Range bar charts: how do you build Range charts? The features and trading signals of range bars | LiteFinance
Although not all trading platforms feature Range bar charts, they are pretty popular with professional traders. The main peculiarity of a range bar chart is that it does not consider time and is drawn based on price moves. This helps reduce price noise, especially when trading high-volatility assets. Read on to learn how to use range bars and what strategies include trading with this chart type.
The article covers the following subjects:
How to draw Range bar charts?
A Range chart looks like a regular bar chart and is structured in the same way:
Extrema are marked with blue arrows;
Opening levels are marked with red arrows;
Body is marked with a green arrow;
Closing levels are marked with yellow arrows.
The main difference between a Range bar and a standard bar is that the maximum of a bullish bar and the minimum of a bearish bar will always coincide with the closing level.
How to measure range bars
The value of one bar is set in Range units, not in dollars or any other currency. All the bars are built based on the preset Range value, so their sizes will always be the same.
You can choose from 1,000 Range, 100 Range, 10 Range, and 1 Range. One Range is the minimum change. This value is calculated automatically for each trading instrument, but you can easily see it if you open the chart on a 1 Range scale. This value can be seen as the difference between the highest (High) and the lowest (Low) bar values, which equal 0.1 USD for the BTCUSD.
As Range charts are not time-based, these small price changes almost turn them into tick charts.
Features of Range bar charts
Range charts can display 1-minute price changes, allowing us to explore the market’s behavior in detail, which is helpful in scalping.
I’ve marked price moves within 1 minute on the chart above, where each block corresponds to one minute. A red square shows one minute in a bear market, while a green square displays one minute in a bull market.
As you can see, their sizes are different: the red square includes 29 bars, while the green squares include 53 and 23 bars, respectively. This is explained by the fact that Range charts show price movements irrespective of time. Hence, we can single out the first property of Range bars: the number of range bars will reduce over a certain period if the price reaches its peaks.
It’s easy to draw a Range bar chart. We determined earlier that 1 range for the BTCUSD is equal to 0.1 USD. So, each price rise by 0.1 USD will be marked with a new green bar, and each price fall by 0.1 USD will be marked with a red bar.
Everything seems simple on a 1-Range scale. A bar’s size equals the minimum price change, so no highs or lows are determined.
Such charts may look like Renko, provided that Phantom bars are turned on.
The chart above shows that 1 Range bars are far apart. That’s because with Phantom bars turned off, we can only see the levels traded for real. The chart shows sideways trading in 0.1 USD increments at 6,606.0 USD; next, an order was placed at 6,617.2 USD, and the price soared to this level. This gap means no trade was conducted from 13:29 to 13:31 in this chart segment.
Next, the price jumped to 6,658.4 USD, meaning no big buyer was willing to purchase the asset at that price.
The emergence of gaps indicates big players’ considerable interest and may give traders an additional signal. This feature is best used with bigger Range values, as there will be fewer false gaps, and a trader can more easily determine a global context.
Still, the chart above shows many false gaps (marked with arrows) amid the crypto market’s high volatility.
How to use technical indicators on Range bar charts
When phantom bars are turned on, gaps are filled with virtual bars. This extends the chart but makes the structure of waves clearer.
The chart above hides phantom bars on the left and shows them on the right. Due to the chart extension, the signals of the moving averages become less delayed, so I will turn on phantom bars to check a Range chart for compatibility with other indicators.
The chart above shows that the Range chart reacts quite well to MA signals and helps form chart patterns.
We can also see that the price chart and MACD work well with divergences and convergences (marked with red lines). Let’s make a forecast for the BTCUSD for the near future.
The 10 Range chart above shows a series of bearish divergences (marked with a red line) that led to a correction. A support level formed at 6610, and we can expect a rebound from there. After a long consolidation, MACD just entered bearish territory, so we can project the price to resume growing through a flat range.
The 100 Range chart above shows a reversal at a high of 6,628 USD in the last bar. The moving average indicates a further fall, while the MACD suggests a bullish reversal. This may hamper a downward movement in the near term.
The chart above is set at 1,000 Range, the largest scale. One bar value is 100 USD. Market noise decreased while we already identified the strong support levels that will not allow the market to drop down too deep.
Hands-on use of Range bar charts
This section presents the results of one-week Range chart use. Let’s compare our estimates with the real data.
BTCUSD forecast as of 30.09.2018
The chart shows the alternation of red and green bars. A contracting triangle is also forming. The price is projected to reach the local support, and growth will then continue.
BTCUSD quotes as of 06.10.2018
As seen in the chart above, the support levels have been determined correctly, and Bitcoin is moving within a triangle, even with false breakouts of both sides.
Conclusion
Range chart features
Price trends don’t depend on time;
Gaps allow us to analyze big traders’ interest;
Perfect compatibility with common technical analysis tools;
Identification of wave structures and fractal models.
Conclusion: Range bar charts are helpful in determining trends and key support/resistance levels. They work well when combined with other indicators, the MACD in particular. Classical chart analysis patterns can also be applied to Range charts. So, Range bar charts help identify the best market entry points and boost trading efficiency.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.
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