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The Scalping Chart Ignored By 99% Of Traders (Range Bar Charts Explained) - YouTube
Channel: The Secret Mindset
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As a scalping trader, you should always test
different ways of trading to try and find
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something that will give you a better edge
in your trades.
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You shouldn鈥檛 be afraid to explore new approaches
that aren鈥檛 popular in the trading game
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and trading with range bars is an approach
that is often neglected or ignored completely
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by most of traders
Range bars belong to a type of chart that
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is independent of time.
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Unlike the more conventional chart types such
as the candlestick and bar charts, with range
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bars, only the horizontal price level is plotted.
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Time is redundant.
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Range bars were designed by a Brazilian trader,
Vicente Nicolellis, back in the 90s.
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Due to the volatility of the markets at the
time, he believed that price was the most
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important aspect when analyzing an asset.
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As the local markets at the time were very
volatile, Nicolellis became interested in
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developing a way to use the volatility to
his advantage.
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He believed price movement was paramount to
understanding and using volatility.
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He developed range bars to take only price
into consideration, thereby eliminating time
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from the equation.
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As the name suggests, range bars are specifically
used to identify ranging price action and
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trending price action.
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Now, most of the existing trading platforms
have not yet incorporated the range bars as
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one of the default chart types.
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But there are a lot of workarounds including
on the mt4 trading platform.
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You can find this type of chart on Tradingview
platform.
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So how do range bars calculate price?
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Range bars take only price into consideration;
therefore, each bar represents a specified
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movement of price.
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You are most likely familiar with viewing
charts based on time; for instance, a 30-minute
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chart where one bar shows the price activity
for each 30-minute time period.
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Time-based charts, such as the 30-minute chart
in this example, will always print the same
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number of bars during each trading session,
regardless of volatility, volume or any other
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factor.
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Range bars, on the other hand, can have any
number of bars printing during a trading session:
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during times of higher volatility, more bars
will print; conversely, during periods of
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lower volatility, fewer bars will print.
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The number of range bars created during a
trading session will also depend on the instrument
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being analyzed and the specified price movement
of the range bar.
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Range bars follow three simple rules
Each range bar must have a high/low range
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that equals the specified range.
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Each range bar must open outside the high/low
range of the previous bar.
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Each range bar must close at either its high
or its low.
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In this example we have a 10 pip EURUSD range
bar.
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The high and low of each bar in this chart
is 10 pips.
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A new range bar opens only when price closes
above or below the previous range bar鈥檚
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high or low.
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Basically, a range bar is a bar that has the
same price increment and each bar closes either
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at the high or the low, regardless of where
it opened.
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So, if you want a range of 10 cents for a
stock, set your range to 10.
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Every time the stock moves 10 cents up or
down in total for that bar, it will complete
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the current bar and start a new one.
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Time has no effect.
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This can give you an edge in markets that
are moving sideways or are very flat.
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How to set range bar size
Specifying the degree of price movement for
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creating a range bar is not a one-size-fits-all
process.
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Different trading instruments move in a variety
of ways.
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For example, a higher priced stock such as
tesla might have a daily range of 20-30 dollars
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or even more; a lower priced stock, such as
general electric might move only a percentage
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of that in a typical day, maybe 30 or 40 cents.
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It is common for higher priced trading instruments
to experience greater average daily price
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ranges.
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Let鈥檚 compare both tesla and general electric
with 10-cent range bars.
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One-half of the trading session for tesla
can barely be compressed to fit on one screen
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since it has a much greater daily range than
general electric, and therefore many more
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10 cent range bars are created.
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Tesla and general electric provide an example
for two stocks that trade at very different
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prices, resulting in distinct average daily
price ranges.
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It should be noted that while it is generally
true that high-priced trading instruments
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can have a greater average daily price range
than those that are lower priced, instruments
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that trade at roughly the same price can have
very different levels of volatility, as well.
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While we could apply the same range bar settings
across the board, it is more helpful to determine
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an appropriate range setting for each trading
instrument.
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One method for establishing suitable settings
is to consider the trading instrument's average
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daily range.
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This can be accomplished through observation
or by utilizing indicators such as average
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true range (ATR) on a daily chart interval.
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Once the average daily range has been determined,
a percentage of that range could be used to
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establish the desired price range for a range
bar chart
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Another consideration is the trader's style.
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Short-term traders or scalpers may be more
interested in looking at smaller price movements,
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and, therefore, may be inclined to have a
smaller range bar setting.
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Longer-term traders and investors may require
range bar settings that are based on larger
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price moves.
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For example, a scalper trader may watch a
10-cent (.01) range bar.
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This would allow the trader to watch for significant
price moves that occur during one trading
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session.
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Conversely, an investor might want a one dollar
(1.0) range bar for the same asset.
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This would help reveal price movements that
would be significant to the longer-term style
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of trading and investing.
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Now, do not confuse range bars with renko
charts.
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At a first glance, it is easy to find some
similarity between a renko bar and a range
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bar.
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In fact, there is something common between
these two chart types.
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They are both independent of time and focus
on price alone.
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However, that鈥檚 where the difference ends.
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In range bars, every bar is of the same length
(including reversals).
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In renko bars, every bar is of the same length
(including reversals, but price must travel
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two times the renko bar in the opposite direction).
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Trading with range bars
Range bars can help traders view price in
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a "consolidated" form.
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Much of the noise that occurs when prices
bounce back and forth between a narrow range
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can be reduced to a single bar or two.
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This is because a new bar will not print until
the specified price range has been fulfilled.
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This helps traders distinguish what is actually
happening to price.
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Because range bar charts eliminates much of
the noise, they are very useful charts on
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which to draw trend lines.
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Areas of support and resistance can be emphasized
through the application of horizontal trend
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lines; trending periods can be highlighted
through the use of up-trend lines and down-trend
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lines.
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Range bar charts are perfect for scalping
strategies and that is because you can read
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volatility better.
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Volatility refers to the degree of price movement
in a trading instrument.
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As markets trade in a narrow range, fewer
range bars print, reflecting decreased volatility.
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As price begins to break out of a trading
range with an increase in volatility, you
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must spend time observing a particular trading
instrument with a specific range bar setting
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applied.
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Through this careful watching, you can notice
the subtle changes in the timing of the bars
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and the frequency in which they print.
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The faster the bars print, the greater the
price volatility; the slower the bars print,
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the lower the price volatility.
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Periods of increased volatility often signify
trading opportunities as a new short trend
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may be starting.
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If you scalp the forex market for example,
and you seek to make 10 pips on a trade, wouldn鈥檛
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it be more useful to pull up a 10 pip range
chart?
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Yes it would be.
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Sounds logical.
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A 10-pips range bar would not take the time
factor into account, instead, it would reflect
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the price movement completely, which is exactly
what we need.
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Once the currency trade moves outside the
10 pip range, another candlestick will form,
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no matter how many minutes or seconds this
may take.
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The ability to exclude the market noise, is
the cornerstone of success in trading in the
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financial markets.
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Range bars will help you to see the true picture
of what really happens with the price of the
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traded financial instrument.
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Independent of what indicators you use, range
bars will become a perfect supplement to the
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trading methods you use, since they react
to the market changes much faster.
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This video was basically an introduction to
range bars, but in the future, we鈥檒l go
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deeper and build some trading strategies,
based on range bars.
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As always, if you learned something new and
found value, leave us a like to show your
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support, subscribe to our channel and hit
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new videos.
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Until next time.
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