Range Bar Charts
Range Bars were developed by Vicente Nicolellis in the 1990s. Range bars remove the time component from charts, and instead place the emphasis on price and volatility.
There are only 3 rules for 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.
I’ve always been confused as to why so many indicators base their calculations on the close price of a bar. Let’s look at the simple moving average indicator. How does the price at a specific time accurately reflect the currency’s ‘moves’ in the market? The Moving Average value of two bars can be exactly the same, as long as the price at the close is the same. Time bars don’t take into account how much the currency moves between close times. Indicators based off range bars are a much better representation of the market volatility of a currency.
Below you can see the difference between a range bar, and time based bar on one of the most volatile currency pairs: GBPJPY. I have marked on the chart 3 locations to point out their differences. The first two points show jumps in spikes that are only covered by 1 or 2 bars in a 1 minute chart, but are shown better on a range bar. The last section of the chart is a slow period, with the currency pair not moving much. You can see how well this plays out on a range bar, hiding the unnecessary and small moves in the chart.
When many traders discover the existence of range bars, and the power behind them, many make the swap.
Unfortunately there aren’t many platforms that provide range bars charts. I recommend the RangeBars plug-in for MT4 which costs $45 USD.