The chart of ticks and time charts is essential for traders to understand. Traders may find that using one type of chart over another suits their trading style. The tick chart creates a new bar after each tick – a certain number of previous trades – either upwards or downwards. Time charts are based on a specific time frame and can be configured for different time periods. Traders can see that they have a number of options when it comes to the type of chart they use.
Chart Basics
Candlestick and bar charts are the most common charts used by many traders. Both candlestick charts and bar charts can provide the trader with the same information. The basic difference is that candlestick charts are colored and easier to see. When using these two types of charts, traders can choose to create price bars based on time or ticks. Time and tick charts have advantages and disadvantages for the trader. Most traders will use a variety of charts to gather or execute information about their trades.
One-Minute Chart or Time Chart
Time charts can be set for different time periods. However, if you are using the chart for active trading, you are likely to focus on shorter periods. If you used a one-minute, two-minute, or five-minute chart, a new price bar would form at the end of the time period. On a one-minute chart, a new bar is formed every minute, showing the high, low, open, and close for that one-minute time period. A uniform x-axis is produced on the price chart, as all price bars are equal over time. Sixty price bars are produced every hour, provided that at least one trade is made on the stock or other asset you are following. One-minute charts are popular among day traders but are not the only option.
Tick Chart
The bars on the tick chart are created based on a certain number of trades. For example, a tick chart with 512 ticks creates a new bar after every 512 trades. You can customize tick charts based on the number of trades you want; for instance, five ticks or 1,546 ticks. Throughout the day, there are active times and slower times, where many or few trades occur. Thus, the x-axis is usually not uniform on tick charts. When the market opens, there is a lot of volatility and activity. Hence, tick bars occur very quickly. Five tick bars may form in just the first minute. During lunchtime, when the number of trades decreases, it may take five minutes before only one tick bar is created.
Power of the Tick Chart
When there is a lot of activity, the tick chart shows more information than the one-minute chart. This information includes tighter price waves and movements on a smaller scale. For instance, when the market opens, several tick bars may appear during the first or second minute showing several price fluctuations that can be used for trading purposes. If you used a one-minute chart, only one bar is formed in the first minute, and two bars after two minutes. These one or two bars may not provide the same trading opportunities that many tick bars occurring during the same time frame would. In this way, tick charts allow you to enter movements earlier, make more trades, and spot potential reversals before they happen on the one-minute chart.
Power
One-Minute Chart
When there are few trades passing through the chart, the one-minute chart seems to display more information. For example, let’s say you are considering using a 90-tick chart or a one-minute chart. Suppose that during lunch hour, only 10 trades occur in one minute. It will take nine minutes to complete a tick bar and start a new one. However, one-minute charts show a bar every minute as long as there is a trade. In this scenario, the one-minute chart produces nine times the number of bars that tick charts produce, displaying more price waves, trends, and support and resistance levels that can be traded.
Illusion of Activity or Real Trading
Tick charts adapt to the market. Fewer bars are formed when there are fewer trades, warning the trader of declining activity levels. On the other hand, the one-minute chart continues to produce price bars every minute as long as there is one trade within that time frame. This may create an illusion of activity, even though there may be little volume in stocks, futures contracts, or foreign currency pairs in reality.
Example
A TD Ameritrade chart of the SPDR S&P 500 ETF (SPY) during an inside day is an excellent example of the difference between using a tick chart or a time chart for trading. Here, the white time chart lags behind the lower price notice of the darker tick chart. The one-minute chart is compared to a 1000-tick chart for SPY. Both charts start and end at 9:00 AM and 4:02 PM, respectively. The one-minute chart provides more price bars before 9:30 AM, but the tick chart creates more price bars during the day—when there are higher numbers of trades—essentially creating a higher display of price movements.
Frequently Asked Questions (FAQs)
How many minutes are in a trading day?
There are 390 minutes in a standard trading day, so a one-minute candlestick chart will show 390 candles in a day. Those who trade after hours can add two and a half hours of pre-market trading and four hours of after-hours trading to double the daily trading time to a total of 780 minutes.
What is the best chart for beginner traders?
The best chart for beginner traders is to use all charts. At first, you want to experiment with as many setups and strategies as possible so you can get a better understanding of what works well for you and what doesn’t. Try tick charts, one-minute candles, swing trading with daily candles—the more experience you have, the better. Just remember to rigorously test all your strategies in a demo trading account before risking your real money.
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Sources:
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts contained in our articles. Read our editorial process to learn more about how we verify facts and maintain our content’s accuracy, reliability, and trustworthiness.
University of Nebraska – Lincoln. “Charting Commodity Futures: Tick Chart vs. Candlestick Chart.”
Optimus Futures. “An Introduction to Tick Charts and How to Trade Them in Futures Markets.”
Source: https://www.thebalancemoney.com/tick-chart-or-1-minute-chart-for-day-trading-1030978
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