How to use Range Based Charts for Scalping
Hello, traders. Welcome to the Scalping Course and the second module, “Getting Started: The Backbone of a Scalper”. Well, in this lesson, we’re going to learn all about range bar charts and we’re going to compare them to time-based charts because I think that’s the easiest way for you to understand the difference between a normal chart that you find on the MT4 and what a range bar is and the information you can get out it.
Now, we’re going to start by going through what a time chart is, and you already know that. They’re the most commonly used type of charts. Each category represents a specific time, meaning that if you are looking at the 5-minute chart, each category represents a 5-minute period. And they are only time-based, meaning that time is the only consideration. Volume and trading activity have no bearing in the printing of these bars.
Now range bar charts are different. Range bar charts are based on changes in price allowing us to analyze market volatility while trading price action. Now this means that a 10-pip range bar chart will print a new bar each time there is a 10-pip price movement. Let’s say that we’re looking at the Euro/US Dollar and we’re looking at the 1.1000th level. When the price moves up 10 pips, a new bar will start printing. And once the price moves, either 10 pips to the north, or 10 pips to the south, a new bar will start printing. Well, that’s the main difference between time-based charts and range bar charts.
But the cool thing about range bar charts is that, by default, each bar will close either at the high or the low of the price movement. Sometimes it’s not the case, because sometimes price will move 2 pips to the upside and will move then 8 pips to the downside, leaving us a bar with a wick on top. The same goes when a price moves 2 pips to the downside and 2 pips to the upside. But when we do have volatility in the market, we are going to see brick after brick in our charts. And we’re going to look at it once we move to the trading platform.
The great thing about using range bar charts is that in periods of high consolidation, fewer bars will print, giving us a very accurate visual identification of this nontradeable zone. And this is what’s most important about range bar charts. Let’s say that we are looking at a 30-pip range bar chart and price is dropping inside a 25-pip range. If we’re looking at the 2-minute chart, we are going to have candle after candle that is opening and closing within this 25 pips of range. But if you’re looking at a 30-pip range bar chart, we are not going to have a new bar until price breaks with this consolidation period. This is the cool thing about range bar charts: they will only print new bars if the price is moving.
Now let’s go to the trading platform and let’s see the difference between these two types of charts. On the upside, we have a 10-minute Euro/US Dollar, and here on the downside we have a 9 range Euro/US Dollar chart. This is basically the same period of time. You can see that we started the session right here on April 4th, and you can see that the session starts right here on April 4th. Let’s put on a vertical line where we are going to start looking at price action. Now you can see that we do have fewer bars where price action is cleaner on the range bar chart than it is on the 10-minute chart. We are going to analyze price movements during nonfarm payrolls.
The first thing you can notice is this spike to the upside. You can see that price goes to a low of around 0878, which is the low right here. And then we move to the upside. On the 10-minute chart, this is very, very hard… It is very hard to trade it because the move to the downside – even if you’re trading these levels to move to the downside – is very strong. And it is like catching a knife. When we’re trading and when we’re scalping, we’re not trying to catch a knife. We are trying to be the most accurate in our entries. But when you look at the 9 range chart, you can see that we do have a very visual channel to the downside, which means that either we are correcting to the previous level of support or we are moving to the downside.
And right here, you can see this red candle. Let me just point it out for you on a rectangle. You can see that we have an inverted hammer candle, an inverted hammer bar forming on the 9 range chart, and then we have a break to the upside. Right here, you could have taken a long position, and then you would have made 87 pips.
This is during nonfarm payrolls, guys. You can see that at the same time, at 6:40, that the announcement was made. You can see the untradeable price action [inaudible 0:06:25] the chart. But at 6:40 in the morning, you can see that on the 9 range bar. It is much easier to trade, because when you have block after block, you know that price is going to the upside. And then this is the moments of consolidation that I was talking about. Price is dropped inside a consolidation period and we have one bar moving to the upside and one bar moving to the downside, meaning that we are in a 10 pip consolidation period. And then we move to the downside, and again we have a very nice break of this down move, which can also be called a regression channel. And then you have a new scalp for about 40 pips or so.
As you can see, it is much easier to scalp a range bar chart than it is to scalp a time-based chart. And the reason is that during these regression periods before we took the second scalp, we are looking at this side of the candle. These entire consolidation period before we move to the low 1000s is this retraction of the 10 minute bar. And you can see that when we break to the upside, in fact we have a 48 pip win and right here we also have a 48 pip win if we calculate this movement to the top.
These are the main differences between time-based charts and range-based charts. I personally prefer to trade the range bar charts, because whenever you have a consolidation period, you will have less candles or less bars printed. And when you do have volatility in the market, you will see it by seeing brick after brick after brick. And you can easily move your stops once this volatility encounters an area of resistance in this case and of course of support if we are short on the asset that we are trading.