Advantages of Trading with Range Bars
1. The Range Bars eliminate by greater degree of the ‘noise’ that is associated with the minute/time chart bars. This is because the range bars are of equal size on every chart. The resultant charts seem smoother.
2. They eliminate the time factor. The triggers of the pattern remain the same as those in the time bars. The common practice is waiting until the close of the bar and then a new bar begins. This helps the traders to pin point the sell or buy stops ahead of the time allowing the trader will get a better position.
3. The Range Bars show the trends more easily and they additionally show the sideways market in clearer way without choppiness (noise).
This chart shows how Range Bars produce a very clear trend in price action
4. With the Range Bars, the traders are still very capable of using their most favorite indicators. There is no requirement to changing the setups with your favorite indicator.
5. The traders are capable of making fewer trades. They will have bigger stops while the
successful trades will produce more profits. This means that the trader will make larger trades, improve the reward to risk ratio.
6. The traders are capable of knowing where the Range Bars bottom or top is. This allows the trader to easily sell or buy orders ahead of the time and this in turn, enables the trader to be early first into a trade. You can very easily use the stop orders to enter a trade on the reason that you are very aware where the bottom or top is most likely going to be. For example, if the bar is going up and you are aware of the low, you can then put 15-tick (or any other setting which you may be in) change of price from the low and then set the stop off low or high. After making the new low or high you may be required to similarly adjust the stop.
Range Bars were developed in the mist of 1990s by Brazilian broker trader called Vicente Nicollelis. This is the reason why some people refer to the bars that he developed as the Nicollelis range bars. Nicollelis had spent more than 10 years running a desk for trading in Sao Paulo, Brazil. At that time, the Brazilian markets were very volatile.
Nicollelis harbored interest on how to develop a way in which he could use that volatility in
order to trade at his advantage. He had the belief the movement in price was very vital to the understanding and use of volatility. He thus developed the Range Bars in order to take in to consideration the price factor only while eliminating the time factor from the whole equation.
Nicollelis came to find that those bars which were based on the price only but not the time or any other market factor provided new way of utilizing and viewing the volatility in the markets. At the moment, the Range Bars are gaining more popularity because the traders can use and rely on them in order to interpret the volatility and then place trades which are very well timed.
The example image below shows the difference of a time chart and Range Bar chart.
See the difference in movement (noise) of price
How to calculate the range bars
The Range Bars take in to consideration price only. Each single bar represents some
movement in the price. The Range Bars can have few or many bars during a session of trading. When the market is highly volatile, more bars are very highly to print. Similarly, when the market is not volatile few bars will print. The quantity of the range bars that are created during particular session of trading are also dependent on the instrument which is being charted and also the particular movement of price within that range bar.
The range bar rules
Each range bar should
- Have high or low range which is equal to the specified range
- Open outside low or high range of the preceding bar
- Close at its low or high
Even though, strictly speaking the Range Bars are not a technical indicators, they are a very vital tool which the traders can employ in order to interpret volatility and identify the trends since they consider PRICE ONLY, the traders can rely on them to get insight into the activity of price in the market. The good traders spend a sufficient amount of time observing the range bar charts and then identifying when to enter a trade. If you want simple clean charts then Range Bars give you that.