How tick data is used for Forex trading ? What is a tick chart in forex?
Definition :The bars on a tick chart are created based on a particular number of transactions. While time-based charts draw a new bar after a set period of time, tick charts display a certain number of trades (ticks) before printing a new bar.
The day traders who are trading in forex, shares or futures are referring to charts for getting market related information quickly so that they can take a decision quickly. These charts provide information on the prices, trading activity and use different kinds of criteria like the time, volume, price range or ticks. Many people who are not familiar with forex or other trading will ask the question what is tick data in forex. The charts which are tick based show the changes in the prices of the currencies, after a specific number of trades or transactions called ticks are completed. While for charts which are time-based, a new chart is drawn after a specific period of time, the tick charts will be drawn after a specific number of trades or ticks are completed. For example if the chart will draw a bar graph after 40 transactions are completed, it will be called the 40 tick chart.
Forex tick chart trading is extremely short time trading and systems have huge noise and a lot of losing trades in a row.
Benefits
Since traders analyze the market before taking a decision, the tick charts when used alone or with the conventional time based intraday charts, could help in getting better insights and also additional valuable data. One of the valuable inputs which is provided is the relation between the trade volumes and prices. Since the ticks charts will be generated based on the number of trades, the charts depend to a large extent on the market activities, and they are generated more often when there are more trades. This makes it easier for the trader to notice the volatility and momentum in the market. During low activity periods like after hours or at noon, time based charts will show a few bars, while the tick charts will be generated less often. However, the tick charts will still be useful for spotting trends, resistance and support levels while trading. When the markets are volatile the price fluctuation is indicated in the form of a long candle in time based charts, while the tick charts are more detailed since they provide information about direction, momentum and any reversal. This information may be useful for traders who prefer forex scalping. More symmetry is also noticed for tick charts.
Disadvantages
Forex traders should be aware that only some charting packages and brokers are providing tick data. Also if the trader will compare the tick charts he will often notice that there are differences. Though the tick data is related to the number of completed trades, some of the reasons for the differences are data feeds, aggregation of transactions, differences in calculation, or missing data.
Choosing the number of ticks for the chart
Traders can choose from any number of ticks depending on their personal trading preferences. Charts with ticks corresponding to Fibonacci numbers like 13, 21,34 , are popular with some, while others choose 233, 133 or 33 ticks. Others may choose the number of ticks for their chart depending on their trading duration like five minutes. This allows the user to notice the changes in market volume during slow or peak activity and take decisions accordingly. Some amount of experimentation may be required to determine the right tick chart for a trader.
Trading using tick charts
Forex traders have developed different types of trading strategies which are based on tick charts. Day traders may use 2000-tick charts, while those who prefer price scalping will use 70-tick charts for taking quick decisions. Each trader will have to determine which kind of tick chart is most suitable based on his strategy
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