As a trader, you use a wide variety of charts to analyse markets.
If you are a long-term trader, you may use daily charts to get a sense of the big picture while using hourly charts to plot entries and exits.
If you are a short-term trader, you may go as small as using 1-minute charts to trade price action.
Most charts, however, are time-based, and traders’ cycle through different timeframes to match their specific strategy or preferred time horizon.
But what if your goal was to trade on the smallest transaction level?
What if you wanted to trade price not on the level of time but on the level of each transactional tick?
This is where tick charts come to the scene.
In this guide, we are going to explain tick charts in detail.
So, let’s get started!
What is a tick chart?
Tick charts generate a new bar every time a certain number of transactions are completed instead of time-based charts, which generate a new bar based on a preset period.
If you have a chart with 1000 ticks, each bar represents 1000 transactions. After 1000 transactions, a new bar plot is generated.
There are lively and slower times during the trading day, with many or few ticks. There is a lot of volatility and action when a market opens.
As a result, the tick bars appear rather quickly. For example, in the first minute, five tick bars may form.
When the number of transactions is low during inactive hours, it may take up to five minutes for a single tick bar to appear.
Traders who prefer these charts to time-based charts claim that time is static and has little bearing on how the market moves. Seeing a few bars formed in a short amount of time on a tick chart is far more significant to them, as it shows that big volume is entering the forex pair.
S&P futures traders frequently utilise these charts to negotiate the merciless whipsaw and fake-outs from an algo that they encounter on time-based charts.
How to read a tick chart?
Like a bar chart, we can identify four different aspects of a tick chart: open, close, high, and low.
Of those four aspects, we only pay attention to three of them; the open of the bar isn’t important to us since we want to anticipate the future, not look at the past.
Why should you use a tick chart?
A tick chart displays more information than a one-minute chart when there is a lot of action. This is because more price waves, consolidations, and smaller-scale price movements are included in this data.
For example, when a market opens, numerous tick bars within the first minute or two may display various price fluctuations that can be used for trading. However, when a one-minute chart is used, just one bar forms in the first minute and two bars form after two minutes.
These one or two bars may not offer the same trading chances as the many tick bars over the same timeframe. As a result, tick charts allow you to enter trades earlier, take more trades, and identify potential reversals before they appear on the one-minute chart.
The benefit of combining volume and tick charts is that each tick bar is equal. This enables you to determine which price moves are backed by high volume and which are not. It shows you which trends are supported by smart money and supported by retail money, making it more likely to turn over.
These types of charts are a terrific way to understand what is going on outside of market hours. The volume transacted during these hours is thin and fragmented, but it creates a few tick bars that can be significant when combined.
When to Use a Tick Chart
Many traders employ a combination of chart types. During slow, range-bound markets, a tick chart makes more sense than a time-based chart, which will just whipsaw you. When you use a tick chart, you can only make transactions once a particular amount of market activity has occurred.
Tick charts make it easier to adjust when the markets are experiencing periods of high volume and volatility.
Simply select a larger tick interval. If you normally use a 1000 tick chart, try a 2000 tick chart. On the other hand, during the lagging periods of low volatility that have typified the latter stages of the present bull market, you will need to reduce your tick chart interval.
Tick Charts vs Renko Charts
Both tick and Renko charts are focused on price movement rather than time or volume, but there are several major variations between them.
Renko charts are concerned with price movement. They draw a price movement bar for a set number of price movements up or down. So, for example, you may tell your charting software to generate a new Renko bar every time the market moves 100 points up or down.
A tick chart, on the other hand, is direction-independent. They are just concerned with activity, setting a new standard for every certain number of trades, regardless of direction.
Tick Chart vs Volume Chart
A tick chart and a volume chart look very similar. This is because they both generate new bars based on volume activity rather than price action in the case of Renko and time activity in time-based.
Volume charts generate news bars based on the total number of contracts exchanged, whereas price charts do not.
A 1000 volume chart adds a new bar for every 1,000 contracts traded, whether it takes one or 500 trades. A tick chart, on the other hand, accomplishes exactly the opposite.
A 1000 tick chart generates a new bar for every 1000 trades, regardless of the number of contracts/shares traded in those 1000 trades.
Bottom line
Tick charts are a unique way of displaying the same market data as a time-based, volume, or range chart.
Your trading approach will determine your preference for them. For example, scalpers appear to prefer tick charts to remove short-term noise.