How do YOU use range bars?

July 27th, 2010, 11:27 PM

Im curious to know how other traders are using range bars. I'll share my experience with them and how I use them in live trading and encourage others to share as well.

I should start off by saying that I use time based charts for 90% of my analysis and trading. With that said, I still feel there are two things range charts bring to the table that time and volume based charts lack. Range bars tend to reduce the "noise" associated with sideways non-trending markets and you always know where the next bar will open.

I tried trading sideways markets for some time with time based charts (5 min and 2 min on the ES) and was not very successful. Range bars helped me turn that around and now its quite enjoyable to trade a sideways market and consistently profitable. Ill try to write up an example of how I use them on the ES:

When you see that the ES has started to move in a narrow range (to me narrow would be something like a 3 to 4 handle range) I'll start looking at an 8 range bar chart. I only use 1 indicator on the range chart as I have all my time based charts marked up with levels I like to pay attention to. If the market is not moving then those levels are not going to come into play. All the indicator does is tell me where the next bar will open as the current bar is forming (I got it from the indicator forum here, its called jtRangeMarker)

So if we are in a range and near the midpoint of the current range bar, I will place a sell limit 1 tick above where the current bar will close. I will also place a buy limit 1 tick below where the current bar will close. By doing this I let the market take me into the trade either near the top of the sideways range or near the bottom depending on which limit order is hit. Once one of the orders is executed I cancel the remaining order. (You can probably use an OCO bracket if your software supports it so it gets cancelled automagically.) For whatever reason I do it manually.

I use a fixed 9 tick stop and my target is always 1 tick above the close of the current bar if long and 1 tick below the close of the current bar if short. The stop will never change however the target can and usually does move as the bar is forming its range.

You can rinse and repeat as long as you feel confident the markets is respecting the range. Once you see your tick charts speed up significantly or any other indication a breakout might occur, its probably best to stop as its easy to keep going once you get a few winners.

If anyone wants more details let me know and please feel free to share your experience with range charts as well.

Regards,

Dan

August 3rd, 2010, 11:15 PM

I use a Range chart, but as a secondary tool... I primarily trade price action on a naked time-based chart... candles and volume only.
I have a second chart which I use for all the clutter like S&R, pivots, Previous OHLC, current OHL, major high's and lows, trend lines, etc. It's a range bar chart because I use volume on it in an unconventional way... as a sort of "effort vs. result" indicator. Since price range is normalized, I like to see in a graphic way the effort that it took to move price that far. Combined with the conventional chart, I find it helps me to better feel who is in control of the market at any given time: bulls or bears and especially when the balance of power is shifting or when a power struggle ensues. It's not that it gives any more information, it just shows it in a way that is more in-your-face when it may be subtle on a conventional chart.
Since a range chart removes some information that is contained in a time-based chart (it aggregates time), I don't think it will ever be my only chart. As is, a chart is only a heuristic representation of the market. No sense removing even more information.

How do YOU use range bars?

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How do YOU use range bars?