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Tick Charts: 5 Compelling Reasons to Use Tick Charts
Updated: Sunday 15 March 2020
Tick Charts are one of my “secret weapons” and this article explains why.
Tick Charts are not very well known and can be confusing. From time to time I get questions about Tick Charts and yesterday’s email from Ken was typical:
I’ve been scouring the Internet for information on tick charts and their ins and outs – but have found nothing useful. Can you please point me to a good source of information with a decent explanation? Ken
Well I consider myself a little bit of an expert on Tick Charts, so here goes. Use the links below to jump to a particular section:
What is a Tick Chart?
A Tick Chart draws a new bar after a set number of trades, for example after every 500 trades. Conventional (i.e. time-based) charts draw a new bar after a set period of time, for example after every 5 minutes.
Don’t get confused with the NYSE TICK Index (or $TICK in many charting programs). The NYSE TICK Index is a totally different thing. It measures the number of stock issues trading on an uptick versus a downtick. A Tick, by contrast, is just a trade and 1 Tick = 1 trade.
I much prefer Tick Charts over conventional, time-based charts. Here are my 5 reasons why.
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5 Advantages of Tick Charts
#1 Tick Charts allow you to follow the Professionals
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. Let’s take an example.
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.
The 2,097 Tick Chart above has some of the high value bars highlighted – these show large average trade sizes or Professionals. As you can see, you want to follow the Professionals. They were buying the dips and shorting the rallies.
#2 Tick Charts allow you to fade the Amateurs
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. As you can see, you want to fade (i.e. do the opposite of) the Amateurs. They were shorting the dips and buying late into the rallies.
Now I think that information alone would be reason enough to use Tick Charts, but there’s more …
#3 Tick Charts let you get a jump on 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 Emini trading chart above illustrates the point. The Emini spiked up on FOMC-related news. Using a Tick Chart you could see the surge in activity and enter at the bar’s close – say 779. With say a 3 minute chart the entry on close would have got you in closer to 784 – or 5 points worse off!
Hi Barry, I used to use 1 min, 5 min, 15 min charts etc. but found time to be inadequate due to changes in volatility. 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. John G.
#4 Tick Charts let you “see” more cyclical information
A Tick Chart will also allow you to “see” more trade information and work particularly well with cycle analysis. 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.
#5 Tick Charts compress low activity periods
Lastly, a Tick Chart compresses low activity periods, like lunch time, after-hours and overnight trading. This reduces whipsaws and allows more “continuous” analysis between days, with trades setting-up pre-open on a Tick Chart. Or fewer false break-out trades during lunch time.
What Tick Chart settings to use
Best Tick Chart for Emini day trading
The three best Tick Charts for Emini day trading are the 500 Tick, 1,500 Tick and 4,500 Tick Charts. I use these in my multiple time frame (MTF) analysis of the Emini. The lowest timeframe (500 Tick) is great for timing an entry or exit. The intermediate timeframe (1,500 Tick) is great for identifying the trend direction. And the highest timeframe (4,500 Tick) allows you to see the big picture.
Over the years the CME has made various changes to their Globex data feed. And this has created some anxiety for traders and also forced me to change my Emini day trading chart setup.
Prior to October 2009, the Emini charts I used were 233 Tick, 699 Tick and 2,097 Tick. 233 is a Fibonacci number and that’s why it was my starting point. But then with the CME changes in October 2009, I switched to the current chart settings of 500, 1,500 and 4,500 Tick. You can read more about the 2009 CME changes here.
Then in 2020 the CME made even more changes – an update called MDP 3.0. It took the data feed providers all of 2020 to sort out how to handle this update and there were some heart stopping moments along the way. In the end it was all a ‘storm in a teacup’. You can read some of the details in these update panels below:
Update May 2020 – CME changes Tick Chart data (again!)
The CME introduced a new data feed protocol in December 2020 and all data feed providers have to implement it by October 2020. So far only CQG/Continuum has switched over but TradeStation has announced they will switch in August 2020 and other data providers will follow suit.
