Preface

A word about bars.

Any bars: time, range, Renko, volume, daily, weekly, etc. have only two purposes.

First, they must absorb an acceptable amount of noise so that a signal may be detected and second, they must be supportive of the algorithm in use.

So what's a signal and what's noise?

A signal is any data movement which indicates the immediately past direction of a security and presumably reveals it's near term future direction. Noise is any data which obfuscates the signal. Noise is generally caused by trader indecision, IE. exiting a trade and then realizing it was too soon then getting back in and seeing it go the wrong way again... ad infinitum.

So what can we do to clarify the signal?

Daily bar traders clarify intraday signals and suppress noise by looking at daily bars. Weekly bar traders clarify daily bar signals and suppress noise by looking at weekly bars.

Clearly, the more encompassing the bar size, the clearer the signal. However, the penalty for using larger bars is that when the bar is too big, the signal that you see in the rear view mirror has expired and a new signal is being developed. Just place a trade and check your broker's statement. You'll see it.

So what can be done?

Many agree that range bars are far more effective than time bars. Tools like Bollinger Bands have a built-in internal lag. You can cause range bars to generate more bars than time bars. This doesn't change the internal lag but it does give the algorithm more bars per minute to make a decision and presumably have enough time to harvest a profit. Yet, a question still lingers. How big should the range bar be? Great question. For a given security, a given algorithm and a given set of dates and trading hours, there is only one best range bar size. If you are trading oil which has a .01 tick size you will fling yourself out a window before you discover the optimal range bar size. There are more than 10,000 of them in the range of .01 to $100.00.

Now what has any of this to do with Renko Bars?

Well, because they are virtual, the user may insert a trading algorithm (briefer is better) and ask the optimizer to find the best bar size. Further, the optimizer can detect and assign different amounts to up bars and down bars instead of being forced to compromise on a size which is not ideal for either but is simply the least offensive to both.

You will find that if you change your algorithm, the optimizer may change your bar size. Ditto for a change in in-sample data or trading hours. This tuning feature is simply not practical when using fixed bars i.e.,  range, 1 minute, 5 minute, 30 minute, etc. You can find more of this concept in Interchart Tools #2 which allows you to trade 10 minute data from inside a 10 minute bar, along with other interesting tricks.

Finally, the best way to make money in the market is to do something which is different from the 10,000 other traders who are trying to trade the same thing at the same time as you are. You must appreciate that no matter what your trading platform you all are trying to build the same house with the same tools. So, if you find a useful formula which works for a while, it is often true that your competition has also discovered your secret and you can't all profit from executing the same signal at the same time.

Interchart Tools Renko Bars give you an exotic array of mechanisms which when combined with your unique algorithms will separate you from the 9,999 other competitors for a very long time.

Good luck.