I get most of my e-mini trading ideas from price action; then use real time indicators to confirm or decline a trade. There are guys that trade pure price action devoid of any confirmation and I have decided that they are probably smarter than me or fibbing about their trading skills. Either way, it's really does not matter to me. That being said, you will have to decide how you want to display your price and we are going to look at 3 methodologies and break them down a bit. Let's start with candlesticks.
Candlesticks: These bars have become, in recent years, the standard in e-mini trading; they show the open, close, and range of any given bar. In fact, they are a more colorful version of the standard line bar. In general, I do not care for candlesticks because they are a bit noisy to trade. That's a personal preference of mine, not some scientific conclusion. I am inclined to use bars that take the noise out of the candlestick patterns and have traded that way for most of my career.
On that note, there are bound to be some traders who trade Japanese candlestick patterns who will disagree with me on this count. I have read Nison's Japanese candlestick pattern books with all the funny names like: hanging man, doji, spinning top … etc. To those traders I would suggest a good read of David Aronson's book, "Evidence Based Technical Analysis: Applying the Scientific Method and Statistical Inference to Trading Signals." In fact, I highly recommend all traders read this book, as it provides insights into technical analysis that will give you pause for repose. Without getting into a lengthy discussion on Aronson's analysis, his findings refute any statistical relationship between Japanese candlestick formations and their predictive outcome. The exact wording is they are "statistically insignificant." Ouch, I can hear chorus of naysayers shouting at me. I have tried trading Japanese candlestick patterns and tend to agree with Aronson, they may have worked centuries ago in Japan but they are of little use in today's information-rich market.
Heiken-Ashi Bars: I am a bit more upbeat on Heiken-Ashi bars as they are excellent in trading a trending market. Unfortunately, they will obliterate your trading account in a choppy or bracketed market. Here is why:
· Close = (open + high + low + close) / 4
· High = maximum of high, open, or close (whichever is highest)
· Low = minimum of low, open, or close (whichever is lowest)
· Open = (open of previous bar + close of previous bar) / 2
It should be readily apparent that Heiken-Ashi bars use an averaging method and the price they display may not necessarily be the actual market price. That's a real problem for me because I am not able to see the actual price action, which is what I am looking for to find trade set-ups. On the other hand, these bars are great in a trending market and will keep you in a trade longer than you might normally stay thus extending your profits. Still, no price action here and that's a deal breaker.
Better Renko Bars: Like all renko bars, they show price action in a single direction. I typically set them to 4 ticks, as that has given me the best results. The primary difference between Better Renko Bars and Renko bars is the Better Renko Bars have complete shadows (or wicks, for some folks) so I can see the price action very accurately and make sound decisions. There is no averaging method used to calculate these bars and since they move in one direction until a reversal occurs, I can get a good read on what is happening with price. Add a divergence input series indicator and link it with the Commodity Channel Index and you have a powerful trading system in itself. Either way, I get the best read on price by removing the noise and taking advantage of the benefits of Better Renko Bars.
It's tough to cram all the information that I would like to include into a short article. It's my hope that this short discussion will make you curious enough to investigate different price display methodologies in your e-mini trading.