us the general trade direction and we can use it as a zone to monitor for pullbacks to.

Price had broken a previous support area and confirmed our down trend. We will be looking for a rally to around the moving average that also coincides with a previous support zone.

The inset chart shows that we need two obvious points to draw our upsloping trend line on the rally.  These are complex pullbacks and have the benefit of trapping some traders to the long side.

PULLBACK EXAMPLE WITH RANGE BARS

For my money, the range bar chart allows a more objective view of turning points and pullbacks that you can trade.  You can clearly pick up the trend in price action because we are not seeing extreme shadows.

If you are a trader that trades price ranges as part of their strategy, range bars highlights consolidations better than time based charts.

Do Range Bars Work In Stocks?

This is Chevron stock chart using a $.50 range bar chart.

STOCK CHART WITH RANGE BARS DAY TRADING

Price gaps up at the open and falls below the 20 SMA.  We are able to draw a down trend line and in the middle of the chart, we see the beginning of a trend change.  Price moves off the higher low (HL) clocking in a $1.00 gain.  Trade entry at break of bar that confirms the higher low.  Price runs up $1.88 per share at the time of this screen capture.

 

What Range Setting To Use

There is no best range bar setting and it will depend on the instrument you are trading.  You would not want to use a $.05 range bar if your stock as an average true range of $5.00.

Applying the 20 period ATR to a daily chart and then working on your range setting using that, will be helpful.  For example, the stock Nucor Corp. has an ATR of about $7.00.  A .50 – .75 range could give me some great price action for day trading.  There is no perfect formula for deciding the range to use.  It will be something you must test.

 

Conclusion

I find range bars highlights price movements in a more orderly fashion.  This will allow technical analysis traders to better view the price movements of the markets they trade.

You can better see pullbacks in price as well as trading ranges.  Those two aspects of every market make up the backbone of many successful trading strategies.

Give range bars a try and see if you can improve the results of your current trading strategy.



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