3 Important Bar Types
Hey Traders, Rishi Patel, co-founder of Master the Markets, Elite Traders Conference and The Traders Open Day.
A very warm welcome to this blog which is about three important bar types.
What could be the three important bar types that we’re talking about today? The first one is probably one that you’ve come across quite often. It’s the one that we personally use most often. It’s something that we were trained to use and look at from the very beginning and that is OHLC bars. OHLC bars are actually fantastic bars that help you to map out the market and as you know they are time bound type bars. When we say time bound, we restrict them. You may look, for example, at a one hour chart, or an H1 chart, on the meta trader environment. You might see you’re getting OHLC bars forming every one hour. So these bars are time bound. You specify, you’re in control of which time frames you look at on these OHLC bars. So you can dictate five minutes, 15 minutes, four hours, one week – it doesn’t matter. You control the OHLC bars in terms of time. So this is a superb bar pattern to use. I personally am biased towards OHLC bars because when we were first trained to trade the market we looked at OHLC bars. When we were further trained by professional traders with years and years of experience trading the market and who have pretty much pioneered automated trading in this space, they actually went on to teach us in OHLC bars but also different permutations, ie removing the opening and the closing, just looking at the high and low. If you’ve seen Thiru’s video on the bar patterns, you’ll know the different types of patterns that we were taught.There are lots of things you can do with OHLC bars. Don’t underestimate them because they’re so widely available. They are a very versatile tool that we use all the time and they will give you different patterns and they’ll set themselves up.
But sometimes other traders I’ve met prefer to use the second type of bar pattern which is Candlesticks. Candlestick bars generally tend to look like a wick, which is the first part, followed by a body. You’ll know where the open and close is on these particular candlesticks because what generally tends to happen is the colour of the body will dictate where the bar has opened and closed. The high and low will stay the same universally throughout both the candlestick and the OHLC bar. So for the OHLC bar, this may be new to some of you, but you have an opening price which is always on the left hand side, you have the low price, and the top part is telling you where the high is and, of course, you have a closing price as well. The difference between the OHLC and the candlestick, both of which by the way are time bound generally speaking to the different time ranges that you can get. Of course you can get different charting packages where you can have different time ranges as well. There’s a charting package that will allow you to automatically move and work out whichever time frame you like to trade. With the meta trader environment it’s restricted to some certain types of time frames but you can use OHLC bars in any platform, any charting software. Candlesticks as well will have all of this information. So you can use any charting package you want, they will all have the same layout in terms of these bar patterns. These are both types of bar patterns which we’ve said are time bound.
What could be the third type of bar pattern and is it time bound? The third type is range bars. These are slightly different because they’re not time bound. Range bars form in a slightly different way. They work on the premise of ‘who said that bars need to be bound by time?’ So they work on the basis of when the market covers a certain range. As a result of that they generally tend to be a little cleaner to look at in terms of charting patterns. So a range bar would only really move once the market has covered a certain range. When using a range bar you’re actually setting a period in terms of range that the market needs to cover. In the case of FX you can use a pip range. So, we could say every time the market covers 10 pips, we would like a new bar to be formed. Ten pips can be covered in the space of a minute, or 30 seconds, or it may take four hours when the market is moving really slowly. Once the market has covered 10 pips you will see all of the bars that form have all got the same height which is 10 pips. This is a completely different type of charting or bar pattern that you can use when trading the market. Again, look back at my video on building a trading strategy – Seven Essential Steps to Building a Trading Strategy – and I talk in the first stage about concept and objective. Where we talk about this, depending on what your concept and objective is, you will vary the type of bar you use for a particular outcome.
Sometimes range bars will be appropriate and other times you will use OHLC. So really experiment with these different types of bar patterns and certainly take some time to look at range bars because they’re a fascinating type of pattern that you can trade the market with and which give you much cleaner moves in the market. Obviously everything comes with pros and cons and that’s why it’s important to experiment and find what’s going to work best for your particular trading strategy.
That’s about it from me on the three important bar types. I trust that has added value and until the next time, stay disciplined, follow your plan and Trade Like a Master.