Tick Charts are not very well known and can be confusing. Can you please point me to a good source of information with a decent explanation? Well I consider myself a little bit of an expert on tick charts, so here goes. Tick charts draw forex ticks new bar after a set number of trades, for example after every 1,000 trades.
The NYSE TICK Index is a totally different thing. It measures the number of stock issues trading on an up tick versus a down tick. I much prefer tick charts over conventional, time-based charts. Professional Activity The Emini is a perfect trading vehicle because we know the number of contracts in each individual trade. So on a tick chart when we plot volume we see the total number of contracts traded during those last say 100 trades. The relative size of the volume histogram shows us the average trade size. If during the last 100 trades the average number of contracts in each individual trade was 2, the volume histogram would show a value of 200.
However, if during the last 100 trades the average number of contracts in each individual trade was 25, then the volume histogram would show a value of 2,500. So if the volume histogram is low we are seeing Amateurs trading and if the volume histogram is high we are seeing Professionals. As you can see, you want to follow the Professionals. They were buying the dips and shorting the rallies.
Amateur Activity Similarly, looking out for low value bars allows you to identify what the Amateurs are doing. The 2,097 tick chart above is exactly the same as the previous chart but with some of the low value bars highlighted. These show small average trade sizes or Amateurs. They were shorting the dips and buying late into the rallies. Tick Charts Are Quicker Into Breakouts If you’re waiting for the close of a bar to enter a trade, say a breakout, a tick chart will get you in earlier.
The chart above from yesterday’s Emini trading activity illustrates the point. The Emini spiked up on FOMC-related news. Hi Barry, I used to use 1 min, 5 min, 15 min charts etc. I would be profitable for 2 months and then boom, volatility spikes up and all of sudden, my trading is not good. Switching to 1500 tick and 4500 tick has completely masked the volatility differences and allows me to trade more consistently regardless of the volatility. In the example above, the Better Sine Wave, my preferred cycle analysis tool, was able to pick out a Pull Back long entry point in the 2,097 tick chart.
However, with the 3 minute chart the Pull Back was completely missed. Tick Charts Compress Low Activity Periods Lastly, a tick chart compresses low activity periods, like lunch time and after-hours. Or fewer false break-out trades during lunch time. The CME made some changes to their Emini data feed in October 2009. As a result I’ve changed my multiple time frame tick chart settings from: 233, 699 and 2,097 ticks to: 500, 1,500 and 4,500 ticks. You can read more about the CME and tick chart changes here. The CME introduced a new data feed protocol in December 2014 and all data feed providers have to implement it by October 2015.
The result is that the average Emini trade size has increased by a factor of approx. Continuum data you might want to change your Emini tick charts to: 150, 450 and 1,350 ticks. Continuum, switched back from bundled to un-bundled data after, what I assume was, trader outcry. The average trade size is virtually identical and Better Pro Am continues to identify Professional and Amateur activity.