| Technical
Talk |
Sunday,
May 30th, 2010 |
Range
Charts
Some of the folks in the trading room asked me
what a Price Range Chart is and how do I use it. So,
I thought I would create a lesson on what a range chart is
and the setup I use for day trading.
First
off, we know day trading charts can be based off several different
criteria. For example, a minute chart measures time, a volume
chart measures the number of contracts that have traded and
a tick chart measures the number of trades that occurred.
However, what is a range chart? A range chart just looks at
price, the bar or candlestick doesn’t close at a specific
time, but closes when a range is complete and a new bar or
candlestick opens. A range chart is based upon price range
and prints a new price bar (or candlestick) every time the
price has moved a specific distance. Short-term price ranges
are 4 to 10 ticks. While, 20 to 25 ticks are popular long-term
price ranges.
A range chart is designed to filter out chop, that is, the
chart only measures new highs or lows from the opening price.
They adjust to the market, making bars or candlesticks less
often when the market is stuck in tight trading range. Price
range charts appear differently from other types of charts,
because each bar or candlestick has the same range (high –
low) and therefore has the same size when displayed on the
chart.
In the trading room, we trade the S&P 500 E-Minis, which
trade in 0.25 increments or four ticks to every point. So,
each four range candle is a range of four ticks or 1 point.
Look at the diagram below. Note how each candle has the same
size, one is not bigger than the other. They may open and
close at different areas but the size is a constant four ticks,
thus it is called a 4-range chart.
The diagram above shows two yellow lines touching the high
and low points of two price candles. The high of 1096.25 subtracted
from the low of 1095.25 equals four ticks or a range of four
price increments.
Now on to the 4-Range Long trading example: The price
chart below outlines the steps, where I am looking at four
items to setup. They are listed below.
To watch a video explaining this setup, please go to http://www.incometrader.com/futures_login.htm
and look for the “4-Range Long” video or just click here.
Give the video a minute to load before playing. Good luck
and good trading!
Chris Coval
chris.coval@incometrader.com |
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