I do not take trades directly from those signals. But I am attentive to churn bars. They are often decision points. After a churn bar, half of the traders is unhappy because they exited too early or were trapped. At least some of the trapped ones will add fuel to the move. This is why a narrow range churn bar can be a good signal to enter a trade. It needs a trend filter though. If the breakout that follows is a trend continuation it can be taken faster, while a trend reversal will typically need a confirmation other than the churn bar.
For range bars you can not use VSA volume spread analysis, but what you could do is to analyze
- the number of ticks or the volume per range bar
- the duration of the range bar
High volume per range is not exactly churning, but will have a similar impact as part of the traders who were responsible of that high volume will quickly be unhappy. So you can use the volume per bar as well.
The range analysis basically detects bars with a high momentum. The same would be true for range bars with a short duration. I think, if you replace the range of the Better Volume Indicator with something like 1/Sqrt(1+ bar duration), that should do the trick. Let me try, whether it is feasible.
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The Better Volume indicator detects the range of each bar to perform calculations. This is not useful on a range chart, as the range will always be the same.
What is the range used for? A large range on a fixed period chart indicates a high momentum, as price moves far. To detect high momentum on range bars, you cannot measure the range of that bar, because it is always the same, but the speed, with which it is completed. This can be measured as the duration of the bar in seconds. A short duration would indicate high momentum. You would therefore use the reciprocal value of the bar duration. which is 1/duration to measure momentum. To avoid division by zero, and for scaling and model reasons, I would not use 1/duration but calculate 1/SQRT(1+duration). Will post that indie, can be quickly created from the other one.
Last edited by Fat Tails; April 13th, 2011 at 07:20 AM.
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For those of us without Ninja, can someone post a screen shot?
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