The new data feed appears to revert back to the pre-October 2009 situation (or close to it), with trades “bundled” and allocated to the “aggressor”. The “un-bundled” order details appear to still be available in the raw data feed but this information might be ignored by data feed providers when they disseminate their data. You can read more about the details in this forum thread and this blog post.
The result is that the average Emini trade size has increased by a factor of approx. 3.1 (based on CQG and TradeStation data for Tuesday 26 May 2020). So if you use CQG/Continuum data you might want to change your Emini Tick Charts to: 150, 450 and 1,350 Ticks.
Update December 2020 – MDP 3.0 was a ‘storm in a teacup’
The new CME data feed (MDP 3.0) turned out to be a ‘storm in a teacup’.
The early mover, CQG/Continuum, switched back from bundled to un-bundled data after, what I assume was, trader outcry. All the data providers, except eSignal, seem to have adopted un-bundled data and there appears to be almost no difference between pre- and post-MDP 3.0 data. The average trade size is virtually identical and Better Pro Am continues to identify Professional and Amateur activity.
If you are an eSignal user, we recommend using a 200 Tick bar chart instead of a 500 Tick bar chart, etc. The bundling of data appears to add a factor of 2.5 with Tick Charts. Otherwise, no changes are required to Tick Chart settings.
Best Tick Chart for Forex trading
Tick Charts are now possible for trading Forex.
With “traditional” cash Forex charts we only know the number of trades during a period of time and not the number of contracts traded. So on a Tick Chart when we plot volume there is no trade volume size. If you want volume information on a cash Forex chart you’ll have to stick with conventional time-based charts and plot Tick count as a proxy.
However, there is another option – futures Forex contracts traded on the CME. These contracts have grown quickly and are now large enough that they are representative of what happens in the cash Forex market. The advantage of these futures contracts is that complete volume data is available and Tick Charts work great.
There’s more information on using the ‘Better’ series of indicators on Forex charts here.
Tick Charts on different charting platforms
No two Tick data feeds are the same.
This is why you’ll never get 2 Tick Charts using different data feeds to match up exactly. On time-based charts, for example a 5 minute chart, there’s not normally a problem. The data from the exchange is time-stamped and your charting platform uses this to draw the bar.
However, with a Tick Chart, new bars are drawn based on the number of trades that have been completed – and this trade count can be:
- Filtered by the data feed provider
- Set to start re-counting at different starting points (e.g. midnight, open, etc.)
- Aggregated to reduce bandwidth requirements by the data feed provider
- Missing trades because of momentary Internet disconnects
- Processed out-of-sequence because of multi-threading on your computer, etc.
Frustrating – I know. But that’s life in the big city. However, for me the advantages of a Tick Chart far outweigh this negative.
Tick Charts and TradeStation
I get a lot of emails from traders asking why their volume indicators don’t look right on a TradeStation Tick Chart. For example, volume histograms that are all the same height. This is easily fixed.
Right click on the chart > select Format Symbol > go to the Settings tab > under For Volume Use you’ll see a pull-down menu > change the setting from Tick Count to Trade Vol. Now the volume indicator on your Tick Chart will reference the trade volume data instead of the Tick count data.
If your Tick Charts are slow to load, your symbol data cache might have been corrupted or become bloated. The solution is to re-build your cache – I do this every 2 to 3 weeks or as soon as I notice my Tick Charts are slow to load. The steps for re-building your cache are explained in Tip #2 here.
Tick Charts and TradingView
TradingView (developed by the makers of MultiCharts) is the future of charting software. What makes it different is that it is 100% web-based – it’s not a stand alone piece of software that has to be coded for Windows or MacOS and installed on your laptop. You just open your web browser and access the TradingView charts and indicators.
