Session-fitted bars and average-true-range risk bounds

Clock fractions leave a partial last bar

Sessions often do not divide evenly into 60-minute or other conventional clock fractions, so a clock-aligned last bar can cover only a partial interval. Documented session lengths include 325 minutes for crude oil, 315 minutes for gasoline, and 400 minutes for Eurodollars.

Equal bars or a residual close

For intervals longer than about 15 minutes, two constructions apply. One splits the session into equal-length bars. The other chooses a length that leaves a residual close bar covering the last five to 10 minutes so the close is overweight in indicators.

A session-fitted bar is an OHLC interval whose length is chosen so the trading day divides into equal bars or into regular bars plus that planned residual close. The residual close bar is short on the clock, yet it carries the same indicator weight as a full-length bar.

On a 325-minute crude session, 65-minute bars produce five equal periods. Bars of 63 or 64 minutes leave a five- or 10-minute residual close bar. Fifty-five-minute bars produce six equal periods on that session. Fifty-three-minute bars produce six periods plus a seven-minute residual close bar.

Readings on the fitted charts

Slow stochastics on those charts used 34 observations, with %K and %D each smoothed three times. A 63-minute construction plus a 10-minute residual was compared with even 65-minute bars using a nine-period directional-movement set. That set pairs ADX with plus and minus directional lines. A falling ADX was read as declining trend intensity, with plus-DI rising above minus-DI as a buy flip and the reverse as a sell flip.

Shorter bars shrink the leftover

Below about 15 minutes, leftover-end-bar effects shrink. Three-, nine-, or 13-minute bars were offered as alternatives to the more common five-, 10-, and 15-minute clocks.

Average true range as a cost floor

True range is the largest of high minus low, high minus prior close, or low minus prior close, then averaged. Average true range is that mean. The suggested window is about twice a slow-average or slow-stochastic length, roughly one cycle of bars.

A bar met a minimum-volatility screen when its average true range was about 2.5 times average tick size plus round-turn commission. Tick value is the typical price change between successive ticks and is used with commission as a floor for whether a bar is large enough to trade. With a crude tick value of 1 to 1.5 cents and a 2-cent commission equivalent, that floor was about 4.5 cents per bar in a normal market and about 17 cents when tick value rose to about 6 cents.

A range-multiple stop as backup

Under a rough standard-deviation assumption, an adverse move of about 2.5 times average true range was treated as more than noise. A range-multiple stop, a trailing stop placed about 2.5 times average true range from price, was proposed as a backup if a technical exit is missed.

If that assumed 2.5-times-range risk is too large, shorten the bar, switch to a less volatile nearby contract, change markets, or stand aside until volatility recedes.