Range Bars - A modern time less version of charting

While I have worked with all kinds of charts that do not use time as a basis for plotting price action, its only recently that I started dabbling with Range Bars, only because limitations of representation and analysis on charting platforms.

Nicolellis range bars were developed in the mid 1990s by Vicente Nicolellis, a Brazilian trader and broker who spent over a decade running a trading desk in Sao Paulo. The local markets at the time were very volatile, and Nicolellis became interested in developing a way to use the volatility to his advantage. He believed price movement was paramount to understanding and using volatility. He developed Range Bars to take only price into consideration, thereby eliminating time from the equation. Nicolellis found that bars based on price only, and not time or other data, provided a new way of viewing and utilizing the volatility of the markets. Today, Range Bars are the new kid on the block, and are gaining popularity as a tool that traders can use to interpret volatility and place well-timed trades.

Range bars take only price into consideration; therefore, each bar represents a specified movement of price. Traders and investors may be familiar with viewing bar charts based on time; for instance, a 30-minute chart where one bar shows the price activity for each 30-minute time period. Time-based charts, such as the 30-minute chart in this example, will always print the same number of bars during each trading session, regardless of volatility, volume or any other factor. Range Bars, on the other hand, can have any number of bars printing during a trading session: during times of higher volatility, more bars will print; conversely, during periods of lower volatility, fewer bars will print. The number of range bars created during a trading session will also depend on the instrument being charted and the specified price movement of the range bar.

Three rules of range bars:

• Each range bar must have a high/low range that equals the specified range.
• Each range bar must open outside the high/low range of the previous bar.
• Each range bar must close at either its high or its low.

(above history of range bars, courtsey Investopedia, http://www.investopedia.com/articles/trading/10/range-bar-charts-different-view.asp)

Cutting to the stark difference between range bars representation and time charts, see the charts for the Indian Nifty Futures charts for 13th August 2014, plotted with normal 5 minute time bars and Gann trend line and the same displayed in a range chart constructed with 1 minute time bars input. You can clearly see, how easy it is to recognise good swing trades here versus the compressed time frame chart, which gets vitiated by time based noise.

This is another of the trading techniques that we are introducing in our mentored trading program.(click on the images to expand view)