From the November 01, 2009 issue of Futures Magazine • Subscribe!

Time is relative with range bars

As traders, we should always test different ways of trading to try to find something that will give us a better edge in our trades. We should not be afraid to explore new and radical approaches that have not been used in the trading arena. Range bars are a new method of charting that qualifies.

Sideways markets and flat periods of time in markets have been the nemesis of traders for many years, and range bars can help. If your price bar charts have not helped you to become successful, then it is time to try something new, something different, something that could give you a better chance of success.

HISTORY OF RANGE BARS

In the mid-1990s, a Brazilian trader, Vicente M. Nicolellis Jr., developed a new and exciting price bar for charting. He had found markets in his country to be unstable and unpredictable and that, for sizable periods of time, the market would be in a sideways or consolidating action. After careful deliberation on how to tame this volatility and price bar movement variations, he came to the conclusion that eliminating the time factor would form the basis of his hypothesis.

Nicolellis proceeded to develop a price bar without time involved at all, just price. This became known as the range bar, or breakout bar.

Each range bar has the same price increment and each bar closes either at the high or the low, regardless of where it opened. Take a look at the charts in “All the range” (below). Both are close to one hour, 10 minutes long. The first chart is a 10-price increment range bar and the second one is a three-minute chart.

The range bars took the same amount of time to fill but had four less bars than the three-minute charts. Those trading the three-minute charts had a non-directional type movement. The range bars, however, eliminated all the noise, which could have caused many false signals. This is a vast improvement for traders, as many do follow these deceptive signs and fail in their trades. Longer time frames show this even more clearly (see “Longer-term look”).

When a market trades within a range, it is really not offering any new information, so it constitutes only one data point. A new data point is created when that range is broken.

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