Stock charts are the maps of the trading world, showing you where prices have been, where they are now and where they might go next. But not all charts are created equal. Some charts use time as the main factor, while others focus on price movements. One of the most popular charts among traders is the tick chart. Tick charts are based on transaction counts rather than the passage of time, giving traders a unique perspective on market activity and momentum.
In this guide, you will learn what tick charts are, how they work and why they can be useful for your trading strategy.
What are Tick Charts?
Tick charts are a type of chart that displays price movements based on the number of transactions or trades rather than time. Unlike time-based charts, tick charts show every single price change, regardless of how long it takes. This can provide more detailed information about the market activity and volatility. For example, a 100-tick chart will show one bar for every 100 trades that occur in the market.
Tick charts vary in speed depending on the market activity. Tick charts will show more bars and details when the market is busy. When the market is slow, they'll display fewer bars and less noise. You can customize tick charts to suit different trading styles and strategies by choosing different tick intervals and chart types, such as line, bar or candlestick.
Why Do Traders Use a Tick Chart?
Traders use tick charts for various reasons, depending on their trading goals and preferences. Some of the main benefits of using tick charts follow.
Decrease Distractions
Tick charts allow traders to focus on the most important price movements and ignore the irrelevant ones. Time-based charts can show many bars with little or no significance, especially during periods of low volatility or consolidation. Tick charts, on the other hand, will only show bars when there is enough trading activity to form them. These patterns can help traders avoid getting side-tracked by noise and false signals and concentrate on the true market direction and sentiment.
Identifying Price Movements
Tick charts can help traders identify price movements supported by high-volume trades, indicating strong buying or selling pressure. Time-based charts often obscure volume information, as they can show the same volume for different time intervals. Tick charts, however, show larger bars for higher-volume trades and smaller bars for lower-volume trades, regardless of the time it takes to complete them. This can help traders spot potential breakouts, reversals, support and resistance levels and other price patterns that may not be visible on time-based charts.
Recognize Trend Exhaustion
Traders can use tick charts to detect when a trend is losing steam and may be about to end or change direction. Time-based charts can sometimes give a false impression of a trend's strength, as they can show many bars in the same direction, even if they have low volume and small price movements. Tick charts, however, show fewer bars in a weakening trend as the number of trades decreases and the price movements become smaller. Traders can then anticipate potential trend exhaustion and prepare for a possible reversal or correction.
Pre-Market and After Hours
Tick charts are useful tools for traders to understand what is happening outside of the regular trading sessions, such as pre-market and after-hours. Time-based charts can be misleading during these periods, showing long gaps or flat lines that do not reflect the actual price movements. Tick charts show every trade in the market, regardless of the time of day. As a result, traders can use tick charts to monitor market activity and sentiment outside of regular official trading hours and adjust their trading plans accordingly.
When Should You Use a Tick Chart?
The best time to use a tick chart depends on the market conditions and your objectives. Generally, tick charts are more effective when the market is liquid and volatile because they can show the changes in supply and demand more clearly. For example, tick charts can be helpful for forex traders who want to trade during major news events or session overlaps to capture rapid price movements and spikes.
Tick charts may not be handy when the market is calm and range-bound because they may show insignificant price movements and false signals. For example, tick charts may not be ideal for stock traders who want to trade during off-peak hours or low-volume periods, as they may miss the bigger picture and long-term trends.
Tick charts are commonly used in the forex market because of their high liquidity and frequent price movements. In currency trading, ticks typically represent the number of transactions executed. Forex tick charts allow traders to closely monitor currency pairs' price action, especially during important news releases or times of heightened volatility.
Tick charts can also be applied to stock trading. However, their usage in the stock market is less widespread than time-based charts. Stocks with high trading volumes and significant price fluctuations are more suitable for tick chart analysis. Day traders focusing on intraday trading or employing specific strategies like scalping might find tick charts beneficial in capturing short-term price movements.
Tick Chart vs. Time Chart
Tick charts and time charts are two types of charts traders use to analyze market movements and trends. Tick charts show the number of transactions or trades that occur in a given time interval, while time charts show the price changes that occur in a fixed time interval. Both charts have advantages and disadvantages depending on the trading style and strategy of the trader.
Tick charts are more responsive and dynamic than time charts, as they reflect the market's actual trading activity and volume. Tick charts can help traders identify breakouts, reversals and support and resistance levels more easily, as they show the fluctuations in demand and supply. Tick charts can filter out the noise and irrelevant price movements that time charts may include.
Time charts are more consistent and standardized than tick charts, showing the same time intervals across different markets and instruments. Time charts can help traders identify long-term trends and patterns more easily to show historical price movements and cycles. Time charts can also provide a clearer overview and comparison of the market conditions and performance that tick charts may obscure.
Tick Charts: A Powerful Alternative Charting Approach
Tick charts provide traders with a unique perspective by emphasizing transaction count rather than time. This alternative charting method offers advantages such as improved clarity, more effective volume analysis, less noise and greater responsiveness to price movements. To incorporate tick charts into your trading strategy, you should select the appropriate tick setting, use complementary indicators and apply pattern recognition techniques.
Frequently Asked Questions
What is the best tick chart for day trading?
The best tick chart for day trading varies depending on the trader’s preferences and the market being traded. Traders commonly use tick charts with 200, 500 or 1,000 ticks per bar to balance capturing price movements and maintaining a manageable chart display.
How long is a tick chart?
A tick chart is not measured in terms of time but rather in terms of the number of transactions or trades. The length of a tick chart depends on the market activity and the number of transactions that occur.
Does Tradingview have tick charts?
Tick charts are not available on TradingView. The platform only supports time-based bars and range bars.
About Anna Yen
Anna Yen, CFA is an investment writer with over two decades of professional finance and writing experience in roles within JPMorgan and UBS derivatives, asset management, crypto, and Family Money Map. She specializes in writing about investment topics ranging from traditional asset classes and derivatives to alternatives like cryptocurrency and real estate. Her work has been published on sites like Quicken and the crypto exchange Bybit.