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Nicolellis Range Bars were conceived in
1995 by a Brazilian broker and trader - Vicente M. Nicolellis Jr.
During 13 years running a trading desk
in Sao Paulo, where local markets tend to be volatile, he wrestled
with the problem of how to handle this volatility and its variability.
Finally he concluded that the most promising approach would be to
eliminate time from the equation, and just concentrate on price.
After all it is price that you trade (rather than time, unless it is
an options market).
Essentially this reverts to the early days of Technical Analysis, and
the use of Point an Figure Charts which just record price changes.
By using a constant range, ex. 10, and opening a new bar once that
range is covered, one can also apply modern concepts of indicators,
which are bar based.
In 1996 the concept was computerized, which meant that many more
markets could be studied.
Experience in the last 8 years has shown that Nicolellis Range Bars
are particularly good at focusing on and clarifying movement.
The way in which a long
meandering, horizontal "congestion" is condensed into a bar or two,
concentrates attention on the essential underlying price movement
while eliminating unnecessary "clutter" and "noise".
This also makes the use of Trendlines easier.
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The range bars just look price, the bar does not
close at a specific time but closes when a range is complete, then a new bar
opens.
If you have a market that moves from 1 to 9,
then 9 to 1, then 1 to 9 during 2 days, if you create a range bar chart of
$10 you will only have a bar that goes from 1 to 9 during these 2 days and
this bars is not closed. If the market moves to 10 then the bar closes and a
new bar opens with open price at 10. This new bar now must have $10 range to
close. Let’s say the market goes back to 6 and then up to 17, the last range
bar closes at 16 (making a range bar from 6 to 16) a new bar opens with open
price at 16 and this bars price is now 17. This new bar has now a range of
$1 (16 to 17) and will wait until a complete $10 range to close.
This is
interesting in a market in congestion; you can have days with no new bar
opening, the next picture shows IBM in a 78 minute chart and in a $2.50
range bar chart.
Note that from 9/12 to 9/18 the regular 78
minute chart has 16 bars while the $2.5 range bar has just 2.
Note that the range bar chart (bottom chart) has
an arrow on the last bar, that shows that the last bar still open waiting to
be completed, while the top chart 78 minutes does not have the arrow
anymore, that bar is closed.
The program uses the 1 minute bar data to create
the range bar, then range bars have some limitations.
A very small range, that is smaller than a
normal range of a 1 minute bar will create problems. In real time the
program will create more than 1 range bar on the same minute, but when
recreating the bars this information does not exist.
Lets say the market moves in 1 minute from 1 to
3, then 3 to 1, then 1 to 3, if you create a range bar of $1.00 in real time
as the market moves you will see, 2 bars for the first move from 1 to 3,
then 2 bars more for the move from 3 to 1 and then 2 bars more for the move
from 1 to 3, total of 6 range bars in 1 minute.
As you close the chart and reopen it, or as the
chart is rebuilt, the information from the same 1 minute bar is only a
market that had a low of 1 and a high of 3, with close at 3. The program
will look to this 1 minute bar and will recreate just 2 bars, one bar from 1
to 2 and one bar from 2 to 3. This chart will then be different of what
actually happen in real time.
Then we recommend that you have the ranges
values bigger than the oscillation of the 1 minute bars.
To create a range bar check the box Range Bar,
type the range you want on the R$ box. Next and highest period are fixed on
daily and weekly.
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