The following article discusses and compares the time, tick and volume chart. In this article I criticize the use of the tick chart and would like to hear from users of the tick chart what advantages it has over a volume chart. -------------------------------------------------------------------------------- To my knowledge there are 3 different ways to build a candle in a Japanese candle chart. You can build each candle (or bar as some call it) based on time, ticks or volume. Time: After a period of time you take the open, high, low, and close during that period and plot that as a bar. The period of time can be anything from a few seconds to months, years or decades. Ticks: A tick is a single trade irrespective of size. A tick chart builds each bar based on a certain number of ticks per bar. A 233 tick chart will create a new bar after every 233 trades have gone through. Volume: A new bar is created after a certain number of contracts have been traded. For example, every 2000 contracts a new bar is shown. Here is the same 1 hour segment in the market on 3 May 2004 from 09:30 to 10:30 EST for the ES contract showing what the 3 different charts look like for a 1 minute, 2000 volume and 233 tick chart. ES 1min candle chart from 09:30 to 10:30 EST on 3 May 2004 ES 2000V candle chart from 09:30 to 10:30 EST on 3 May 2004 ES 233T candle chart from 09:30 to 10:30 EST on 3 May 2004 As you can see the 3 charts exhibit very similar patterns under these conditions because the average volume and number of trades can be roughly equated to a time period during high volume periods. The charts take on a completely different characteristic when the volume and number of trades drop. Consider the following similar charts that show the market action overnight and up to 09:15 EST on the same day as the charts above. The settings are the same except for the time based chart which shows a new bar every 15 minutes. ES 15min candle chart to 09:15 EST on 3 May 2004 ES 2000V candle chart to 09:15 EST on 3 May 2004 ES 233T candle chart to 09:15 EST on 3 May 2004 Moving averages and other derived indicators from a price based chart usually use the closing price of a candle. Indicators are usually based on a number of bars and this will affect the signal given by indicator depending on the chart type (and hence number of bars). It is my opinion, that the tick chart serves little purpose and is dangerous and if you want to use a size based bar chart you should use a volume based chart instead. Note that I say that this is my opinion and I hope to solicit feedback by email which I can add to this page if I am wrong or have not given the tick chart justice. A tick chart creates a new bar ever X number of ticks. Let's assume that X in this case is the popular value of 233 used in a lot of tick charts. If 233 trades of 1 contract each are traded sequentially then a new bar will be formed. If 233 trades of 200 contracts each are traded sequentially then a new bar will be formed. In the first case we have 233 contracts being traded and in the second case we have 46,600 contracts (233 * 200) being traded. This example, although extreme and unlikely, is a possibility and less exaggerated examples of it are obviously more likely than this example. The volume chart address this issue and rolls onto a new bar every X number of contracts traded. It is (again this is my opinion) volume that pushes the market and not number of trades and that is why I feel that the tick chart should be abandoned in favor of the volume chart if it is size based bars you are looking for.
Guy, Your argument against the tick chart appears to be that you think volume charts are better but you dont seem to have offered much evidence to support that opinion. My experience to date, without volume charts is that I can create better edges with tick charts vs minute charts on some high activity contracts but that it doesnt seem so effective in low activity contracts like currency futures. Again, no evidence, just the experience of someone creating real time edges. My experience doesn't say tick charts are bad - it just says that in some circumstances they don't seem to be as good as an alternative. I suspect that you will need to be more specific in your assertions given that volume / price behaviour differs considerably between different types of contracts (look for the volume fading behaviour that is asserted for stocks in currency futures for instance and I think you will be disappointed). If you apply your volume/tick comparison to low volume contracts like currency futures you may find that tick charts are better than volume charts because the volume peaks can be very extreme single tick events. Or that time works better than either for a given type of edge.