However, TradingView is not ready for “professional” trading. Yes, it has great coverage of almost all instruments and exchanges (including all the CryptoCurrencies). But it has two failings. One is that when you re-load a chart from real-time, the data can change. This is almost a fatal flaw.
Secondly, Tick Charts are not yet available on TradingView. This feature has been requested many, many times and TradingView has promised it is in the works. However, as of March 2020, Tick Charts are not available on TradingView.
Tick Charts and Interactive Brokers
The Interactive Brokers (IB) data feed available via their Trader Workstation Software (TWS) is not a true Tick-by-Tick data feed. IB provides snap shots of the trade data several times a second with an aggregate of the trades that took place during that interval. As a result time-based charts (e.g. 5 minute charts) will be correct, however, a Tick Chart constructed using IB data will not.
This article should have convinced you to use Tick Charts:
- Professional and Amateur activity can be seen. With a Tick Chart you can judge the average trade size being traded and hence identify the Professionals and Amateurs.
- The disadvantages of time-based charts are overcome. Tick Charts help you get a jump on breakouts, let you “see” more cyclical information and compress low activity periods.
- Tick Charts are now possible for Forex trading. Getting complete volume data has always been a problem for Forex. The CME futures contracts for Forex are the answer.
- Tick Charts will never match between different data providers. This is just a fact of life. It’s not ideal but in no way should dissuade you from using Tick Charts.
I hope you found this article about Tick Charts helpful.
Tick Charts: What Are They & Why You Should Use Them
Tick charts are day trading charts that measure transactions. I have been using tick charts for over 10 years in my trading because they are very simple to use and highly effective to be able to gauge momentum and strength. Being a day trader for so long, I prefer to keep everything as simple as possible with my day trading strategy. I have always use tick charts for my own personal trading.
Measuring Transactions with Tick Charts
What exactly do tick charts measure? Its the amount of transaction per bar. To give you an example if you have a 610 tick chart, each bar measures 610 transactions per bar. After 610 transaction are over a new bar plots. You can choose a number of different size charts but most traders choose Fibonacci time frame charts (click here to learn more).
How to Read Tick Charts
Being a typical bar chart, there are four different aspects to a tick chart that we can identify. Of those four aspects, we really only pay attention to 3 of them, the open of the bar isn’t important since we are looking to anticipate the future not look at the past.
- Open: Where the new bar opens
- Close: There the bar closes
- High: The high of the bar
- Low: The low of the bar
An example of tick charts
Tick Charts for Forex
You can use tick charts for the Forex markets and many of the traders that I have trained actually use my variation of indicators to trade the 6E, or the futures contract to trade the euro vs the dollar. If you are interested in trading Forex I would recommend using 220 tick chart as your main chart. I’m currently training a handful of traders and only accept a limited number of people a month. If you are interested, contact me via the contact form on this website.
A Note on Data Feeds for Tick Charts
When you are looking for a data feed I would highly recommend that you ask the question whether the data feed will be bundled or not. When it comes to data feeds ticks can either be bundles or not bundled. Below you will find a list of the largest data feed providers and whether or not they bundle their data:
- Tradestation Tick Chart feed: Bundled!
- Interactive Brokers Tick Chart feed: Bundled!
- NinjaTrader feeds: All feed provided by NinjaTrader brokers is unbundled (
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Risk Disclosure: Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.
Performance disclosure. HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN; IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK OF ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL WHICH CAN ADVERSELY AFFECT TRADING RESULTS.
Commodity Channel Index – CCI Definition and Uses
What is the Commodity Channel Index (CCI)?
Developed by Donald Lambert, the Commodity Channel Index (CCI) is a momentum-based oscillator used to help determine when an investment vehicle is reaching a condition of being overbought or oversold. It is also used to assess price trend direction and strength. This information allows traders to determine if they want to enter or exit a trade, refrain from taking a trade, or add to an existing position. In this way, the indicator can be used to provide trade signals when it acts in a certain way.
- The CCI measures the difference between the current price and the historical average price.
