A new bar that is drawn after a certain number of trades is known as a tick-chart and the chart that is used to mark the price movement during a particular trading session is known as a time-chart. Both charts are essential in the world of finance and trading. The trader will select one or use both as per his requirements. In a tick-chart, a new bar is created, either up or down, following every tick, according to the previous set number of trades. A time-chart differs from a tick-chart in various ways. Its principle is a specific timeframe. It can be configured for different time periods. Both serve different purposes and traders can select any.
Understanding the Basics
The two most popular charts used by the traders are candlestick and bar charts. Both charts provide the same information to the traders. The major difference between the two is that candlestick charts are color-coded, making them more user-friendly.
A trader can create price bars, based on time-charts or tick-charts, using these two types of charts. Both time and tick charts have their shortcomings. Experienced traders often use both the charts to analyze the risk and make a trade. It would be wise to understand all the types of charts in detail.
Tick chart vs Candlestick
One-minute or time-charts are set for numerous time frames. These time frames can be long or short. These can be one-minute, two-minute, or five-minute charts. Though, a trader would use a shorter timeframe for active trading. When the determined time period elapses, a new price bar is formed.
When trading with one-minute charts, a new bar forms every minute. It shows the high, low, open, and closes for that particular period. This leads to the creation of a uniform x-axis on the price. All the price bars are evenly spaced. A trader will get sixty price bars over a period of an hour. As the market can turn completely within a minute, one-minute charts are suitable in highly sensitive trading markets.
512 tick chart
Tick charts are based on the number of transactions rather than the time period. For example, in a 512 tick-chart, a new bar gets created after every 512 transactions, making it more suitable for the traders who make a significant number of transactions in a day. You can keep the ticks as low as 5 and raise the bar as per your needs.
The x-axis of a tick-chart is not uniform like that on a time-chart as there can be active and slower times throughout the day. The most active time is when the market opens. As more transactions are happening during that spell, the tick bars occur rather quickly. When the activities are not as volatile, for example, during the lunch break, it may take some time for even one bar tick to get created.
Tick-Charts vs Time-Charts
There is no right answer or tool in the world of trading. Both tick and time charts are important to study the market and have their set of pros and cons. Which is more suitable for you depends on the trading platform.
A tick-chart would be more useful in a market where the flow of transactions is higher. Here the tick-chart will provide more information than the time-chart. From smaller-scale price movements to a significant price change, the tick-chart will keep the trader more informed. Similarly, when the number of transactions is smaller, a time-chart will be more beneficial. The trader will not have to wait for a certain number of transactions to happen before he can get the required information. Irrespective of everything, a bar will get created every minute.
Consider the time when the time when the market opens. Several tick bars are created within the first minute itself. It tells the trader about the multiple price swings that he can use to his benefit. If he were using a one-minute chart, he would have to wait for an entire minute to receive the data. By that time, he would have lost his window of opportunity.
Consider the lunch break where around ten transactions occur each minute. If you were using a 90-tick chart, you will have to wait for 90 transactions to happen. A trader wouldn’t have received any information the transactions were not enough to curate a new bar. However, he would get information about every minute by using a one-minute chart.
The tick-chart shows a trader the high and low activity timeframes by adapting to the market. Fewer bars means that there is a dip in the number of transactions and vice-versa. The one-minute chart, on the other hand, will keep producing a bar as long as at least one transaction is happening within that minute. They do their work even when the market is slow.
In conclusion, it could be asserted that whether you are considering tick-chart vs time-chart or tick-chart vs candlestick, you cannot hope for a perfect answer. Both charts are important for a trader. He may select the one that suits his needs. Most traders often use both, rather all the charts, within a given day. Every transaction, every minute, every price swing is crucial in trading markets and these charts enable the traders to take calculated risks. These are the tools on which their trading strategy depends. Thus, it can be asserted that neither of the charts is better than the other. Their applications are unique and important.