July 23, 2010
Range Charts, Time Charts, Tick Charts
Hi guys!
Are you aware of all the different options we have for chart timeframes and time intervals?
Did you know there are over 10 different types of charts we can use as day traders?
Did you know that some chart types are better for day traders?
Let’s look at the basics first…
Day trading charts can be based upon several different criteria, with the most popular being time, ticks (number of trades), volume (number of contracts), and price range.
All four types of charts use the same market information (price, volume, etc.), but they display the information slightly differently.
There are 4 main types of charts we use as day traders and swing traders:
1. Time Charts
2. Tick Charts
3. Volume Charts
4. Range Charts
Let’s review each of these…
Time Charts:
Popular short term time intervals include 1 minute, 3 minutes, and 5 minutes, and popular long term timeframes include 1 hour, 1 day, and 1 week.
Time based charts are named for the time interval that they are based upon.
For example, a chart that is based upon a 1 minute timeframe is known as a 1 minute chart.
Shorter timeframe charts often look like zoomed in versions of longer timeframe charts, because there are more bars for the same amount of time, but with the same prices.
For example, a 1 minute chart would have 5 price bars for every 1 price bar of a 5 minute chart, even though both charts would have the same prices and the same open, high, low, and close for the 5 minute time interval.
Second Charts: we use a 10-second chart for our Pace of Tape Indicator, but we don’t ffind much use for second charts anywhere else in our trading.
Minute charts: most popular amount traders, minute charts are typically where a day trader begins to learn, however, we have lots of concerns over using minute charts
– They are sloppy
– They never stop moving for a sideways market
– They have different ranges for each candlestick
o 1 candle may be 10 ticks long, while another candle may be 20 ticks long
o This makes identifying risk on the trade more difficult.
Hourly Charts: these are not used very often
Daily Charts: used commonly by long term swing traders. I never use daily charts for my day trading.
Tick Charts:
Charts based upon ticks make a new price bar (or candlestick, line, etc.) every time a specific number of trades are completed.
Popular numbers of ticks are 33 ticks, 133 ticks, and 233 ticks, which are all short term timeframes.
As tick based charts only make new bars when there have been enough trades, they adjust to the market, making bars less often when the market is moving slowly.
Some day traders believe that this gives tick charts an advantage over time charts, and I agree.
Range Charts:
In the mid-1990s, a Brazilian trader, Vicente M. Nicolellis Jr., developed a new and exciting price bar for charting.
He had found markets in his country to be unstable and unpredictable and that, for sizable periods of time, the market would be in a sideways or consolidating action.
After careful deliberation on how to tame this volatility and price bar movement variations, he came to the conclusion that eliminating the time factor would form the basis of his hypothesis. (I 100% agree!)
Nicolellis proceeded to develop a price bar without time involved at all, just price. This became known as the range bar, or breakout bar.
Each range bar has the same price increment and each bar closes either at the high or the low, regardless of where it opened.
Charts based upon price range make a new price bar (or candlestick, line, etc.) every time the price has moved a specific distance.
Popular short term price ranges are 4 ticks, 8-ticks, 10-ticks, and popular long term price ranges are 21 ticks, and 34 ticks.
As price range based charts only make new bars when there has been enough price movement, they adjust to the market, making bars less often when the market is stuck in a small range (i.e. not moving).
Some day traders believe that this gives range charts an advantage over time charts, but this really depends upon the trading system being used.
Price range charts appear different from other types of charts, because each bar (or candlestick, line, etc.) has the same range (high – low), and therefore has the same size when displayed on the chart.
I think the biggest benefits of trading range charts are:
– Every bar is the same ‘size’, this makes for cleaner patterns, not as ‘sloppy’ as minute charts
– I can easily identify risk on each trade because I know that we have the same length of each candlestick, which is usually where my stop will be placed.
– When the market is slow and sideways, range charts will STOP moving, this is good because I don’t want to trade when the market isn’t moving UP or DOWN.
Volume charts:
Charts based upon volume make a new price bar (or candlestick, line, etc.) every time a specific number of contracts have been traded.
This is different from tick charts because a single trade can consist of several contracts.
For example, a single trade for 10 contracts would be 1 tick on a tick chart, but would be 10 contracts on a volume chart.
Popular volume charts are 500 contracts and 1000 contracts, but any number of contracts might be suitable depending upon the market being traded.
Volume charts also adjust to the market, and make price bars less often when the market is moving slowly, as there are less contracts being traded.
Volume charts have a similar advantage to RANGE charts because if the market is moving, so will these charts. If the market is NOT moving, neither will the charts.
