As traders, we should always test different ways of trading to try and find something that will give us a better edge in our trades. We should not be afraid to explore new approaches that have not been readily used in the trading arena.
Trading with Range Bars is a method that qualifies..
What’s a Range Bar?
Basically, a range bar is a bar that has the same price increment and each bar closes either at the high or the low, regardless of where it opened. So, if you want a range of 5 points on the Dow, 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.
This can give us an edge in markets that are moving sideways or are very flat. Take a look at the following charts.
These two charts cover the Russell for the first 2 hours of trading. Chart 1 uses time-based bars and Chart 2 uses range-based bars. As you can see, it is much easier to trade and see trends in price action on a range bar chart (not to mention we had 3 winning trades). Now take a look at what a time chart looks like with the same price action. You can see the dramatic difference.
1 – Range Bars for Forex traders
Trading is simple, but not easy. A key to success is eliminating the constant “noise” that so efficiently clouds trade signals. Forex traders understand this all too well. Unexpected news, technical “violations” and geo-political events can create doubt and confusion. Doubt and confusion creates hesitation. You hesitate, you lose.
Range bars help show you the picture of what price is doing. It does not matter what indicators you use, they will respond much faster and give a clear pattern to improve your trading.
2 – 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.
3 – The Trading with Range Bars Edge
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. The price footprint must first occur before you see it. The range bar is valued by technicians because unlike a chronology-based signal, a range bar is the actual price parameter a currency has established over an undefined amount of time.
For example, an 8-pip range bar candlestick shows the trader a definitive trading range. A break above or below this range isn’t a “violation” but a price expansion. How does this help the trader? The signal accuracy available for a long or short trade using range bars is phenomenal, controlled, and emotionless.
4 – Have you ever thought about it this way?
If you trade the Forex market and you seek to make 8 Pips on a trade wouldn’t it be more useful to pull up an 8 Pip candlestick chart? Yes it would be. An 8 pip candlestick would ignore time and instead concentrate on price movement alone, and price is what ultimately matters.
Once the currency trade moves outside the 8 Pip range, another candlestick will form, no matter how many minutes or seconds this may take.
For the trader accustomed to viewing time-based candlesticks, not to worry. The visual look of the range bar chart is the same as a time-based candlestick, but you may find a clarity you never thought possible.
Chart 3 is an example of the EURUSD with Metatrader and 5 Minute Intervals. Not too bad, but I think you will like the range chart better.
Now compare Chart 3 and Chart 4. Notice how long the tight range of chop is on the 5 minute chart. Compare that with the smooth price action on the range chart. You clearly pick up the trend in price action. On the time chart we would get into the trade and really not know if we were out of the chop. Not to mention we did not make as much.
All of the coaches/traders here at NetPicks constantly look to improve their winning edge through improvements to the systems and general trading practices. Adding range bars has had a positive effect across all the markets we trade. As an educational and training company, we look to pass this along to our loyal customers and fellow traders everywhere.
For more updates from Mark and the team at NetPicks, be sure to visit their trading tips blog at NetPicks.com.