Anyone can advise the right value for Constant Range Charts?
I try to setup Constant Range Charts for the following commodities futures:
Light Crude oil
I goggle search, found the following appropriate values for the following products:
Eur/Usd - 15 pips, Gold - 15 Pips, Crude Oil - 20 Pips, Mini Dow Jones - 25 pips, E-mini - S&P 500 - 12 Pips.
May I know how these values are determined?
There is no optimal value for constant range charts. Such a value would depend on commissions, average slippage and your trading setups.
But there is a way to determine the bar size of a constant range chart as being equivalent to a minute chart. The key is adjusting bar size to average volatility during the regular session. As I am lazy, I use the range of the entire regular session and adjust it for the number of bars contained in that session.
Let us do this for crude oil:
For crude oil the regular session starts at 9:00 AM EST and ends at 2:30 PM EST. If you look at a 5-min chart, a session contains 66 bars (330 minutes divided by 5). Now I look up the average range of the regular session over the last 100 days. For CL this is currenty 108 ticks. I divide that number by the square root of 66 and I obtain 13 ticks. To find the equivalent of a 15 min chart, I need to divide 108 ticks by the square root of 22, which results in a range size of 23 ticks.
Now let us have a quick look at different instruments and calculate the range equivalent for a 5 minute chart:
He described it in his post, the average range of the session.
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It is true, I have not been explaining this in detail.
The basic idea was to determine the average bar size of a 5-min bar during the regular session. I have excluded the night session, as I am not going to trade it. The result of this process will be a constant range chart that has about the same number of 5-min bars for the regular session but fewer bars during the night session than a regular 5-min chart.
Therefore I had to find an approximation for the average range of all 5-minute bars that printed during the regular sessions of the last 100 business days. You can also use 250 days to cover an entire year. As it is a bit tedious to calculate an average from all those bars, I have used a known relationship between time and volatility. Volatility is proportional to the square root of time. Therefore I can approximate the average 5-minute range by taking the average range of the entire regualar session and divide that average by the square root of the number of 5-min bars in that session.
Let us go through this again for ES. I apply the anaCurrentDayOHLV42 indicator to my chart and set the lookback period for the average daily range to 100. From the chart I can direclty read the value for the ADR, which is 16.00 points or 64 ticks. The regular session for ES lasts from 8:30 AM CT to 3:15 PM CT, which makes up for a duration of 6 hours 45 min. That means that the regular session has 81 5-min bars. I therefore need to divide the ADR by the square root of 81 to obtain the estimated average range size for a 5 min bar.
approx. range of a 5-min bar = 64 ticks / SQRT (81) = 7 ticks
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