While not all trading platforms offer Range bar charts, they are quite popular among professional traders. Unlike traditional charts, Range bar charts are based solely on price movements, disregarding time intervals. This unique feature helps to reduce price noise, particularly useful when trading high-volatility assets. Continue reading to discover how to utilize Range bar charts and explore strategies that incorporate this chart type.
The article covers the following subjects:
- How are range bar charts drawn?
- How range bars are measured
- Range bar charts’ characteristics
- How Range bar charts can be used with technical indicators
- Using range bar charts practically
- FAQ
How are range bar charts drawn?
A range chart has the same layout and appearance as a standard bar chart:
- Opening levels are indicated by red arrows,
- While extrema are indicated by blue arrows.
- The body is shown by a green arrow,
- While the closing levels are indicated by yellow arrows.
The primary distinction between a range bar and a normal bar is that the closing level is always where the highest of a bullish bar and the minimum of a bearish bar will align.
How range bars are measured
One bar’s value is expressed in Range units rather than in dollars or any other form of money. Since the fixed Range value is the foundation upon which all bars are constructed, their sizes will always be equal.
There are four options available: one, ten, hundred, and thousand ranges. The smallest difference is one range. Although this value is automatically determined for every trading instrument, opening the chart on a 1 Range scale makes it easy to notice. This figure, which is equivalent to 0.1 USD for the BTCUSD, can be understood as the difference between the highest (High) and lowest (Low) bar values.
These little price fluctuations almost convert range charts, which are not time-based, into tick charts.
Range bar charts’ characteristics
Range charts are useful for scalping because they can show price fluctuations as little as one minute, which gives us a detailed understanding of the market’s behavior.
On the chart above, I’ve indicated price movements within a minute, with each block denoting a minute. One minute in a bull market is represented by a green square, and one minute in a bear market by a red square.
The red and green squares have differing numbers of bars; the red square has 29 bars, while the green square has 23 bars. The fact that range charts display price fluctuations regardless of time helps to understand this. Thus, we can identify the first characteristic of range bars: if the price achieves its peaks, the number of range bars will decrease over a predetermined period of time.
Drawing a Range bar chart is simple. As we previously established, one range on the BTCUSD corresponds to 0.1 USD. Accordingly, a new green bar will be added for every 0.1
USD increase in price, and a red bar will be added for every 0.1 USD decrease in price.
On a 1-Range scale, everything looks straightforward. As the size of a bar is equal to the minimum price movement, there are no established highs or lows.
If Phantom bars are enabled, these charts may resemble Renko charts.
The above chart illustrates how widely apart the 1 Range bars are. This is because we can only view the levels that are traded in real time while Phantom bars are disabled. The chart indicates sideways trade at 6,606.0 USD in increments of 0.1 USD; the price then shot up to 6,617.2 USD after an order was placed there. This gap indicates that there was no trading in this chart segment between 13:29 and 13:31.
The asset’s price then skyrocketed to $6,658.4 USD, indicating that no significant buyer was prepared to buy it at that level.
Gaps appear when major players show a great deal of interest and can provide traders with an extra signal. Larger Range values are ideal for using this function because there won’t be as many false gaps and a trader can more easily determine a global context.
Despite this, the accompanying chart illustrates the significant volatility of the cryptocurrency market along with numerous false gaps (shown by arrows).
How Range bar charts can be used with technical indicators
Virtual bars are placed in gaps when phantom bars are activated. This broadens the chart while improving the clarity of the wave structure.
Phantom bars are hidden on the left of the above chart and revealed on the right. The moving averages’ signals become less delayed as a result of the chart extension, therefore I will enable phantom bars to examine a range chart’s compatibility with other indicators.
The Range chart responds to MA signals fairly effectively and aids in the formation of chart patterns, as seen by the chart above.
Additionally, we can observe that divergences and convergences (shown by red lines) are well-represented by the price chart and MACD. Let’s project the BTCUSD for the foreseeable future.
A sequence of bearish divergences that resulted in a correction are indicated by a red line on the 10 Range chart above. At 6610, a support level was established, and a rise is anticipated from there. We can predict that the price will start rising through a flat range because the MACD recently entered bearish territory following a protracted consolidation.
The last bar of the 100 Range chart above displays a reversal at a high of 6,628 USD. The MACD points to a bullish reversal, but the moving average points to more decline. In the short term, this could impede a downward trend.
The greatest scale, 1,000 Range, is used in the chart above. A single bar is worth $100 USD. The market’s noise level dropped as we already knew where the strong support levels were, preventing the market from falling too far.
Using range bar charts practically
The outcomes of using range charts for a week are shown in this section. Now let’s compare our approximations to the actual data.
The graph displays the red and green bars switching places. Also taking shape is a shrinking triangle. It is anticipated that once the price reaches the local support, growth will resume.
The aforementioned chart illustrates that the support levels are appropriately placed, and despite false breakouts on both sides, Bitcoin is still moving in a triangle.
Conclusion:
Range bar charts are a powerful tool for traders looking to minimize market noise and focus on pure price action. By eliminating the time element and basing the bars solely on price movements, range bar charts provide a clearer picture of market behavior, especially in volatile environments. This feature makes them particularly useful for scalping and trading high-volatility assets such as cryptocurrencies. Incorporating technical indicators with range bar charts can enhance their effectiveness, allowing traders to identify patterns, divergences, and key support and resistance levels more accurately.
FAQs
What are Range bar charts?
Range bar charts are a type of chart used in trading that focuses solely on price movements, ignoring time intervals. Each bar represents a fixed price range, allowing traders to see price action without the noise that can come with time-based charts.
How are Range bars measured?
Range bars are measured in fixed units of price movement, known as Range units, rather than time or monetary values. For example, a 1 Range bar on BTCUSD might represent a price movement of 0.1 USD.
What are the benefits of using Range bar charts?
Range bar charts help reduce market noise, making it easier to see true price movements. They are especially useful in volatile markets and for scalping strategies. Range bars also provide a clearer view of support and resistance levels and help in identifying price patterns and trends without the distortion of time.
How can technical indicators be used with Range bar charts?
Technical indicators like moving averages and MACD can be used with Range bar charts to enhance trading signals. By using phantom bars, traders can see virtual bars in gaps, improving the clarity of the wave structure and reducing signal delays.
What practical strategies can be employed with Range bar charts?
Traders can use Range bar charts to identify key support and resistance levels, track divergences and convergences, and detect patterns like triangles and channels. These charts are also effective for scalping and short-term trading strategies due to their ability to filter out noise and highlight significant price movements.