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Tick chart orientation
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Tick chart orientation

  #1 (permalink)
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Tick chart orientation

Traders on this site use a variety of chart types: range, volume, renko, and the standard time-based charts just to name a few.

I wanted to start this thread to discuss my personal favorite, the tick chart. For those who havenít used this kind of chart before, a tick chart creates a new bar after a specified number of trades have been executed. Bars thus form more or less quickly depending on how actively the instrument is trading at a given time. The result is a perspective on price action that naturally conforms with the rhythm of the trading session.

Tick charts have been an indispensable tool as I have developed my own trading style. With just a couple of basic indicators, a tick chart can tell you at a glance such information as whether the market is trending or choppy; when price pressure is nearing overbought or oversold levels; and how far a countertrend pullback is likely to extend without invalidating the current trend. A trader who is fluent with this setup can use it to signal a variety of trades, both with-trend and countertrend.

I will begin with some basic tips on how to set up tick charts for your instrument. As the thread progresses, I will introduce more specifics about how I trade using tick charts. I welcome questions from beginning and experienced traders alike.


Last edited by worldwary; June 1st, 2011 at 04:12 PM. Reason: Added line breaks
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In my experience, the primary advantage of tick charts is that intraday trend moves generally all appear the same, no matter now "steep" the trend or how long it takes the trend the play out. This makes it easier to execute your trades, since you know in advance what you're looking for.


I've attached a couple of charts to illustrate. The first is a five-minute chart showing an entire trading day. Note that there are a few dominant directional moves that play out over different timeframes and at different angles. In the morning is a long-developing, fairly shallow angled downtrend. Late in the afternoon is a quick, steep-angled uptrend that is over in about 15 minutes.


The second chart is a tick chart showing the same trading day. Note how the trend moves tend to occur at the same angle, about 45 degrees for both downtrends and uptrends. This is true regardless how quickly the trend plays out or how steep it appears on a time-based chart.


If you can trade one trend on a tick chart, you can trade them all.

Attached Thumbnails
Tick chart orientation-ym_5_minute_may_31.jpg   Tick chart orientation-ym_tick_chart_may_31.jpg  
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Here's the cool part:

If I add just one indicator to the tick chart, a simple moving average, I can generate a "trendline" that works as a support/resistance level on virtually all trends. See the attached pic for an illustration.

Why does this work the way it does? I don't know, frankly. My best theory is that there is a certain rhythm of buying and selling that tends to recur in most intraday directional moves and that tick charts do a good job of capturing this rhythm. For whatever reason, the important point is this: a simple moving average on a properly calibrated tick chart tends to serve as a decent support/resistance line during intraday trend moves.

Does this mean that you can profitably trade all touches of the SMA in an automated fashion? Unfortunately, no. I'll go into more detail as the thread develops, but the important point is that the SMA acts as support/resistance only when the market is trending. The trader will need to use discretion to determine when the market is trending and therefore when the SMA should be expected to serve as support or resistance.

When I post again (probably not until tomorrow), I'll discuss how to calibrate tick charts to achieve this effect.

(Please add a "thank you" or drop a comment if you're getting something out of this topic; if people are interested I'll keep going.)

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Tick chart orientation-sma_support_resistance.jpg  
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Big fan of tick charts myself, use them on es,ym,tf,nq, and a number of currencies. I don't use the same tick count for all however. seems like some instruments like different numbers. I also rely on kase bars though for some instruments.
Anyway looking forward to seeing what your working with.

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On calibrating tick charts...

To get the effect I mentioned in my prior post, where the SMA acts as a support/resistance line during trends, I find that it's helpful to start with a chart that produces a bar about every 1-2 minutes on average through the course of a trading day. Every instrument produces a different number of bars; the higher the volume, the more bars you can expect. You may need to experiment to get the right tick count.

There are 390 minutes in a standard trading session, so this means you should look for a tick chart that produces around 250-350 bars per session. Some manual counting may be required. Try a tick size and count the bars, then adjust as necessary. This is not an exact science; the number of bars produced will vary day to day based on volume and trading activity.

Once you have a tick size that produces about 250-350 bars on average, you should be able to apply a 12-period moving average to get the support/resistance effect. Think of this as your "base tick chart."

Here are approximate base tick sizes for some of the instruments I have traded:
  • YM: 240 ticks
  • TF: 400 ticks
  • CL: 500 ticks
  • ES: 1200 ticks
One cool thing about tick charts is that once you've worked out the base tick chart, you can use simple math to apply that same 12 SMA support/resistance line on other size charts.

For example, if you use a 12 SMA on a 240 tick chart but want to "zoom in" to see price action more closely, you can use a 120 tick chart (twice as many bars, forming twice as quickly). A 24 SMA on the 120 tick chart is about equivalent to the 12 SMA on the 240 tick chart. In other words, if you double the number of bars on the chart, you should also double the number of bars used in the SMA to get that same support/resistance effect.

I've attached a couple of ES charts to illustrate. First is a 1200 tick chart with a 12 SMA. Notice the downtrend that starts around 10:58. The second chart shows a 400 tick chart (3 times as many bars) with a 36 SMA, zoomed in to the same downtrend. Notice how the SMA acts as a reliable resistance point through the entire directional move, just as the 12 SMA acted as resistance on the 1200 tick chart.

-----------------------------------------------------

"If you must forecast, forecast often."

-- Edgar Fiedler
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Tick chart orientation-es_1200.jpg   Tick chart orientation-es_400.jpg  
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How long have you been using this setup ?
"There are 390 minutes in a standard trading session, so this means you should look for a tick chart that produces around 250-350 bars per session. Some manual counting may be required. Try a tick size and count the bars, then adjust as necessary. This is not an exact science; the number of bars produced will vary day to day based on volume and trading activity."

did you devise this yourself ?

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kbit View Post
How long have you been using this setup ?
"There are 390 minutes in a standard trading session, so this means you should look for a tick chart that produces around 250-350 bars per session. Some manual counting may be required. Try a tick size and count the bars, then adjust as necessary. This is not an exact science; the number of bars produced will vary day to day based on volume and trading activity."

did you devise this yourself ?

I've been trading this general setup for probably 3 or 4 years now. I've figured this all out through lots of trial and error and countless hours spent staring at the screen.

The original spark that turned me on to tick charts was an offhand comment that I read on a message board somewhere (I think it might have been yahoo finance; probably the worst possible source for trading advice by the way). Someone posted a tick chart with some comment about how to know when the trend had been exhausted, and that got me curious enough to start exploring. From there it's all been pretty much on my own.

-----------------------------------------------------

"If you must forecast, forecast often."

-- Edgar Fiedler
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So how can we use this tick chart setup for trading purposes? First some general comments, then on to some specific techniques.


The first thing this tick chart setup can do is give you an important clue about whether your instrument is currently trending. Here's my rule: if the tick chart shows that your instrument is acting like it's trending, then assume it is trending until proven otherwise. If your instrument is acting like it's not trending, then assume chop until proven otherwise.


How does a tick chart look during a trend? Set aside HH/HL concepts for the moment; those are there as well but the setup I'm discussing boils the question down to a more intuitive visual.


As discussed above, during a trend, the 12SMA on the base tick chart tends to act as support/resistance. Thus, during a trend, price will tend to bounce off the 12SMA rather than slice through it.


I've attached some charts below to show some examples of trending versus choppy behavior.

-----------------------------------------------------

"If you must forecast, forecast often."

-- Edgar Fiedler
Attached Thumbnails
Tick chart orientation-clean_trend.jpg   Tick chart orientation-sloppy_trend.jpg   Tick chart orientation-chop.jpg  
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