The range bar trading history can be traced in mid 1990s when Vicente M. Nicolellis Junior, a Brazilian trader, developed new price bar for the purposes of charting. After observing for over 10 years, Vicente had found the Brazilian markets to be unpredictable and unstable. He had also found that for some long period of time the market was consolidating action or being in a sideways movement. After very careful deliberation as to how this market volatility and the movement of the price bar variations could be tamed, he concluded that the elimination of the time factor could be the solution.
V. M. Nicollelis Jr. developed price bar in which there was no involvement of time. In other
words, the price bar involved time only. This new price bar came to be referred to as Range Bars or the breakout bar. The increment of price is the same for every range bar. Each range bar also closes at either the low or the high regardless of the time in which it opened. The greatest advantage of the range bars is that they do not give the trader many false signals within a certain period of time. When the market is trading within a certain range, it is in reality not offering any information which is new and as such it only constitutes one data point. A new data point will be created if that range gets broken.
The rules of the market
Every market is unique in its own ways and it requires different measures for the range bars. For example, the following values of range bars are deemed appropriate or to be used as a guide (this is not advice):
- Mini Dow Jones – 25,
- Russell 2000 – 15,
- Gold -15
Some other settings which may be applied include Hang Seng Index 40 or 30, Crude Oil – 20, NASDAQ – 15, Euro fixtures – 15 and S&P 500 – 12. This means that, for example, on the Russell and gold, each single range bar is comprised of 15 increments of price. On Dax there are 10 increments of price per single range bar while on the Dow Jones there are 25 increments of price per single range bar.
Even though these increments in values are very well tested and they have shown reliability in various different conditions of the market, it’s highly recommended that you do your own independent trials and confirmations in order to find out the number which personally works best. The value of increment which fits one particular trading style, profit goals, risk management practices, etc, may not manage to fit in another style of trading.
There are various charting platforms which support the Range Bars. These include the TradeStation, ShareSCope, eSignal, Ninja trader, MT4 and more.
With the Range Bars, the traders do not have to depend on the timing because as stated earlier, the Range Bars do not depend on time. There are usually no variations on how the price patterns are interpreted. There is nothing that has been changed as regards the patterns of entry in minute charts. You should only be capable of adding and subtracting the values of the range bars that you are working with. In other words, it is to subtract or add 20 for crude oil, 15 for NASDAQ, 12 for S&P 500, etc. The signals of exit are very similar to each other and the ranger bars are extremely important for those traders who are aggressive because they are capable of choosing their entry without much difficulty.
The range bars are good indicators of the state of the market. They eradicate the psychological mind games which are stressful and which may cause bad decisions and loss of focus. In other words, they help the trader avoid the chop. This meant that the technical traders were no longer required to chart painstakingly all the ticks in the market on the graph paper. Similarly, the range bars free up the time in a similar way. The technical traders may ignore the markets which are bound with the choppy range and then wait for the alert by new day point which can take some few minutes or several hours.
According to Ken Wood, a traders Mentor who authored the “Trading the Patterns” and founded the Woodie’s CCI Club, the range bars are inventive concept which will give the traders an exciting opportunity of improve the success rate of their trading.
Even though the basic setup may not entirely be broken, change is inevitable in this society which is moving very fast and the traders must evaluate the range bars if they want to engage in the profitable trading.