Hi Kiwi, Thanks for the response. I give an extreme example in the article of what can happen: A tick chart creates a new bar ever X number of ticks. Let's assume that X in this case is the popular value of 233 used in a lot of tick charts. If 233 trades of 1 contract each are traded sequentially then a new bar will be formed. If 233 trades of 200 contracts each are traded sequentially then a new bar will be formed. In the first case we have 233 contracts being traded and in the second case we have 46,600 contracts (233 * 200) being traded. What concerns me about tick charts is that the 2 bars in this example may look the same but have extremely different properties because of the number of contracts traded on each bar. On the first bar in this example we have 233 small traders (1 contract per trade) and on the second bar we have 233 large traders (200 contracts per trade) yet each bar is given equal weighting when calculating any derived indicators etc. The market is moved by volume not by small traders and as such I feel that the moving averages, stochastics etc. based on a tick chart are not as valuable as the same based on a volume chart. Regards, Guy
Volume Price bars offered in e-Signal and Ensign. For example, lets say you trade the ES. Every 1000 (for example...can be any number you choose) contracts traded you will get a new bar.
Guy, it all depends on what want to see in the chart. Personally for the method I use, it does not matter which one you use, I just use the one that gives the "smoothest" chart patterns for the Future that I am trading. In the last analysis, all chart data comes down to price. I do not think there is one "best" data type or period for all situations. We all have a tendency to over analyze our trades.....I personally think the money is to be made in trade management, not predictive analysis. Remember, everything is a random event. Trend continuations are a type of inertia.
A tick chart creates a new bar ever X number of ticks. Let's assume that X in this case is the popular value of 233 used in a lot of tick charts. If 233 trades of 1 contract each are traded sequentially then a new bar will be formed. If 233 trades of 200 contracts each are traded sequentially then a new bar will be formed. In the first case we have 233 contracts being traded and in the second case we have 46,600 contracts (233 * 200) being traded. This example, although extreme and unlikely, is a possibility and less exaggerated examples of it are obviously more likely than this example. The volume chart address this issue and rolls onto a new bar every X number of contracts traded. I trade Futures and when Merrill make a buy/sell or a program goes off my tick charts go crazy. The locals and everybody chimes in. Sometimes Merrill slowly sneaks his buys/sells in throughout the day but when the locals discover his bias, they chime in with their ticks. So in effect Merril can fool the volume chartist. Programs generally have a few steps (Nitro taught me this in the chatroom). When a program kicks in you might get new bars in the volume chart, but the tick chart will reveal to you the market moving momentum that the program brings. So I humbly disagree. Michael B. P.S. You have my permisission to publish this above post if you find it valid and helpful to your site. (please consider contacting Baron. You really do not want to get alienated here. With your success surely this would be advertising dollars well spent, and a great tax write-off). From your site: It is (again this is my opinion) volume that pushes the market and not number of trades and that is why I feel that the tick chart should be abandoned in favor of the volume chart if it is size based bars you are looking for. Your opinions are valuable and I will add them to this page if I feel that they will add value to readers of this material. Please email your comments to me.
I understand what you're saying about the ticks jumping on the band wagon but when you have 2000 contracts offered then 1000 ticks (trades) of one contract each are not going to move the price but 10 ticks of 200 contracts each will. This is where the tick chart provides (imo) less information. Regards, Guy
Guy, keep expounding, what would be the effect of this example?, keep going with your thought. The effect of the single contract trades lead to more than you think. It's not purely the mechanical elimination of contracts offered that move price. The interpretation of traders reading the charts and the heat in the pit also move the price. Tick charts show the temperature better in my opinion. Michael B. P.S. Actually what we both are saying is, wouldn't a tick/volume filter be great!
Guy - Why do you assume that "big money" who wants to buy 100 contracts right now always does so with a single order for 100 contracts and not 50 2 contract orders - or some other combination thereof?
There are some contributors in here that I have a lot of respect for. You wanted discussion and you will get it. Do not discount what some of the most recent posters say. I will let you figure out who knows what they are talking about. I surly have a lot to learn from the likes of them. They can trade me to the ground! Trading and talking about logical conclusions are two different things. When trading you must be able to interpret what the "bar pump" is saying and react by pulling the trigger at the correct time. I have seen price move during the lunch time with out effecting the volume bars in the way the tick bars reacted. Volume bars are another static setting similar to what time bars do. Tick bars are truly dynamic with a market moving nature during all times. Also, when a "big" trade goes down, the tick bars will react, believe me. To what extent is important. I have seen a program hit and after no effect it will go stage 2 and get away with it. How would the volume bars key me into this effect? Wouldn't a program scale in to trick the market into getting filled at a better price. The last thing it wants is to cause his own entries to worsen! Thank you for this thread. I will now sit back and read the wisdom about to come. Michael B.