Flat trading strategy with Range Bars indicator - trade at price, not time
What is Range Trading? How to trade in a range? What is Range Bars? How to trade on a Forex flat trading strategy using the Range Bars indicator?
Welcome you friends! As you know, markets spend most of their time in flat, therefore, in addition to the trend trading system, you need to have in your arsenal a strategy trade in the price range. In this guide, you will learn about the new strategy for flat trading in the volatile Forex market using the Range Bars indicator for MT4.
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What is Range Trading?
It is a well-known fact that any type of market (stock, commodity, cryptocurrency and Forex) is in the trend for 20% of the time.
What does the market do in the remaining 80% of the time? As you can guess, the rest of the time, markets do not have a pronounced up or down direction. Typically, traders say that the price moves laterally or in a range (in flat).
The market spends most of its time moving from trading ranges to corrections and other actions against the trend. That's why it is so important to learn how to trade in a range like a professional.
The 80/20 rule, also known as the Pareto principle, states that 20% of the input will produce 80% of the results (output). We can see how the 80/20 principle can explain market behavior. The 80/20 can also be seen on numerous other occasions in markets and in the business world.
As the name implies, Range Trading is a strategy used to trade in a limited-range market.
Let's now give an exhaustive definition of what a trading range is.
A trading range occurs when a financial instrument (stocks, indices, bonds, commodities, Forex currency pairs or cryptocurrencies) fluctuates between two boundaries (upper and lower) for a certain period of time.
Usually these boundaries are defined as support and resistance levels.
Range Trading works best when there is no trend. When markets lack a clear direction, then periods of consolidation begin.
In other words, we are looking for purchases at the bottom of the range. Conversely, we expect to sell at the top of the range.
In addition, more experienced traders can look for trading range breakouts. This type of trading strategy can give you quick profit, as we trade on a strong impulse.
To open a deal within the trading range, you need to find an entry point. When trading in Forex flat, indicators that determine overbought and oversold markets, for example, Stochastic Oscillator.
Next, we are going to show you how to trade in a range using the Range Bars indicator for the trading terminal MetaTrader 4.
Most traders are only familiar with trading based on bars or candlestick charts, which take into account the time interval.
If you want to learn new trading tools and methods that allow you to trade exclusively at a price without reference to time in order to eliminate the influence of market noise, then read on.
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What is Range Bars?
Range Bars is a convenient replacement for the popular chart types (line chart, bars and Japanese candles). Using Range Bars, you can also conduct technical analysis, as with any other type of chart. Range Bars provide traders with a clear idea of the market price without the influence of factors such as time.
For example, in a time-based chart, each 5-minute candlestick shows price activity over a 5-minute period. These timelines will always show the same number of Japanese candles during each trading session, regardless of volatility , volume or any other factor.
The first thing to note about Range Bars is that they only consider price. In essence, we eliminate the element of time. You can always adjust the time later.
Each bar represents a certain movement in the total price (in points). In other words, the bar will not close until the price has passed a certain distance. The size of the bar is determined by the trader.
For example, if you select a range of 100 points, each of these bars will be equivalent to this range, that is, 100 points.
Range Bars are very similar to Renko bars.
Both Range and Renko bars eliminate the time factor in order to focus on price, isolating the trend.
So what is the difference between Range Bars and Renko bars? Renko brick is displayed on the chart only when the price moves in one direction from the opening price of the previous brick.
There is no clear answer which one is better. Range and Renko bars serve their technical purposes. You may consider using both types of bars during trading.
How are Range Bars formed?
For example, if you select a range of 100 points and the EURUSD exchange rate changes from 1.1100 to 1.1180, then from 1.1180 to 1.1100 and from 1.1100 to 1.1180 over a 3-day period, here is what you get:
In fact, you get a bar that runs from 1.1100 to 1.1180 for 3 days, and this bar is not yet closed.
By eliminating the time factor, we can better define trading ranges.
Let's take it one step further and assume that the EURUSD has now moved to 1.1200.
In this case, the current bar closes and a new bar opens with an opening price of 1.1200. This new bar must have a range of 100 points to close.
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Who developed Range Bars?
In 1995, Vicente M. Nicolellis Jr., a trader from Brazil, developed an innovative methodology for plotting price bars. Range Bars became the solution to deal with high volatility in its local markets in Sao Paulo.
Nicolellis needed a better approach, so he decided to exclude the time element from the price chart. Without a time variable, the famous Brazilian trader was able to focus solely on price.
Traders around the world have learned to take advantage of Range Bars over timelines.
When do Range Bars work best?
Range Bars trading works best when we have flat periods or price consolidation zones. Using Range Bars, we eliminate most of the everyday market noise by smoothing price movements.
Look at the image below.
Many false signals that come from ordinary candlestick charts have been eliminated.
Charts based on time will always have the same number of bars during each trading session, regardless of volume, volatility or any other factors.
On Range Bars charts, you can see more bars only during periods of high volatility. But even then it depends on the size of the range chosen by the trader. Conversely, when the market is low in volatility, you will see fewer bars on the chart.
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Range Bars Benefits
Here are the main benefits you will get when trading with Range Bars:
- All bars are the same size because the range is constant;
- The size of the bar is adjusted depending on the needs of the trader;
- The time period covered by each bar does not matter, since Range Bars are time-independent;
- Potential support and resistance levels with Range Bars are clearly visible on the chart;
- Range Bars are an effective tool for determining the timing of your entry and exit points;
- By eliminating the time factor, Range Bars become very effective in combination with other technical indicators, such as oscillators.
Best Forex flat trading strategy
Now you will learn a simple range trading strategy using the Range Bars indicator. It will help you determine support and resistance levels with high accuracy.
For this strategy, we use a bar size of 5 points. This means that each bar on the chart closes when we have passed at least 5 points in one direction or another.
Once the resistance level has been determined, we wait for the price to test it again. Then you need to open a new position when the fourth bar closes in the direction of the trend.
Protective stop loss can be safely placed above the first bar.
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If you are looking for a successful flat trading strategy with an effective tool to determine your entry and exit points, we recommend that you use the Range Bars indicator for MT4. It will allow you to avoid market noise by eliminating the time factor. In this case, you will have the opportunity to see a clear market structure. Agree, if the market does not move anywhere, but only creates the illusion of movement, then you do not have any trading opportunities. Range Bars indicator helps you determine when such a trading opportunity will appear. It also works great with support / resistance levels and oscillators.
Profitable to you trade!
Read also the article "Elliott Wave Analysis on Forex".