- When the CCI is above zero it indicates the price is above the historic average. When CCI is below zero, the price is below the hsitoric average.
- High readings of 100 or above, for example, indicate the price is well above the historic average and the trend has been strong to the upside.
- Low readings below -100, for example, indicate the price is well below the historic average and the trend has been strong to the downside.
- Going from negative or near-zero readings to +100 can be used as a signal to watch for an emerging uptrend.
- Going from positive or near-zero readings to -100 may indicate an emerging downtrend.
- CCI is an unbounded indicator meaning it can go higher or lower indefinitely. For this reason, overbought and oversold levels are typically determined for each individual asset by looking at historical extreme CCI levels where the price reversed from.
The Formula For the Commodity Channel Index (CCI) Is:
How to Calculate the Commodity Channel Index (CCI)
- Determine how many periods your CCI will analyze. 20 is commonly used. Fewer periods results in a more volatile indicator, while more periods will make it smoother. For this calculation, we will assume 20 periods. Adjust the calculation if using a different number.
- In a spreadsheet, track the high, low, close for 20 periods and compute the Typical Price.
- After 20 periods, compute the Moving Average of the typical price by summing the last 20 Typical Prices and dividing by 20.
- Calculate the Mean Deviation by subtracting the Moving Average from the Typical Price for the last 20 periods. Sum the absolute values (ignore minus signs) of these figures and then divide by 20.
- Insert the most recent Typical Price, the Moving Average, and the Mean Deviation into the formula to compute the current CCI reading.
- Repeat the process as each new period ends.
What Does the Commodity Channel Index (CCI) Tell You?
The CCI is primarily used for spotting new trends, watching for overbought and oversold levels, and spotting weakness in trends when the indicator diverges with price.
When the CCI moves from negative or near-zero territory to above 100, that may indicate the price is starting a new uptrend. Once this occurs, traders can watch for a pullback in price followed by a rally in both price and the CCI to signal a buying opportunity.
The same concept applies to an emerging downtrend. When the indicator goes from positive or near-zero readings to below -100, then a downtrend may be starting. This is a signal to get out of longs or to start watching for shorting opportunities.
Overbought and oversold levels are not fixed since the indicator is unbound. Therefore, traders look to past readings on the indicator to get a sense of where price reversed. For one stock, it may tend to reverse near +200 and -150. Another commodity may tend to reverse near +325 and -350. Zoom out on the chart to see lots of price reversal points, and the CCI readings at those times.
There are also divergences. This is when the price is moving one way but the indicator is moving another. If the price is rising and the CCI is falling, this can indicate a weakness in the trend. While divergence is a poor trade signal, since it can last a long time and doesn’t always result in a price reversal, it can be good for at least warning the trader that there is the possibility of a reversal. This way they can tighten stop loss levels or hold off on taking new trades in the price trend direction.
The Difference Between the Commodity Channel Index (CCI) and the Stochastic Oscillator
Both of these technical indicators are oscillators, but they are calculated quite differently. One of the main differences is that the Stochastic Oscillator is bound between zero and 100, while the CCI is unbounded. Due to the calculation differences, they will provide different signals at different times, such as overbought and oversold readings.
Limitations of Using the Commodity Channel Index (CCI)
While often used to spot overbought and oversold conditions, the CCI is highly subjective in this regard. The indicator is unbound and therefore, prior overbought and oversold levels may have little impact in the future.
The indicator is also lagging, which means at times it will provide poor signals. A rally to 100 or -100 to signal a new trend may come too late, as the price has had its run and is starting to correct already. Such incidents are called whipsaws; a signal is provided by the indicator but the price doesn’t follow through after that signal and money is lost on the trade. If not careful, whipsaws can occur frequently. Therefore, the indicator is best used in conjunction with price analysis and other forms of technical analysis or indicators to help confirm or reject CCI signals. (For related reading, see «How Traders Use CCI (Commodity Channel Index) to Trade Stock Trends»)
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