Defining wide-range bars

Posted by Scriptaty | 9:06 PM

Although many chartists believe they can identify WRBs when they see them on a chart, such bars if they are to have any predictive value or trading application — must meet strict criteria that can be analyzed objectively. Consistency is key.

We used a 60-day look-back period to determine what constitutes a WRB in the EUR/USD. This period spans approximately three months and represents what would typically be considered an intermediate term perspective of market action.

Instead of using a nominal multiplier to define wide range — i.e., 1.5 or 2 times the 60-day average range — we ranked each bar’s daily range relative to the preceding 60 bars. For example, if today’s range is .0119 and it has a percentile rank of .95, it means 95 percent of the previous 60 bars, or 57 bars, had ranges smaller than .0119.

We initially used a threshold of .80 or higher — that is, all bars with ranges in the 80th percentile or higher of their 60-day comparison period. We also analyzed the performance following WRBs with a percentile rank of .90 or higher.