The Advantage of Tick Charts
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This is another guest article from Big Swiss. Enjoy!
Using Bar Close For Decisions
The advantage of making decisions on bar close serves a few purposes. First, by restricting decisions to a bar’s close, a trader is able to review historical charts for similar situations and patterns. Without this simple reference, the myriad of variations within price movement becomes exhaustive and thus potentially significantly extending the amount of time and experience needed to evaluate the current market’s movements with any certainty (note that periods of clarity may only happen for a few occasions during a period but recognize that the clarity helps to form your edge).
Time Charts vs Tick Charts
Understanding that a trader’s action decision comes at the completion of a current forming bar, let us explore how momentum affects bar pattern formation across a variety of charts, and how tick charts may offer an advantage.
With time charts, bars complete at the end of a time interval: 1m, 2m, 5m, 15m, 30m, 1 hour, 4 hour, 1 day, 1 week etc. These are commonly used intervals. The benefit of using time charts is that intervals occur with periodic regularity. Miss a trade and you know when the next decision interval will occur, and this can potentially reduce stress in the decision making process.
Compare this with tick charts. In these graphical views, the bar measurement is the number of trades between a buyer and seller, an event where each operator believes they have an edge. Without a trade, bars do not continue to open, form or complete.
Recall that Price Action bases decisions on a few key elements: support, resistance, and momentum. Note, from the definition of the bars, tick charts more closely measure the effects of price momentum versus time charts. As tick charts more closely indicate price trading momentum, the quality of the close of a bar may infer potential continued momentum into the next bar. Pairing bar close decisions and using tick charts might then produce a small advantage. Note, with time charts if trading momentum happens through the ending of a time interval, similar aspects may be expected, but since momentum isn’t defined by time length, fewer good bars may occur in a time chart. Simplifying trading decisions reduces stress, so using a singular chart is often best. Changing time intervals to determine good entry bars may not be as effective as using a singular tick chart.
Exercise.
The easiest time to observe momentum effects is reviewing price action during a trend. Review the following 4 charts. Note the quality of the entry bars in the PATS method. Then review the time based charts of 5, 3, and 1 minutes. When do good trades happen across the time boundaries? With lower
resolution time charts, they occur more frequently, but not necessarily during good places in pattern context (a future article will discuss). Also, there is less time allowed for good trade decisions. It is very possible to trade with time charts and at a variety of resolutions. However, using tick charts may improve trader probabilities by presenting good signal bars when price momentum shifts towards their benefit. The trade-off is that an individual must be sharp and “present in attention” throughout the trading period since the bars do not complete with absolute regularity.
Big Swiss
Comments
Abdul June 22, 2020 at
You put into words what I’ve been thinking recently about signal bars on tick charts. They line up momentum in the direction of your trade, makes so much sense.
Thanks Big Swiss, love it keep them coming!
CURLY June 23, 2020 at
How does one reconcile the inconsistency of tick charts? Your 2k tick chart will look different from mine. In contrast our 5 minute charts should be identical. If traders are all using the same data in the same format, say time charts, then will they not make more uniform decisions? If we aim to trade with the crowd/trend then shouldn’t we want to make decisions based onin the same visual representations?
I throw this thought out not because I think it is a valid argument, but to ponder how we can make decisions when a “good tick signal” forms. Because I maybe the only trader in thecworld with that bar on their chart.
Having said that, my trades (on 2k charts) and marked trades at the end of the day generally are near Mack’s in terms of price and time. Thoughts please.
Eric June 23, 2020 at
Curly,
Some very good points. Having myself worked with both time and tick graphs of a variety of resolutions and from the article, perhaps this is a potential answer? Because tick charts reflect momentum better, the boundaries between bars will have more consistency for good signal bar trades (meaning a good signal bar that closes on its high, or 1 tick away). This is less so for time charts, and is a trade off. Accepting this, the trade off becomes resolution too. 1 min time graphics can approach the concept, but trading a 1 minute time chart may not be possible between making good decisions, entering trades, managing etc. At higher time resolution, there will be more wicks on bars which should be used for entry (they will not be as “pretty”).
As for differences between tick charts, yes this happens because of when the computer begins counting. Good traders though are taking trades at approximately the same places by capturing the same momentum. If momentum is sufficient for the set resolution, the bars will be approximately the same for a majority of the cases. Also, the bars will look similar on the same resolution tick charts. What I have found is 90%+ of my bars look the same as Mack’s, and good decision points are happening at the same places. When they disagree more, momentum in the market is often less which also alerts me to being much more careful in trade selection.
Just a perspective. I hope that it helps.
Mack June 25, 2020 at
Eric has already hit the major points of why tick charts are better, but you can simply see so many more details in the price action with tick charts that you will never see in a time based chart. For anyone not skilled at reading charts, they all look the same. However, once you start to understand how prices work and how markets move, you will see things in charts you never knew were there. That’s the basic concept of price action, understanding prices and how they move and print to the chart. Once you can see it, using a time based chart is like taking a knife to a gun battle. You are severely limited and at a huge disadvantage really in my opinion.
Your concern is the same concern every new trader has though. They think their chart has to look just like mine, but it doesn’t. Once you can see it, you will better understand. Newer traders are always in a frenzy and stressed because their chart doesn’t look just like mine. That’s a product of mostly only viewing time based charts where you are used to every chart being identical. A good chart reader can trade my chart, your chart, Eric’s chart or anyone else’s tick based chart and do just as well. Some of the trades they take might vary between the charts, but most will be in the same locations with the same timing.
ano327 May 17, 2021 at
Hi Mack,
In 5/2020 you briefly mentioned how to get one’s chart to look identical to yours, and I was able to accomplish this. However, since I recently re-joined PATs membership, mine is no longer identical. While I can appreciate that effectively the differences are small, I think that when first starting out these small difference are an issue because simple things like counting second entries can be a struggle, and ensuring everyone has the same “notes” makes it that much easier to follow along.
Accordingly, would you be able to show us your settings in your data series properties so we can replicate what you see?
Many thanks either way for your help!
Mack May 18, 2021 at
If you are using NT8, if you choose the settings I noted below, your chart should look almost identical to mine. It’s really irrelevant, although most new followers will see it as a problem because they are used to the static nature of time based charts. As long as your number of bars and patterns are identical, that is all that really matters. The bars do not have to be identical. Again, use the settings below in NT8 and you should have identical charts to mine. If not, either your data is lacking or your internet speed is lacking or maybe both.
1) Load 21 days of data.
2) Choose “CME US Index Futures ETH” as your trading hours.
3) Place a check in the box labeled “Break at EOD.”
Until NT8 came out, we never had identical charts, yet people managed to learn and excel with the strategy, so it’s not as important as people think. I get it though, and I agree that the closer you can get to my charts, the better. If you use NT8 and those settings, your chart should be very close to mine.
Gregory Wexler June 25, 2020 at
Spot on – thank you Big Swiss!