Forex trading with the help of candlestick, line and bar charts that are time based is fairly common. While all these charts are drawn on an hourly, daily, weekly and even monthly basis, an attractive alternative is available in the form of Range and Renko bars, which are independent of time and focus on price alone. The unique views they provide give greater insight into the market price action. These two types of bars are, however, quite different from each other. Here’s a look at their individual features and differences.
Developed by a Brazilian trader, Vincente Nicolelis, in 1995, to find a solution to the extreme volatility in the Brazilian market, the Nicolelis Range Bars are gaining popularity today because traders can use them to interpret the volatility in the forex market, while placing well-timed orders. Some important features of a Range Bar are:
The three basic rules of Range Bars are:
Traders can set the range for a range bar in accordance with their trading durations. For example, short term traders may be interested in looking at short term price movements, and would then have a smaller range bar setting, while long term traders might require bar settings based on larger price moves.
Also purely dependent on price, Renko (which means brick in Japanese) bars are made according to a pre-decided range or size. For instance, if we choose a size of 3 pips for the EUR/USD pair, then for every 3-pip move in price, a new Renko brick is formed, without any consideration about the time. So, if the EUR/USD moves only 2 pips in day, a new brick will not be formed. This approach helps in showing price trends very clearly. These bars differ from Range bars in the following ways:
While Range and Renko bars reflect price action more clearly, there are several pitfalls associated with using them as a trading tool. First and foremost, the price movement reflected by a bar appears to be perfect but may not be true in reality, since the price may have moved around a lot before the bar was actually drawn. This means that traders who rely on these bars in small settings often lose out on trade opportunities because they can’t enter when the brick is drawn and may also lose on account of the spread.
If you liked this educational article please consult our Risk Disclosure Notice before starting to trade. Trading leveraged products involves a high level of risk. You may lose more than your invested capital.
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